Category Archives: Income Inequality/Gap

Executive Pay: What Worked?

Source: Steven A. Bank, Brian R. Cheffins, Harwell Wells, University of Cambridge Faculty of Law Research Paper No. 38/2016, August 2016

From the abstract:
CEO pay is a controversial issue in America but there was a time, often overlooked today, when chief executives were not paid nearly as much as they are now. From 1940 to the mid-1970s executive pay was modest by today’s standards even though U.S. business was generally thriving. What worked to keep executive pay in check? Economist Thomas Piketty and others credit high marginal income tax rates, leading to calls for a return to a similar tax regime. This paper casts doubt on the impact tax had and also shows that neither the configuration of boards nor shareholder activism played a significant role in constraining executive pay. It emphasizes instead the roles played by strong unions, a different and more circumscribed market for managerial talent, and social norms, explanations that do not easily lend themselves to generating modern policy prescriptions.

Dream On

Source: David Brodwin, U.S. News and World Report, August 22, 2016

Growing inequality has made the American ‘rags to riches’ story more myth than reality. ….

….If you work hard and play by the rules you will get ahead, according to the American Dream. But working hard and playing by the rules now feels like running in place to a lot of Americans. The past few years of economic data justify their complaint: Most of the productivity gains in the U.S. economy have been captured by the top 1 percent, and most working Americans have seen their standard of living plateau rather than rise.

Economic stratification has spurred politically explosive resentments. And these resentments have encouraged economists to seek a better understanding of economic mobility – or the lack thereof. Is America still a land of opportunity despite rising inequality? And is education – often hailed as the key to getting ahead – still an important part of the solution?….
Related:
The Decline in Lifetime Earnings Mobility in the U.S.: Evidence from Survey-Linked Administrative Data
Source: Michael D. Carr, Emily E. Wiemers, Washington Center for Equitable Growth, May 2016

The teacher pay gap is wider than ever: Teachers’ pay continues to fall further behind pay of comparable workers

Source: Sylvia Allegretto and Lawrence Mishel, Economic Policy Institute, August 9, 2016

From the summary:
What this report finds: The teacher pay penalty is bigger than ever. In 2015, public school teachers’ weekly wages were 17.0 percent lower than those of comparable workers—compared with just 1.8 percent lower in 1994. This erosion of relative teacher wages has fallen more heavily on experienced teachers than on entry-level teachers. Importantly, collective bargaining can help to abate this teacher wage penalty. Some of the increase in the teacher wage penalty may be attributed to a trade-off between wages and benefits. Even so, teachers’ compensation (wages plus benefits) was 11.1 percent lower than that of comparable workers in 2015.

Why this matters: An effective teacher is the most important school-based determinant of education outcomes. It is therefore crucial that school districts recruit and retain high-quality teachers. This is particularly difficult at a time when the supply of teachers is constrained by high turnover rates, annual retirements of longtime teachers, and a decline in students opting for a teaching career—and when demand for teachers is rising due to rigorous national student performance standards and many locales’ mandates to shrink class sizes. In light of these challenges, providing adequate wages and benefits is a crucial tool for attracting and keeping the teachers America’s children need.
Related:
Press Release

The Morale Effects of Pay Inequality

Source: Emily Breza, Supreet Kaur, and Yogita Shamdasani, National Bureau of Economic Research (NBER), NBER Working Paper No. 22491, August 2016

From the abstract:
The idea that worker utility is affected by co-worker wages has potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether co-workers within production units receive the same flat daily wage or different wages (according to baseline productivity rank). For a given absolute wage, pay inequality reduces output and attendance by 0.24 standard deviations and 12%, respectively. These effects strengthen in later weeks. Pay disparity also lowers co-workers’ ability to cooperate in their selfinterest. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.

Ever-Growing Gap: Without Change, African-American and Latino Families Won’t Match White Wealth for Centuries

Source: Chuck Collins, Dedrick Asante-Muhammed, Josh Hoxie and Emanuel Nieves, Institute for Policy Studies, August 2016

From the summary:
Racial and economic inequality are the most pressing social issues of our time. In the last decade, we have seen the catastrophic economic impact of the Great Recession and an ensuing recovery that has bypassed millions of Americans, especially households of color. This period of economic turmoil has been punctuated by civil unrest throughout the country in the wake of a series of high-profile African-American deaths at the hands of police. These senseless and violent events have not only given rise to the Black Lives Matter movement, they have also sharpened the nation’s focus on the inequities and structural barriers facing households of color.

However, even when these economic inequities do get attention, the focus is often on a single facet of the issue: income. The new report Ever-Growing Gap, published by the Institute for Policy Studies and the Corporation for Enterprise Development, focuses instead on a related but distinct facet of the issue: the essential role that wealth plays in achieving financial security and opportunity. It examines our country’s growing racial wealth divide and the trajectory of that divide.

