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Were Top Corporate Executives Really Hogging Workers’ Wages?

Posted on Sep 18, 2014

Photo by jbelluch (CC BY-ND 2.0)

By Andrew Kliman

(Page 3)

BC&H’s unpublished data tell us how much the total income of top salaried managers increased. To assess how much their employee compensation increased, we also need to know how much of their total income (apart from capital gains) consisted of compensation and how much consisted of interest payments, dividends and other kinds of income. BC&H do not report this, however, so the figures must be estimated.

If we assume, unrealistically, that all of the income of salaried managers in the top 0.1 percent was employee compensation—that is, that they received no interest, dividends, etc.—then the BC&H data imply that their share of business-sector Net Domestic Product rose by a mere 0.4 percentage points as of 2005—in effect, not at all. The corresponding figure for salaried managers in the top 1 percent group is 0.5 percentage points. [13]

However, top salaried managers must have received some income in addition to compensation. It thus seems more realistic to assume that the relative sizes of their dividend, interest and wage-and-salary income were equal to those of others in their income group, and that the remaining share of their income (business income, rental income, and nonwage compensation) was small enough to be safely ignored. These alternative assumptions lead to results that differ only slightly from those above. The share of the product captured by salaried managers in the top 0.1 percent once again rises by 0.4 percentage points as of 2005. The corresponding figure for salaried managers in the top 1 percent is now 0.6, rather than 0.5, percentage points. 

Since these estimates depend partly on assumptions about the employee-compensation share of supermanagers’ income, they are a bit rough. Yet a wide range of other reasonable assumptions—including those that imply that supermanagers’ compensation rose much more rapidly than their total income—lead to quite similar results. [14] It therefore seems extremely unlikely that the rising compensation of top salaried managers boosted their share of business-sector Net Domestic Product by even 1 percentage point.

Effect of Rising Supermanager Pay on Other Employees

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Since the share of Net Domestic Product that represents top salaried managers’ compensation increased negligibly, the resulting decline in other employees’ share was also negligible. The graph below presents my estimate of the share of the product obtained by other employees between 1979 and 2005 as well as the share they would have obtained if that of the top salaried managers’ had not risen at their expense. [15] The difference between what they actually received and what they would have received is quite minor. (Moreover, their actual share does not trend downward to a significant degree. This implies that the slight rise in the supermanagers’ share did not seriously depress other employees’ share.)

The graph makes clear that, criticisms of my previous article notwithstanding, the failure of corporate profits to rise at the expense of employee compensation was no “statistical mirage.” Whether we use the government’s definitions of “profit” and “compensation” (as I did in that article), or reclassify supermanagers’ pay as profit and count only other employees’ compensation as “true” compensation (as I have done in the graph), employees’ share of Net Domestic Product remained basically unchanged over time.

In dollar terms, my estimates imply that if compensation captured by salaried managers in the top 0.1 percent had not risen at their expense, other employees’ compensation in 2005 would have been about $36 billion greater. If compensation captured by salaried managers in the whole top 1 percent had not risen at their expense, other employees’ compensation would have been about $50 billion greater. Spread among more than 100 million employees, this is not a great deal of money. Additional compensation of $36 billion amounts to $342 per employee, or about 20 cents per hour more. Additional compensation of $50 billion amounts to $480 per employee, or about 28 cents per hour more. [16]


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