LOADED AT THE TOP Americans are among the most productive workers in the world, yet take-home pay for the average American continues to fall Why? Look at your boss's paycheck Look at your pension plan
Senser, Robert A
LOADED AT THE TOP Where productivity gains land Robert A. Senser When I first went job-hunting, my uncle told me: "Remember, the harder you work, the more money you'll make." Later, economists...
...My uncle's prediction, I have long realized, was faulty...
...These kinds of plans cover only a tiny portion of the whole investment market, which is expanding explosively now that even more and more middle-class people are salting away their money impersonally in personal investments...
...When I lamented this trend, a friend of mine shook his head and said: "So what do you think your pension fund is doing...
...The same drive-the drive not just for profits at levels once considered reasonable, but for higher and higher profits, no matter what-afflicts many other industries, national and global: the U.S...
...New Federal Reserve Board data show that the top 1 percent of U.S...
...They describe the U.S...
...Two other economists, Robert H. Frank of Cornell and Philip J. Cook of Duke, take another approach (Winner-Take-All Society, The Free Press...
...At the same time, earnings have escalated for millions whom Frank and Cook call "minor league superstars"- salespeople, administrators, accountants, physicians, dentists, psychologists, and others in the labor markets of more everyday life...
...In concert, the market and the government [by weakening the social safety net, for example] produced the greatest disequalization of incomes since at least before World War II," the council reported...
...The same trends continue through late 1995, leading Secretary of Labor Robert Reich to comment: "There is something wrong with rising profits, rising productivity, and a soaring stock market but employee compensation heading nowhere...
...The trend toward greater inequality shows up even more strongly in the distribution of wealth...
...With "small differences in performance [turned into] large differences in economic reward," the spread of winner-take-all markets has contributed most of the push to widening the economic and social distance between the rich and poor...
...With most larger papers now in the hands of national chains or stock-market-traded corporations, the pressure for steadily increasing profits is relentless...
...As I thought about it, my pension fund came to symbolize the long and impersonal reach of market forces...
...Within the Clinton administration's top levels, Secretary of Labor Reich stands almost alone in trying to make fairness for workers a national issue...
...Sharpe...
...How do you distinguish between money earned and money merely taken...
...But no...
...Focusing on wages and salaries, which make up about 75 percent of family income, they attribute rising inequality primarily to three clusters of overlapping factors: • Globalization of the U.S...
...Weakening of wage-setting institutions, deunionization, a decline in union bargaining power in unionized offices and factories, and the erosion of government labor standards (for example, the decline in the value of the minimum wage, frozen at $4.25 an hour since 1991) account for 30 to 35 percent...
...With eyes willing to see, identifying how greed is infecting more and more of our land is not all that difficult...
...Now, fast forward to April 23,1995, when the Washington Post published Will on a kindred subject with a different perspective, one that looked with favor on the lopsided accumulation of riches...
...The rewards could go elsewhere, to those in a better position to claim them, such as to the owners of the Chicago department store where I held my first job...
...That same year, 1994, the earnings of nonsupervisory workers in the private sector averaged $11.13 an hour...
...Will turned his wrath against corporate America: "Perhaps Reebok's CEO was worth $14.8 million in 1990, but why, precisely...
...economy as radically changed by the spread of "winner-take-all" markets-meaning that the superstar model of rewards long common in entertainment and sports is now common in a large and growing number of fields...
...Likewise, any overall increase in productivity, whether in a factory, in an industry, or in the nation as a whole, creates more wealth, but who gets it is another matter...
...A decade ago it required a mere $150 million in wealth to gain admission to Forbes' annual list of the 400 richest Americans...
...Will praised American society for valuing "equality, sensibly understood," meaning that it "offers upward mobility equally to all who accept its rewarding disciplines...
...Recently, after reading an article about how "hot money" was financing much of China's economic growth, I had to consult the Penguin Dictionary of Economics to learn exactly what hot money means: "funds which flow into a country to take advantage of favorable rates of interest...
...Their hourly compensation (wages and benefits combined) remained flat while productivity zoomed 37 percent...
...Further, a consultancy's survey of the 200 largest industrial companies revealed that the average annual pay of members of their boards (themselves mostly top corporate executives) was $68,300, or roughly $700 an hour...
...back in 1974, the ratio was about 35 to 1. The 1994 median salary and bonuses received by the CEOs of the 800 biggest publicly held U.S...
