I’m No Economist, But…

It’s an old story, the growing gap between rich and poor, and it’s probably booring as hell to most. Thing is, I fear it’s shaping America in more ways than can be counted. I’ve been at a loss to make a clean argument about this, so all I can do now is give you this: Across the Great Divide:

In 1999, CEOs made 458 times as much as production and non-supervisory workers. If minimum wage had risen during the 1990s as rapidly as CEO pay, it would have been $24.13 an hour by 1999 instead of $5.15. Less in the realm of fantasy, if wages had at least kept pace with productivity, which rose 46.5 percent from 1973 to 1998, the median wage would have risen to $17.27 an hour, rather than $11.29, giving $12,438 more a year to full-time workers.

And it behoves me to ask, why does the Federal Reserve Bank, when setting percentage rates, not consider executive salary increases as signs of inflation? How can executive salaries increase 400% in ten years, but not set off alarm bells among those who watch the economy?

One thought on “I’m No Economist, But…

  1. You raise some interesting questions. I suggest a few things to consider.

    First, the gap between earnings among the rich will always be growing. I am 20 now and make slightly above minimum wage, and Bill Gates has many billions of dollars. When my little brother (who is 10) is my age he will make a little more than minimum wage just like I did, but Bill Gates will have had 10 more years to increase his assets and will certainly be richer by many millions. The gap grows because what “rich” means is always changing, but poor is always poor.

    Next, there are several theories that explain the huge salaries of CEOs. I find the most effective to be the tournament theory, wherein senior company officials all compete for the CEO spot. The CEO’s massive salary is less to compensate him and more to entice the next level down to work hard in the hopes that they might unseat him.

    Lastly, the primary goal of the Federal Reserve is stable prices, not wages. Generally a change in the aggregate price level will cause a change in the aggregate wage, but you make too big a leap here. For one thing, the relationship only works one way, not the reverse. Also, CEOs make up a tiny portion of the labor market. If I win the lottery my own income increases dramatically, but it causes virtually zero change in the aggregate wage level.

    I’d love to hear your thoughts on this.

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