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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 4)

Although average (mean) compensation fully kept pace with productivity between 1970 and the Great Recession, the typical (median) worker’s compensation increased somewhat more slowly. Yet since rising compensation of supermanagers did not greatly reduce other employees’ pay, it is responsible for very little of the growth in the gap between median and average compensation. To estimate the total size of this median/average compensation gap, we can look at data accompanying a 2012 paper by Lawrence Mishel of the Economic Policy Institute and Kar-Fai Gee, now employed at the Canadian Department of Finance. Their estimates imply that the typical worker’s hourly compensation, $17.70 in 2005, would have been $21.16 if his or her compensation had kept pace with the hourly compensation of the average employee from 1979 onward. [17] This is a difference of $3.46 per hour. The reduction in pay of 20 or 28 cents per hour due to rising compensation of top managers is only 6 or 8 percent of the total $3.46 difference.

Thus, more than 90 percent of the post-1979 gap in median workers’ compensation relative to average employee compensation remains unaccounted for. Even if we assumed that the share of business-sector Net Domestic Product received as employee compensation by salaried managers in the top 1 percent rose by a full percentage point (which, again, seems extremely unlikely), this would account for only 14 percent of the post-1979 growth in the gap between the typical (median) worker’s compensation and the average employee’s compensation.

The supposed “rise of the supermanager” therefore seems not to explain much of the growth in income inequality seen in the U.S. It is certainly not the primary cause of the rising share of income captured by “the 1%” and the “0.1%.” Nor is it a main driver of the divergence between median compensation on one hand and average compensation and productivity on the other. It follows that this latter trend must be due, overwhelmingly, to increasing inequality among the rest of the workforce—that is, within the gigantic pool of employees who are not supermanagers. Thus, if we want to understand why the typical worker’s pay has increased relatively modestly, we must set aside the myths that rising profits and skyrocketing executive salaries were the chief culprits and focus on the sources of increasing inequality among workers, as I will in a future piece.

(Reference notes available on next page.)

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Andrew Kliman is a professor emeritus of economics at Pace University in New York and author of “The Failure of Capitalist Production: Underlying Causes of the Great Recession” (Pluto Books, 2012) and “Reclaiming Marx’s ‘Capital’: A Refutation of the Myth of Inconsistency” (Lexington Books, 2007). See his website here.


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