Minimum Wage Perspective: CEOs Earn 331 Times the Average U.S. Worker

After the wave of retail worker strikes that swept across the United States in 2013, the issue of minimum wage was again propelled into the forefront of the national debate in 2014 by President Barack Obama’s State of the Union Address. “Americans understand that some people will earn more than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success,” said the president, who asked Congress in last year’s address to lift the minimum wage. “But Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty.”

While Congress failed to pass any minimum wage legislation last year, five states — Connecticut, Delaware, Maryland, Minnesota, and West Virginia — plus Washington, D.C., have already enacted increases so far this year. And as part of the Obama administration’s pledge to make 2014 a year of “action,” with increasing the federal minimum wage a key plank, the White House has continued to campaign for a significant hike. However, as the president noted in his January address, to ensure that minimum wage increases reach the millions of Americans now working for $7.25 an hour, “Congress needs to get on board.”

CEO-to-Worker Pay Ratio, Source: AFL-CIO

 

“America is supposed to be the land of opportunity, a country where hard work and playing by the rules would provide working families a middle-class standard of living. But in recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high,” says the introduction of an annual executive pay watch report compiled by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).

That report found that in 2013, chief executive officers of U.S.-based companies earned an average of 331 times more than the American worker and 774 times more than a minimum wage salary. For clarity, the average American worker took home $35,239 last year, while a full-time worker making the federal minimum wage earned $15,080. Of course, the CEO-to-worker comparison is not exact –the AFL-CIO’s measure of CEO compensation includes such perks as stock options and equity awards, while workers’ compensation excludes pensions and employer contributions to 401(k) plans.

Only exacerbating the disparity between the salaries paid to chief executives and the salaries earned by average American workers is the fact that the federal minimum wage of $7.25 per hour is “worth about 20 percent less than it was when Ronald Reagan first stood here,” Obama said from Speaker of the House’s dais during his January 28 address to the joint session of Congress.

Calculations made by the left-leaning think tank Economic Policy Institute, using U.S. Census data, found that the minimum wage hike would boost the incomes of 2.5 million low-wage American workers in 2014. Overall, the White House estimates that the wage hike would impact 28 million American workers.

The AFL-CIO report found that companies that employ low-wage workers are “fueling this growing economic inequality.” In 2013, the chief executives of the companies included on Standard & Poor’s 500 Index received average compensation of $11.7 million, according to the union’s analysis of the available data from 350 companies. This translates to average annual earnings of $41,249 per employee for each chief executive last year — a 38 percent increase from the prior year. At this level, companies are earning higher profits per employee than they did five years ago.

But America’s largest corporations still argue that they cannot afford to raise wages. The nonpartisan Congressional Budget Offic calculated that lifting the federal minimum wage to $10.10 — as Obama has proposed — would cost the private sector $15 billion. “Essentially, a minimum wage hike is a $15 billion tax on businesses that employ low-wage workers,” noted the right-leaning Manhattan Institute in an April 21 analysis of the CBO report. “This would discourage the employment of such employees. An unintended consequence of the bill is that the low-skill workers the bill’s sponsors are trying to help would be the ones most negatively affected.”

According to the CBO’s central estimate, increasing the minimum wage to $10.10 would “reduce employment by roughly 500,000 workers,” or 0.3 percent, in the second half of 2016. That decrease would be the “net result” of two phenomena: a decrease in jobs for low-wage workers (because of their greater cost) and a slightly smaller increase “of a few tens of thousands of jobs” because of the greater demand for goods and services that the wage increase allowed.

Starbucks CEO Howard Schultz and Costco’s Craig Jelinek may believe that the president’s efforts to increase minimum wage is laudable, but they are in a minority. The opposition position was set out in broad strokes by Duquesne University professor Antony Davies in video tutorial posted to EconomicFreedom.org, an online campaign created by the Koch brothers to educate the American public on the impact of government regulations on economic freedom. “The minimum wage sounds nice on the surface: workers earning $8 per hour would certainly be better off if they were earning $12 per hour instead,” reads the video’s description. “But…the minimum wage does not force employers to pay a particular wage to every worker; it forces employers to pay a particular wage to every worker they choose to keep. While the minimum wage may be well-intentioned public policy, it often hurts the very workers most in need of our help.” In essence, that is what CBO data suggest.

Generally, Republican lawmakers in Congress echo the insistence of corporate executives that a federal minimum wage hike would do more damage than good, with the speaker of the House — Republican John Boehner of Ohio — arguing that an increase in the federal minimum wage will cause a pullback in hiring that the nation can ill afford. Republican lawmakers also claim that Democrats’ focus on the minimum wage issue is a political ploy meant to appeal to low-wage-earning voters.

Lawmakers in Congress may be divided, but the American public generally supports an increase to the federal minimum wage. As Charles M. Blow wrote in a recent opinion piece for The New York Times, the the minimum wage debate “resonates so profoundly with so many” because “we know what it feels like to not have enough money after you’ve busted your body with too-hard work. We know the worry in parents’ eyes as they sit around a dinner table littered with more bills than dollar bills, trying to figure out whom to pay and how to save.” That is the narrative woven by the Obama administration’s rhetoric and survey data. Recent polls show strong support for creating a higher wage floor. According to a 2013 Gallup poll, 71 percent of adults — -including 91 percent of Democrats, 68 percent of independents and 50 percent of Republicans — said they would vote for a law that would lift the federal minimum wage to $9 per hour on Election Day if such a measure was on the ballot.

Comparatively, a November Gallup poll found that small businesses were divided on the issue of increasing the federal minimum wage, with approximately half of respondents favoring an increase and half against it. More importantly, a report from the National Employment Law Project showed that “the majority (66 percent) of low-wage workers are not employed by small businesses, but rather by large corporations with over 100 employees.”

The argument for minimum wage has been made by a great number of leaders — from Obama to Pope Francis to Rep. Senator Marco Rubio of Florida to Warren Buffett — who all agree that an increase is needed to overcome the economically and politically unsustainable levels of income inequality. As economist Robert Reich – a University of California, Berkeley professor and a former Labor Department secretary — explained, the problem is that American lawmakers have forgotten an important lesson learned in the 30 years following World War II. During that time period, the nation discovered that “broadly shared prosperity isn’t just compatible with a healthy economy. It’s essential to it,” he wrote in an essay published on February 13 in the Detroit Free Press. That is the basis of what is known as the post-war social contract.

“America’s real job creators are consumers,” Reich wrote. “If average people don’t have decent wages, there can be no real recovery and no sustained growth. In those years [following the Second World War], business boomed because American workers were getting raises and had enough purchasing power to buy what expanding businesses had to offer. Between 1946 and 1974, the economy grew faster than it has grown since, on average, because the nation was creating the largest middle class in history. The overall size of the economy doubled, as did the earnings of almost everyone. CEOs rarely took home more than 40 times the average worker’s wage, yet they were riding high.”

But times have changed. In 2013, for the fourth consecutive year, the real median weekly earnings for full-time workers fell slightly, while corporate profits soared. In the third quarter of last year, corporate profits accounted for 14.6 percent of national income. Except for the last quarter of 2011, it was the highest share recorded in any quarter since 1947, when economists began tracking that data. It is not unnatural for corporate profits to increase in advance of wages, but the growth disparity between profits and earnings is by no means a new trend — it is 55 months old, meaning it is middle-aged, given that the average lifespan of the past five economic expansions is 76 months.

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