...When the 110-year-old Houston Post was buried in the spring of 1995 with a loss of 1,900 full-time and part-time jobs, the Economist (April 29) published an obituary with this insightful analysis: Newspaper publishing in America is a different business from what it was before the 1960s and 1970s...
...He would have left the company if paid less...
...Besides labor markets, on which Frank and Cook concentrate their analysis, the financial markets have a role of their own in fostering disparities in income and wealth...
...It goes to those in the best position to claim it...
...Couldn't be...
...economy, including competition from low-wage countries and large-scale immigration, accounts for an estimated 15 to 25 percent of the total...
...The ultimate effect of growing economic disparities on our social and political health may be hard to predict, but it is unlikely to be pleasant...
...Later, economists and editorialists tried to teach me a similar lesson: the more productive workers are, the higher the real wages they earn...
...Of all the research tools for detecting greed, though, the most neglected is introspection...
...One would think so, yes, and one might even exercise some responsibility, if one really thought about it...
...A few years ago the media and even some conservatives frequently poured scorn on self-enrichment in the executive suite...
...Would the company have done worse with a $7 million-or even $1 million-replacement...
...From 1983 to 1989, Wolff found, the top 1 percent of households increased their net worth from 34 to 39 percent of all household wealth, while that of the bottom 80 percent dropped from 18 to 15 percent...
...The American CEO/worker [income] disparity doubled during the 1980s," he wrote, because the executives in effect raised their own salaries...
...A society that values individualism, enterprise, and a market economy," Will wrote, "is neither surprised nor scandalized when the unequal distribution of marketable skills produces large disparities in the distribution of wealth....Certainly there is today no prima facie case against the moral acceptability of increasingly large disparities of wealth...
...Looking for the lowest possible return...
...Among top economists, Paul Krugman, professor at Stanford University, is a rarity who regularly expresses concern about the "crisis" in which "economic forces are more and more tending to split society in two: between those who have good jobs and whose standards of living continue to rise and those who are faced with either falling incomes or the prospect of more-or-less permanent life on the dole...
...Is it helping finance a company that hires grade-school-aged children to make garments in Bangladesh or shoes in Brazil...
...In 1983, the median white family had eleven times the wealth of the median nonwhite family...
...Or as Forbes magazine (October 18,1995) puts it: "The tremendous increase in the stock market rubbed off nicely on the superrich...
...Some day there may be a revulsion against market-made disparity, but meantime it prevails...
...Herbert Stein of the American Enterprise Institute concedes that inequality has increased, but doesn't see "that [it] calls for any policy response...
...But is my money earning profits in a joint venture with the People's Liberation Army using forced prison labor in the People's Republic of China...
...Each tick upward in the Dow adds substantially to the net worth of the most well-off...
...The widening gap is exhaustively documented by Edward N. Wolff, professor of economics at New York University (Top Heavy: A Study of the Increasing Inequality of Wealth in America, Twentieth Century Fund...
...Expansion of the lower-paid service jobs as the manufacturing sector shrank accounts for 20 to 30 percent...
...Once it was enough for papers to break even or to make a modest profit for their proprietors and their families...
...worker...
...Other factors, not quantified by Mishel and Bernstein, include regressive tax policies, the growth of small business, privatization of government services, contracting out of services by private companies, and the sharp increase in the number of workers, especially women, who hold temporary or part-time jobs...
...The real income of men with only four years of high school, for example, dropped a "stunning" 21 percent between 1979 and 1990...
...The only presidential candidate who consistently raises his voice against the decline of living standards is Pat Buchanan, and he gets dismissed as somewhat of a kook for a variety of other reasons...
...From the New York Times down, few papers, large or small, have managed to escape...
...But whatever the argument in its favor, it is a loser...
...My favorite is a George Will column titled "Ripping Off Capitalism" (Washington Post, September 1,1991...
...His fellow economists quoted above all think it does, and each has a set of prescriptions as do many other experts...
...Greed's contagion in the glob- al economy is less obvious, but can be discovered through extensive reading and now by surfing the Internet...
...By 1989 this ratio had grown to twenty...
...Now it turns out that even a proposition propagated by economists of all political persuasions can be flawed: The pay increases of workers in recent years have consistently lagged behind increases in productivity...
...My uncle was right in believing that if I worked harder and thus became more productive, I would generate more wealth, but he was wrong in assuming that I would necessarily be the direct beneficiary...
