Ordinary Americans are paid too little considering the value of their labor, while CEOs are mostly overpaid, according to recent research. That's unlikely to change in 2014.
Some argue that worker and CEO wages are dictated by what the market demands and therefore, they're just what they should be. But there was a time, back in the mid-20th century, when employee and CEO pay grew in accordance with productivity -- or the dollar amount that's produced for the economy in an hour of work. That changed during the late 1980s and early 1990s, when CEO pay sky-rocketed and worker wages stagnated.
“It’s not always been the case that the minimum wage or the wages of typical of workers or CEO pay were not that different from productivity growth,” said Josh Bivens, the research and policy directory at the Economic Policy Institute, a left-leaning think tank. “This spreading apart, where CEOs and other well-placed people are doing great while most workers and minimum wage workers are doing much much worse, that’s pretty recent.”
Here are four charts that show the difference between what is and what "should" be.
(All charts and calculations created by Bivens and his team at EPI for The Huffington Post).
1. Minimum wage workers are severely underpaid:
What the federal minimum wage would be in 2014 if it kept up with productivity: $18.30.
What it actually will be: $7.25.
Senate lawmakers are proposing to raise the federal minimum wage to $10.10 an hour with President Obama’s backing. While it’s a big step forward -- in 2011, a $10.10 minimum wage would have been enough to lift half of the nation’s working poor out of poverty -- it’s far less than what the wage floor would be if the minimum wage had kept up with productivity over the past several decades. What’s more, it’s less than what Americans need to cover basic expenses. A worker needs to make at least $10.20 per hour to support themselves in the nation’s cheapest county.
The minimum wage wasn’t always far below what Americans need to get by, in the 1960s a family of two could live above the poverty line on a minimum wage income, according to EPI.
2. Even workers who are making more than the minimum wage are still getting stiffed:
What the average worker wage would be in 2014 if it kept up with productivity: $71,697.
What it actually will be (according to projections): $55,644.
A decline in unionization may be in part to blame for the abysmally slow growth in workers’ wages. After all, drops in union membership typically correspond to periods of high income inequality, according to EPI. But the recession hasn't helped either. Three-fifths of all the jobs lost during the recession paid middle-income wages and they were replaced largely by low-wage work, according to a 2012 analysis from the National Employment Law project, a left-leaning worker advocacy group.
3. At the same time, CEOs are way overpaid:
What average CEO pay would be in 2014 if it kept up with productivity: $6.6 million.
What it actually will be in 2014 (according to projections): $16.2 million.
Back in the early twentieth century, CEO pay was relatively simple. Corporate chiefs got some cash, maybe a bonus too and the result was a compensation package that was still more than most workers’ but pretty modest by today’s standards. Flash forward several decades and CEO compensation is through the roof, thanks to a variety of factors. CEO compensation now typically includes stock options that when exercised can amount to millions. In addition, there are a variety of tax loopholes in place that encourage companies to use stocks to pay their heads handsomely.
Another reason CEO pay has skyrocketed: it’s essentially become an executive arms race with companies justifying their CEOs’ huge pay packages on the grounds that they need to pay them the big bucks in order to keep them from fleeing elsewhere.
4. The result of all of this is that the ratio of CEO-to-average worker pay is way higher than it should be:
Average CEO pay would be 104 times average worker pay if it tracked with productivity.
Average CEO pay will actually be 328 times average worker pay in 2014 (according to projections).