• The gap widens The gap widens By St. Louis Post-Dispatch – August 12, 2004 The average CEO of a big company got a 9.1 percent raise last year, bringing his pay to $8.1 million, according to a survey by
• The gap widens
The gap widens
By St. Louis Post-Dispatch – August 12, 2004
The average CEO of a big company got a 9.1 percent raise last year, bringing his pay to $8.1 million, according to a survey by BusinessWeek magazine. That’s 205 times the wage of the average private-sector worker in Missouri.
By contrast, the average American didn’t get a real raise at all. In fact, the wages of work-a-day folks are not keeping pace with the cost of living.
As of July, the average non-supervisory worker in the U.S. saw her pay rise 1.9 percent over the past year. With inflation running at about 3.3 percent, her purchasing power is down.
The gap between the very rich and everyone else is not a new story. It’s been widening for most of the past two decades. These days, the fruits of a rising economy go increasingly to the very prosperous, at the expense of everyone else. And that’s unlikely to change soon.
Boiled down, much of the explanation stems from supply and demand in the labor market. With the national unemployment rate at 5.5 percent (and 6 percent in St. Louis), the job market is a little slack. Employers don’t have to pay top dollar to attract hungry workers, and the slow demise of unions has steadily drained workers’ bargaining clout. The skyrocketing cost of health insurance has also drained money that might have gone to raises.
The job market is slack because America’s economy isn’t producing jobs the way it normally does in an economic recovery. Technology is partly responsible for that. With new equipment and methods, companies today can produce the same amount of goods and services with 4.1 percent fewer workers than a year ago. More productivity, generally, means less need to hire – at least for now.
In addition, the jobs being created today are tilted slightly to the low-paying end of the scale. Employers are quicker to hire workers if they don’t have to pay them much, but may defer on filling higher-paying jobs until they have more confidence that the economy has some forward momentum.
Meanwhile, the economy is chugging along at a growth rate of 3 to 4 percent, producing rising sales.
With wages restrained, the benefits of greater productivity and a reviving economy are going to corporate profits rather than workers’ paychecks. Profits for the largest companies were up 25 percent in the second quarter, the fourth consecutive quarter of 20-plus percent gains. And big profits mean big raises for top executives, who are only too happy to take the credit.
Until top executives voluntarily give up their big salaries and other goodies – or boards of directors take away the cookie jar – the best way to redistribute more of the wealth to the ranks of the average worker is for the economy to grow fast enough to produce more and better jobs. As demand for labor rises, so will wages. That’s what happened in the boom years, when unemployment dropped as low as 3.8 percent in 2000, and nearly everyone beat inflation.
For a brief, shining moment earlier this year, we seemed to be on the right track. From March to May, the nation added an average of 295,000 jobs per month. The nation needs about 150,000 new jobs a month to keep up with the rising population. More than that, and unemployment gradually comes down and wages go up.
Then we stumbled. Retail sales froze in June as consumers suddenly shut their wallets. Car sales fell as the price of oil jumped sharply. The nation added only 78,000 jobs in June, and just 32,000 in July.
Higher interest rates also took some of the air out of the home refinancing boom. The economic boost from tax rebates also was wearing off.
Normally, all this would cause a brief bout of the economic sniffles, followed by faster growth. But a bogeyman is lurking in the oil patch. The price of oil had doubled since early 2002. That has the effect of a massive tax levied on the United States by Latin America and the Middle East. It sucks money out of the country while raising inflation. With oil wells pumping flat out and barely meeting demand, neither OPEC nor President George W. Bush can do much about oil prices right away.
For now, the Federal Reserve is betting that our recent troubles are an economic “soft patch” that we’ll shake off in a few weeks. It sees the economy as “poised to resume a stronger pace of expansion.” Recent rosy figures on factory output and auto sales give some reason for optimism. That’s why the Fed raised short-term interest rates by another quarter of a percentage point Tuesday, as it gradually removes the economic stimulus.
The Fed is probably right. America’s system of lightly-restrained capitalism is a juggernaut that rarely stalls for long. But it’s also subject to rigging by those at the top of the heap. Meanwhile, Washington is doing little to control our monstrous $445 billion federal deficit run amok.
At many U.S. companies, chief executives have been very savvy in populating their boards of directors with like-minded people, mainly other high executives, who weren’t likely to rock the boat. The result is a mutual back-scratching society in which executives vote to raise each others pay in a munificent spiral of greed. That’s a marvelous opportunity for taxation.