This growing wealth divide is no accident. It is the result of public policy designed to widen the economic chasm between white households and households of color and between the wealthy and everyone else. In the absence of significant reforms, the racial wealth divide—and overall wealth inequality—are on track to become even wider in the future….

CEOs make 276 times more than typical workers

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, Economic Snapshot, August 3, 2016

The compensation of the CEOs of the largest firms has grown much faster than stock prices, corporate profits and the wages of the top 0.1 percent. But the most dramatic difference is between the compensation of CEOs and the compensation of typical workers is that from 1978 to 2015 CEO compensation grew 941 percent while the compensation of a typical worker grew just 10 percent….

It’s Tax Not Trade (Stupid)

Source: Edward J. McCaffery, USC Gould School of Law, USC CLASS Research Papers Series No. CLASS16-20, USC Law Legal Studies Paper No. 16-22, July 19, 2016

….The simple fact is that globalization and free trade are good for economies, as Adam Smith taught us in 1776 and as a decent high school economics class can prove today. The trouble in America is that the gains from trade are not being shared. The rich who can live off their capital or wealth rather than by the sweat of their brows are the big winners from globalization; workers are the big losers.

Spreading the wealth from those who benefit most from social changes to those who are harmed by them is the responsibility of our tax system. Yet tax has failed miserably in this role. In fact, tax as it now stands is not even designed to collect from the wealthy. And no candidate — on the right, left, or middle — has any serious plan to change this fact. Indeed, Trump and his fellow Republicans continually vow to cut taxes on the wealthiest, further benefitting globalization’s winners while adding to the pain of its losers.

In sum, tax not trade is what ought to be changing, and rich Americans, not workers worldwide, ought to be paying more to help their fellow citizens…..

Serfdom Without Overlords: Lawyers and the Fight Against Class Inequality

Source: Eli Wald, University of Louisville Law Review, Vol. 54 No. 269, 2016
(subscription required)

From the abstract:
Lawyers are not very engaged in the public discourse about class inequality in America, reflecting a belief that class inequality is primarily an economic and political problem rather than a legal one. Because lawyers are not commonly perceived to be a cause of the class problem, some believe that lawyers should not be part of the solution. This article challenges the legal profession’s passive stance on class inequality, arguing that all lawyers have an important role to play in the fight against inequality.

The article first identifies a class challenge for lawyers, the rise of an increasingly segregated and stratified legal profession, based on attorneys’ socioeconomic status, showing that the well-documented and growing opportunity gap among our kids will result in a growing opportunity gap among our lawyers. It then disproves an enticing retort dismissing the growing opportunity gaps among our kids and lawyers as somebody else’s problems, asserting that lawyers in their (neglected) role as public citizens have a special duty to address inequalities affecting our kids, and that lawyers as officers of the legal system must combat inequality within the profession.

The rest of the article explores the means by which law schools, law firms, lawyers and the organized bar can and should help fight class inequality. Its main claim is that all lawyers must take part in a capital campaign designed to narrow our kids’ and lawyers’ opportunity gaps, a campaign involving no expenditure of economic capital. Rather, American lawyers, the affluent as well as the less prosperous, possess ample social and cultural capital — connections, relationships, and ties, as well as knowledge, information, and experience — which are the very assets that explain the opportunity gaps.

Law schools amplify lawyers’ opportunity gap by using admission, teaching and grading policies that privilege the affluent at the expense of the less fortunate, and can become part of the solution by replacing these criteria with policies that give everybody an equal opportunity to be admitted and excel based on merit considerations. Law firms systematically, if implicitly, trade in and rely on their lawyers’ social, cultural, and identity capital to make hiring and promotion decisions. They can become part of the solution by transparently acknowledging the role of social, cultural, and identity capital in their practices and providing all lawyers equal opportunities to acquire the requisite capital needed for success within their ranks. Lawyers, in turn, must lend their social and cultural capital assets to help build the capital endowments of the underprivileged. Finally, the organized bar must act as an intermediary connecting lawyers with disadvantaged kids and lawyers, and support the roles of lawyers as public citizens and officers of the legal system. In sum, the legal profession can and should play a meaningful role in narrowing the opportunity gap afflicting our kids and our lawyers.

Accounting for Inequality: Questioning Piketty on National Income Accounts and the Capital-Labor Split

Source: Charles Reitz, Review of Radical Political Economics, Vol. 48 no. 2, May 2016
(subscription required)

From the abstract:
Piketty’s study of capital and inequality, especially the distribution of the national income through a “capital-labor split,” is examined and compared with a model developed from data sets from the U.S. Department of Commerce. Piketty’s inclusion of executive supersalaries as labor income is questioned as over-estimating labor’s share of national income distribution and labor’s role as a causal factor in the intensification of inequality.