Lifting All Boats

One of the responses to the piece above talks about the ratio of CEO pay:

JF wrote:

Donald, thanks for an interesting piece.Your work on tax/business license rates here vs LA is interesting. Care to comment on the ratio of CEO pay to employee pay? The last figure I saw was that the average CEO now make 430? times what the average employee makes.If they spent some of that on the employees instead of lining their pockets we’d have a good business climate and a good quality of life.

This is a legitimate question. The one of the most significant changes in the U.S. economy since in the last several decades of the 20th century is the shredding of the social contract that formed the basis of the post-war (WWII) growth of the middle class. Before the l980s, we had an economy that, as it grew, truly lifted all boats.

When productivity rose, profits, rose and so did incomes of workers.

But a very significant shift took place since that early 1980’s. Since that time, productivity has increased steadily — some periods slower than others and some periods faster (since 1996-ish, productivity has increased very rapidly) but constantly trended upward.

Unfortunately, the relationship between rising productivity and rising wages was severed. And in that same period, median worker wages have stagnated, typical CEO salaries have seen increases and the salaries of the highest paid CEOs have hit the stratosphere.

A couple of facts to illuminate:

• Between 1970 and 1999, the average wage income increased from $29,046 to $31,422. or about 8%.
• During the same period, the average compensation, adjusted for inflation, of the top 100 C.E.O.’s according to Fortune magazine went from $1.3 million to $37.5 million. This increase represents a 2,884% over 29 years or 112.28% per year. In other words, during the same period, the C.E.O.s’ salaries increased from approximately 45 to 1,193 times the salary of the average worker.

Now there’s nothing wrong with people making money. But as I’ve stated in earlier blogs, one of the greatest threats we face as a nation (and globe) is the rising economic gap between the well-to-do and the rest.

There are a number of driving factors, but the CEO-worker ratio is a key leading indicator. Our challenge is to build a shared-prosperity economy where the rising tide does lift all boats — again.

— DONALD COHEN