Category Archives: Income Inequality/Gap

CEO compensation surged in 2017

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, August 16, 2018

What this report finds: This report looks at trends in chief executive officer (CEO) compensation, using two different measures. The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000). The gap between the compensation of CEOs and other very-high-wage earners is also substantial, with the CEOs in large firms earning 5.5 times as much as the average earner in the top 0.1 percent.

The surge in CEO compensation measured with realized stock options was driven by the stock-related components of CEO compensation (stock awards and cashed-in stock options), not by changes in salaries or cash bonuses.

Because the decision to realize, or cash in, stock options tends to fluctuate with current and potential stock market trends (as people tend to cash in their stock options when it is most advantageous 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 at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016.

By either measure, CEO compensation is very high relative to the compensation of a typical worker—and an earner in the top 0.1 percent.

CEO compensation has grown far faster than stock prices or corporate profits. CEO compensation rose by 979 percent (based on stock options granted) or 1,070 percent (based on stock options realized) between 1978 and 2017. The corresponding 637 percent growth in the stock market (S & P Index) was far lower. Both measures of compensation are substantially greater than the painfully slow 11.2 percent growth in the typical worker’s compensation over the same period and at least three times as fast as the 308 percent growth of wages for the very highest earners, those in the top 0.1 percent….

Unequal Cities, Unequal Participation: The Effect of Income Inequality on Civic Engagement

Source: Eric Joseph van Holm, American Review of Public Administration, Online First, Published July 30, 2018
(subscription required)

From the abstract:
Civic participation is a touchstone of American government, yet it has declined steadily over the past 50 years. Alongside changes in the relationship between American citizens and their government has been a stark increase in the levels of income and wealth concentration. While there is strong evidence that income inequality drives down participation at the national level, there have been fewer studies on the effects for local governments. This article studies the relationship between participation in departmental policy making and income inequality at the local level across the United States in a sample of small and mid-sized cities. When accounting for aspects of the government’s structure, local department culture, and community demographics, income inequality has a significant, though mixed, effect on civic participation. While changes in a community’s income inequality diminish the likelihood of citizens participating in government decision making, the present level of income inequality correlates with higher rates of engagement.

Pay No Attention to the Inequality Behind the Curtain! Corporate critics cry foul when SEC releases CEO pay data.

Source: John Miller, Dollars and Sense, no. 337, July/August 2018

It could have been a scene straight out of The Wizard of Oz.

This spring the Securities and Exchange Commission (SEC) began releasing data that exposes the unthinkably high ratio of CEO pay to that of their employees—4,987-to-one in one case. Then corporate critics shouted in near unison to pay no attention to those figures behind the curtain: They are misleading, ginned up merely to inflame class hatred, and sure to be a real downer for workplace morale. But despite the complaints of the defenders of the status quo, the SEC figures accurately portray just how unequal U.S. corporate compensation has become.

Pay Equity: What You Don’t Do Can Hurt You

Source: Maureen Minehan, Employment Alert, Volume 35 Issue 16, August 6, 2018
(subscription required)

$2.66 million. That’s the amount of money the University of Denver has agreed to pay to settle claims it paid full female professors in its law school less than their male counterparts.

Despite warnings that pay equity was high on the Equal Opportunity Commission (EEOC)’s priority list, the institution of higher education allegedly paid female full professors in its Sturm College of Law an average of $20,000 less per year than male full professors for substantially equal work under similar working conditions. The salary disparity wasn’t confined to just a portion of the female full professors. According to the EEOC’s lawsuit, the salaries of all seven female full professors in the school were below the average salary paid to men.

Connecticut in Crisis: How inequality is paralyzing ‘America’s country club’

Source: Jared Bennett, Center for Public Integrity, July 25, 2018

The state is caught in an economic straitjacket and there’s no easy way out…..

…. Blue chip companies like General Electric have either left or are threatening to leave. A yawning budget deficit continues to loom over the state, amplified by some of the nation’s most glaring economic inequality. Greenwich, home to hedge funders and Manhattan corporate titans, and the Norman Rockwell suburbs of Westport, New Canaan and Darien share few priorities with Hartford, New Haven and Bridgeport, gritty cities struggling with searing poverty and fiscal disaster. Connecticut’s political leaders must choose between what seem like equally rotten options: cut services, and push more burden onto the urban poor, or hike taxes, and risk repelling both the suburban rich who pay much of the freight and new businesses that might consider moving here. Put simply, Connecticut is in a bind with precious little room to maneuver.

