Category Archives: Income Inequality/Gap

CEO pay remains high relative to the pay of typical workers and high-wage earners

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, July 20, 2017

From the summary:
What this report finds: This report looks at trends in CEO compensation using two measures of compensation. The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2016 CEOs in America’s largest firms made an average of $15.6 million in compensation, or 271 times the annual average pay of the typical worker. While the 2016 CEO-to-worker compensation ratio of 271-to-1 is down from 299-to-1 in 2014 and 286-to-1 in 2015, it is still light years beyond the 20-to-1 ratio in 1965 and the 59-to-1 ratio in 1989. The average CEO in a large firm now earns 5.33 times the annual earnings of the average very-high-wage earner (earner in the top 0.1 percent).

Because the decision to realize, or cash in, stock options tends to fluctuate with current and potential stock market trends (since people tend to cash in their stock options when it’s most advantageous for them to do so), we also look at another measure of CEO compensation to get a more complete picture of trends in CEO compensation. This measure tracks the value of stock options granted, reflecting the value of the options at the time they are granted. By this measure, CEO compensation rose to $13.0 million in 2016, up from $12.5 million in 2015.

By either measure CEO compensation is very high relative to the compensation of a typical worker or even that of an earner in the top 0.1 percent, and it has grown far faster than stock prices or corporate profits. The explanation for the falloff in CEO compensation associated with realized stock options is unclear: neither stock prices nor an accumulation of unexercised options provide an explanation. It will be interesting to see if this trend continues….
Related:
Press release

U.S. slips to 17th in retirement security index

Source: Meaghan Kilroy, Pensions & Investments, July 19, 2017

The U.S. ranks 17th globally in retirement security, down three spots from last year, the Natixis Global Asset Management 2017 Global Retirement Index shows. The index, launched in 2013, assesses how well retired citizens live in various nations across four broad categories — health, finances, material well-being and quality of life. The 2017 index was released Wednesday. Forty-three countries with developed retirement systems were assessed in 2017, the same number as last year. Natixis, in a report accompanying this year’s release, attributed part of the decline in the U.S. ranking to “lagging life expectancy and a growing gap in economic opportunity.”….

Related:
2017 Global Retirement Index
Source: Natixis Global Asset Management, July 2017

Why poverty is not a personal choice, but a reflection of society

Source: Shervin Assari, The Conversation, June 30, 2017

…. I believe one reason the United States is cutting spending on health insurance and safety nets that protect poor and marginalized people is because of American culture, which overemphasizes individual responsibility. Our culture does this to the point that it ignores the effect of root causes shaped by society and beyond the control of the individual. How laypeople define and attribute poverty may not be that much different from the way U.S. policymakers in the Senate see poverty.

As someone who studies poverty solutions and social and health inequalities, I am convinced by the academic literature that the biggest reason for poverty is how a society is structured. Without structural changes, it may be very difficult if not impossible to eliminate disparities and poverty. ….

The Motherhood Wage Penalty by Work Conditions: How Do Occupational Characteristics Hinder or Empower Mothers?

Source: Wei-hsin Yu, Janet Chen-Lan Kuo, American Sociological Review, OnlineFirst, Published July 3, 2017
(subscription required)

From the abstract:
Mothers are shown to receive lower wages than childless women across industrial countries. Although research on mothers’ wage disadvantage has noted that the extent of this disadvantage is not universal among mothers, it has paid relatively little attention to how the structural characteristics of jobs moderate the price women pay for motherhood. Using data from 16 waves of the National Longitudinal Survey of Youth that began in 1997, we examine how the pay gap between mothers and non-mothers varies by occupational characteristics. Deriving hypotheses from three prominent explanations for the motherhood wage penalty—stressing work-family conflict and job performance, compensating differentials, and employer discrimination, respectively—we test whether this penalty changes with an occupation’s exposure to hazardous conditions, schedule regularity, required on-the-job training, competitiveness, level of autonomy, and emphasis on teamwork. Results from fixed-effects models show that the wage reduction for each child is less in occupations with greater autonomy and lower teamwork requirements. Moreover, mothers encounter a smaller penalty when their occupations impose less competitive pressure. On the whole, these findings are consistent with the model focusing on job strain and work-family conflict, adding evidence to the importance of improving job conditions to alleviate work-family conflict.

Special Issue: Reforming State and Local Tax Systems

Source: Public Finance Review, Volume: 45, Number: 4, July 2017
(subscription required)

From the introduction:
State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Articles include:
What Drives State Tax Reforms?
James Alm, Trey Dronyk-Trosper, Steven M. Sheffrin

State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.


Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

Gary C. Cornia, R. Bruce Johnson, Ray D. Nelson

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.

Reducing Property Taxes on Homeowners: An Analysis Using Computable General Equilibrium and Microsimulation Models
Andrew Feltenstein, Mark Rider, David L. Sjoquist, John V. Winters

We consider a proposal that reduces by half the taxes on homesteaded properties and replaces the lost revenue by increasing the base and rate of the state sales tax. We develop a computable general equilibrium (CGE) model and a microsimulation model (MSM) to analyze the economic and welfare effects of such a proposal if adopted in Georgia. The results from the CGE model suggest that the proposed reforms have a substantial negative effect in percentage terms on Georgia’s economy. The MSM suggests that such a policy has no effect on the distribution of consumption by income class but increases the percentage of owner-occupied housing relative to rental housing by 20 percent in the aggregate.

