Pay Gap Widens Further, and Policy Choices Exacerbate the Problem

Monday, June 29, 2015 at 6:59 PM by

Compensation of CEOs at major U.S. firms continues to skyrocket, according to a new report by the Economic Policy Institute. To some extent that trend can probably be attributed to broad economic forces, but policy choices at the national and state level also contribute to the huge disparities in income and wealth.   

The EPI report was interesting reading today – against the backdrop of Assembly GOP leaders announcing a plan for substantially reducing the prevailing wage law for public sector projects and releasing the details of a Bucks arena plan that will be a boon to the team’s very wealthy owners and players.  Those two issue areas are great illustrations of how public policy decisions can exacerbate the widening income gap. And once the budget process resumes, we will learn whether legislative leaders plan to compound the problem by proceeding with a proposal to reduce taxes on very high income Wisconsinites by reducing or eliminating the alternative minimum tax – even as the budget makes cuts that will hurt low-income state residents.  

Some of the noteworthy findings in the new report include the following:

  • CEOs in the 350 largest U.S. firms were paid an average of $16.3 million in 2014 – which in inflation-adjusted terms is a 997% increase since 1978. 
  • Over that 36-year period, CEO pay increased 90 times faster than the painfully slow growth of 10.9% for nonsupervisory private sector workers. 
  • The CEO-to-worker compensation ratio was 303-to-1 in 2014, compared to 20-to-1 in 1965. Although that ratio hasn’t climbed back to its peak of 376-to-1 in 2000 and, it is now far higher than in the 1960s, 1970s, 1980s, or 1990s.

Needless to say, CEOs aren’t the only wealthy people who are pulling further and further ahead. The new EPI findings simply reinforce many other studies showing the overall increase in the income gap.  (See, for example, this guide to the historical statistics.)

These trends have harmful consequences.  Research shows that reducing inequality and helping more people succeed is a better formula for sustained economic growth. By making investments today in our state’s disadvantaged families, rather than making choices that widen the existing disparities, Wisconsin lawmakers can create a foundation for broad-based prosperity and future economic gains.

Jon Peacock

ADDENDUM:  I wrote this blog post before I noticed that Bruce Murphy had written an excellent column on the CEO pay issue, which includes information on the compensation of Milwaukee-area CEOS.  I’m sorry I didn’t initially include that link because it’s well worth reading .    

 

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