Connecticut’s troubles are extreme but hardly unique. The recovery that has entrenched Connecticut into the haves and have-nots has been unequal in other regions as well – from Florida to California and down to Texas. As the stock market climbs but wages remain relatively flat, the Constitution State serves as a troubling bellwether of national priorities that seem to favor wealth creation for the few before investments in the broader economy. ….

Federal Tax Cuts in the Bush, Obama, and Trump Years

Source: Steve Wamhoff, Matthew Gardner, Institute on Taxation and Economic Policy (ITEP), Analysis, July 2018

From the introduction:
Since 2000, tax cuts have reduced federal revenue by trillions of dollars and disproportionately benefited well-off households. From 2001 through 2018, significant federal tax changes have reduced revenue by $5.1 trillion, with nearly two-thirds of that flowing to the richest fifth of Americans, as illustrated in Figure 1.

The cumulative impact on the deficit during this period is $5.9 trillion, including interest payments. By the end of 2025, the tally of tax cuts will grow to $10.6 trillion. Nearly $2 trillion of this amount will have gone to the richest 1 percent. By then, the total impact on the deficit will be $13.6 trillion, including interest payments.

This analysis does not include hundreds of billions of dollars in so-called tax cut “extenders” for corporations and other businesses that Congress has periodically enacted under each administration. More detailed figures are provided in the tables in Appendix I…..

Related:
Data Available for Download

New Study Confirms That American Workers Are Getting Ripped Off

Source: Eric Levitz, New York Magazine, July 6, 2018

…. Economists have put forward a variety of explanations for the aberrant absence of wage growth in the middle of a recovery: Automation is slowly (but irrevocably) reducing the market-value of most workers’ skills; a lack of innovation has slowed productivity growth to a crawl; well-paid baby-boomers are retiring, and being replaced with millennials who have enough experience to do the boomers’ jobs — but not enough to demand their salaries.

There’s likely some truth to these narratives.

But a new report from the Organization for Economic Cooperation and Development (OECD) offers a more straightforward — and political — explanation: American policymakers have chosen to design an economic system that leaves workers desperate and disempowered, for the sake of directing a higher share of economic growth to bosses and shareholders.

The OECD doesn’t make this argument explicitly. But its report lays waste to the idea that the plight of the American worker can be chalked up to impersonal economic forces, instead of concrete political decisions. If the former were the case, then American laborers wouldn’t be getting a drastically worse deal than their peers in other developed nations. But we are. Here’s a quick rundown of the various ways that American workers are getting ripped off:

American workers are more likely to be poor (by the standards of their nation). ….
We also get fired more often — and with far less notice. ….
Our government does less for us when we’re out of work than just about anyone else’s. ….
Labor’s share of income has been falling faster in the U.S. than almost anywhere else. ….

OECD Employment Outlook 2018

Source: Organisation for Economic Co-operation and Development, July 4, 2018

The 2018 edition of the OECD Employment Outlook reviews labour market trends and prospects in OECD countries. Chapter 1 presents recent labour market developments. Wage growth remains sluggish due to low inflation expectations, weak productivity growth and adverse trends in low-pay jobs. Chapter 2 looks at the decline of the labour share and shows that this is partially related to the emergence of “superstar” firms, which invest massively in capital-intensive technologies. Chapter 3 investigates the role of collective bargaining institutions for labour market performance. Systems that co-ordinate wages across sectors are associated with better employment outcomes, but firm-level adjustments of sector-level agreements are sometimes required to avoid adverse effects on productivity. Chapter 4 examines the role of policy to facilitate the transition towards new jobs of workers who were dismissed for economic reasons, underlying the need of early interventions in the unemployment spell. Chapter 5 analyses jobseekers’ access to unemployment benefits and shows that most jobseekers do not receive unemployment benefits and coverage has often been falling since the Great Recession. Chapter 6 investigates the reason why the gender gap in labour income increases over the working life, stressing the role of the lower professional mobility of women around childbirth.