Does Perception of Gas Tax Paid Influence Support for Funding Highway Improvements?
Ronald C. Fisher, Robert W. Wassmer

The issue for this research is whether perception of the rate and amount of fuel taxes paid by an individual influences his or her support for funding highway improvements from any source of revenue. A survey of likely California and Michigan voters demonstrates that they often overestimate the rate of their state’s gasoline excise tax and the subsequent amount they are likely to pay for this tax in a month. Regression analyses show that voter misperceptions concerning the magnitude of state fuel taxes affect their views regarding an increase in funding to support highway investment proposals. A reasonable policy implication is that the adoption of proposals to generate additional funds for highway investment is more likely if accompanied by a campaign identifying the existing rate of the state’s gasoline excise tax and the relatively small amount of this tax paid by the state’s typical driver.

State Export Promotion and Firm-level Employment
Andrew J. Cassey, Spencer Cohen

Most US states have export promotion programs, but it is unknown if these programs create long-term employment, which is often the policy’s stated goal. We merge administrative export promotion and employment data from Washington State to test the effect of firm-level export promotion on firm-level employment using the differences-in-differences estimator. We believe we are the first to have US state data at this level of detail. We find firm participation in an export assistance program increases firm-level employment fleetingly, but not in subsequent periods. Thus, we do not find a statistically significant impact to long-term employment from program participation.

Protecting the Vulnerable or Ripe for Reform? State Income Tax Breaks for the Elderly—Then and Now
Ben Brewer, Karen Smith Conway, Jonathan C. Rork

State governments have a long history of providing income tax relief to their elderly constituents. Our research investigates the current distributional and revenue effects of these tax breaks, as well as the economic status of the elderly, and explores how these measures have changed since 1990. Using data from the 1990 Integrated Public Use Microdata Series and the 2013 American Community Survey, combined with the TAXSIM calculator, we calculate current state income tax liabilities and revenues and simulate the effects of removing all age-related tax breaks. Our analyses reveal that the economic well-being of the elderly has grown substantially relative to the nonelderly and that state tax breaks primarily benefit the middle- and upper-income elderly. Revenue costs of these tax breaks have also grown substantially, and their modest and mixed effects on income equality, measured by changes in the Gini, cast doubt on equity as a justification.

Wage Discrimination: Behind the Numbers

Source: Jocelyn Frye and Kaitlin Holmes, Center for American Progress, July 5, 2017

Equal pay is often framed in the public debate as being solely a women’s issue. But a close look at the data reveals that wage discrimination is a problem experienced by many different groups, including women, men, older workers, and workers with disabilities.

A review of Equal Employment Opportunity Commission (EEOC) charge filings data—both public and unpublished—helps paint a diverse and nuanced picture of wage discrimination claims. Having a clearer, more accurate understanding of wage discrimination is essential in identifying the breadth of the challenges facing workers and the most effective solutions in response to the needs of workers.

The majority of wage discrimination charges alleging discrimination based on gender are filed by women. But a portion of gender-based wage discrimination charges are also filed by men. A review of unpublished EEOC data from the past four fiscal years shows that men filed, on average, 15 percent of gender-based wage discrimination charges…..

Global earnings inequality: Evidence from a new database

Source: Olle Hammar, Daniel Waldenström, VoxEU, July 3, 2017

Recent studies have analysed trends in global income inequality, but for most people in the world, labour earnings represent the vast majority of their income. This column uses a new global database on occupational earnings since 1970 to examine trends in earnings inequality between countries’ high- and low- earners, between countries, and between occupational groups. Global earnings inequality has fallen over the past half-century, and so has inequality within occupations, with main equalisation in the late 1990s and 2000s.

White House Women Face Bigger Gender Pay Gap Than National Average

Source: Sofia Lotto Persio, Newsweek, July 3, 2017

Women working in U.S. President Donald Trump’s White House earn less than men on average, according to new data. 

The White House released salary information of its 377 staffers on June 30 in line with a Congressional rule dating back to 1995. The data revealed that the White House has a wider gender pay gap than the national average. The average gender pay gap in the U.S. in 2016 was 18.1 percent, meaning that for every dollar earned by a man, a woman earned 81.9 cents, according to data from the Organization for Economic Co-operation and Development (OECD).

But the gender pay gap in the White House stands at 20 percent, CNN reported, with women earning 80 cents to every dollar earned by a man. The difference in pay does not neccessarily mean that women’s salaries are lower for doing the same job, but that there are less women in high-paid roles.

Unions, Workers, and Wages at the Peak of the American Labor Movement

Source: Brantly Callaway, William J. Collins, National Bureau of Economic Research, NBER Working Paper No. 23516, June 2017
(subscription required)

From the abstract:
We study a novel dataset compiled from archival records, which includes information on men’s wages, union status, educational attainment, work history, and other background variables for several cities circa 1950. Such data are extremely rare for the early post-war period when U.S. unions were at their peak. After describing patterns of selection into unions, we measure the union wage premium using unconditional quantile methods. The wage premium was larger at the bottom of the income distribution than at the middle or higher, larger for African Americans than for whites, and larger for those with low levels of education. Counterfactuals are consistent with the view that unions substantially narrowed urban wage inequality at mid-century.

The new American way—how changes in labour law are increasing inequality

Source: Mark Stelzner, Industrial Relations Journal, Early View, First published: 27 June 2017
(subscription required)

From the abstract:
How have changes in labour law affected income inequality in the United States over the last half century? Curiously, even though employers have increased the degree to which they break labour law, workers have decreased their utilisation of the National Labor Relations Board (NLRB) and the strike. How do we understand the unwillingness of labour to utilise the NLRB and the strike when under increasing attack? To answer these interrelated questions, I analyse three central changes in federal labour law and norms from the middle of the 20th century to present: the usage of permanent replacement workers, adjudication of the main federal labour law—the National Labor Relations Act—and change in administration of the NLRB—the body charged with overseeing the National Labor Relations Act.