...Racial minorities have fared the worst, reversing gains that had slightly narrowed a large wealth gap between them and whites...
...When stock options and other forms of compensation are included, the median take came to $1.3 million...
...In the moral environment contaminated by that kind of rationale, income inequalities grew: in fact, they "widened alarmingly" starting in the late 1970s, to quote the Council of Economic Advisers again...
...For one example of a policy proposal, Edward Wolff makes a case for supplementing the income tax with a modest federal tax on wealth holdings, modeled after one in Switzerland...
...The only other period in this century with a comparable surge in the concentration of wealth was the seven-year span that preceded the Crash of 1929...
...Will castigated the widening disparity between the compensation of top executives and that of ordinary workers...
...From the title and the byline, you might expect a blast against big government for ruining business...
...wealth holders increased their share from 39 percent in 1989 to 42 percent in 1992, thus reaching a sixty-two-year high...
...corporations was $993,000, an 11 percent jump over 1993, according to a Forbes magazine (May 22,1995) survey...
...In the summer 1994 issue of Foreign Policy, for example, Krugman wrote: "Even an economist can see that such a split demoralizes those on the bottom and coarsens those on the top...
...Indeed, some of those responsible for those fraudulent images are simply hypocrites: they systematically use the government's regulatory powers and the public's tax dollars to advance their own ends, financial, political, and ideological, but are working for legislation that would keep others from using the same means to better their lot...
...By 1995 the entry fee had more than doubled: to $340 million...
...One of the arguments against it, that a wealth tax would harm economic growth, seems to have greater salience than the fact that Switzerland is not suffering from impoverishment...
...Public figures seldom challenge the beneficent workings of the market...
...Unfortunately, concern about widening inequality causes only an occasional blip on the radar screen of public policy...
...Take the booming stock market, in which the wealthiest 10 percent of Americans own around 90 percent of the shares...
...It is almost impossible to quantify the various causes of this widening gap, but Lawrence Mishel and Jared Bernstein of the Economic Policy Institute have tried (The State of Working America 1994-1995, M.E...
...Transformed into "celebrity labor markets," with a few superstars earning superhigh incomes and often becoming superwealthy, these fields cover a lot of territory: law, journalism, consulting, medicine, investment banking, corporate management, publishing, design, fashion, and even academia...
...His first article appeared in the issue of February 2,1940, when he was still a teen-ager...
...And this trend has not stopped in succeeding years...
...Me, a greedy capitalist...
...To take one yardstick from the Bureau of Labor Statistics: between 1982 and 1994, labor productivity in nonfarm businesses increased at a rate nearly three times that of the real hourly compensation of workers in the same sector...
...With all the current talk about personal responsibility, one would think that more of us would be asking a few questions about where our investment (and consumer) dollars go and about how they are used...
...But all these reform proposals would require some type of governmental action at a time when the federal government is pictured as monstrous and federal regulation as evil...
...The CEOs of large corporations and members of their boards are very visibly in a better position than workers to make that claim...
...housing construction industry, for example, to the detriment of low-income families who need affordable homes, and the international shipping industry, to the detriment of seafarers of both industrialized and developing nations, who are often victimized by new global economic pressures...
...I have absolutely no idea...
...Workers in manufacturing plants did much worse...
...It isn't shared mechanically by some static formula...
...In its 1995 report, the Council of Economic Advisers, echoing the same point in almost the same words, reinforced it by adding: "Few propositions in economics are as well documented...or command as much support among professional economists, whatever their political persuasion...
...I have a big file of business press clippings with headlines like "The Wacky, Wacky World of Executive Pay" (Fortune, September 6, 1988) and "CEO Pay: Baffling, Disgraceful, Sickening, Embarrassing, Infuriating" (Industry Week, April 15,1991...
...Belatedly, the manager of my pension fund is exploring the option of shifting our money into one of the new breed of "socially responsible" funds...
...In blasting NAFTA and GATT for discriminating against American workers, for example, he ignores the fact that current international trade agreements discriminate against all workers, wherever in the world they may be, in favor of owners of capital, wherever they may be...
...He would have done his job less well for a piddling, oh, $7 million...
...And they do: the total compensation of these CEOs now comes to around 150 times that of the average Robert A. Senser is a frequent Commonweal contributor...
Vol. 122 • December 1995 • No. 21