Related:
Press release

WEBINARS

Collective bargaining
Collective bargaining systems are at a crossroads in many OECD countries. In this webinar, we will assess the role that collective bargaining systems play for employment, wages, working conditions, wage inequality and productivity (chapter 3 of the publication). We will also discuss what policy-makers, unions and employers’ organisations can do to adapt their national bargaining systems to the challenges of a changing world of work.

The decline in wage growth
10 years after the beginning of the crisis, there are finally more people with a job than before. Yet, wage growth remains considerably below pre-crisis trends. In this webinar, we will address factors behind the persistent wage growth slowdown (chapter 1 of the publication). While low inflation and productivity growth explain much of these patterns, the dynamics of low-pay jobs and the wages associated to them also play a significant, but understudied, role.

KEY COUNTRY FINDINGS
United States

The Case For More Labor Unions Is The Most Obvious Case You Can Possibly Imagine
Source: Hamilton Nolan, splinter, July 5, 2018

….The Organization for Economic Cooperation and Development’s new annual Employment Outlook report is a particularly useful tool for gauging how the United States measures up to the rest of the developed world in terms of economic policies and outcomes. In this context, we have a lot of work to do: “The low-income rate in the U.S. [defined as the share of the working-age population living with less than 50% of median household disposable income] is one of the highest in the OECD,” the report says. “The rate in the U.S. is 14.8% compared to an OECD average of 10.6%. The lowest rate is found in the Czech Republic at just 5.8%.”….

Is it great to be a worker in the U.S.? Not compared with the rest of the developed world.
Source: Andrew Van Dam, Washington Post, Wonkblog, July 4, 2018

The U.S. labor market is hot. Unemployment is at 3.8 percent, a level it’s hit only once since the 1960s, and many industries report deep labor shortages. Old theories of what’s wrong with the labor market — such as a lack of people with necessary skills — are dying fast. Earnings are beginning to pick up, and the Federal Reserve envisions a steady regimen of rate hikes.

So why does a large subset of workers continue to feel left behind? We can find some clues in a new 296-page report from the Organization for Economic Cooperation and Development (OECD), a club of advanced and advancing nations that has long been a top source for international economic data and research. Most of the figures are from 2016 or before, but they reflect underlying features of the economies analyzed that continue today.

In particular, the report shows the United States’s unemployed and at-risk workers are getting very little support from the government, and their employed peers are set back by a particularly weak collective-bargaining system…..

The Anti-Union Janus Ruling Is Going to Hit Black Women the Hardest

Source: Miles Kampf-Lassin, In These Times blog, June 27, 2018

…. Today’s ruling means that all public-sector unions could essentially operate under “right-to-work,” depriving labor of critical funding, increasing the problem of “free ridership” and potentially decimating union membership.

Unions are bracing for the aftermath of the ruling. And mainstream media outlets, which do not generally devote much ink to labor stories, have highlighted the case in headline after headline. Yet what many fail to mention is that Janus would be particularly devastating for one group in particular: African-American women.

Public sector unions have long been a source of economic power for African-American women, who are disproportionately represented in their ranks. A March brief from Celine McNicholas and Janelle Jones at the Economic Policy Institute (EPI) shows that African-American women have the highest share of workers in the public sector—17.7 percent, equaling about 1.5 million workers.

The public sector provides job opportunities for African-American workers, and women especially, at a rate much higher than the private sector. In 2015, African-American women made up 10 percent of government workers, compared to just 6 percent in private-sector employment. ….

Less Bang for Your Buck? How Social Capital Constrains the Effectiveness of Social Welfare Spending

Source: Mallory E. Compton, State Politics & Policy Quarterly, Online First, First Published June 21, 2018
(subscription required)

From the abstract:
Rising economic insecurity in recent decades has focused attention on the importance of social welfare programs in managing household financial stability. Some governments are more effective than others in managing this outcome, and informal social institutions help explain why. Social capital is expected to shape economic security through multiple mechanisms, but whether the effect is to magnify or mitigate volatility is an open question. Part of the answer has to do with how social capital interacts with policy implementation, and whether it conditions the effectiveness of government spending. Evidence from the U.S. states from 1986 to 2010 fails to support a benevolent social capital thesis—not only is social capital associated with greater economic insecurity, there is no evidence that it improves social welfare effectiveness. However, greater spending on some social programs can mitigate the adverse impact of social capital on economic security.