Charlie Averill has a post on the average CEO compensation to minimum wage ratio. According to the chart he posted, in 1966, the average compensation of a CEO was about 50 times the minimum wage. By 1978, it had increased to 78 times the minimum wage. But, between 1980 and 1992, CEOs hit the jackpot, making about 319 times the minimum wage by 1992. The dotcom years were also exceptionally good to CEOs and, as of 2005, the average CEO made 821 times the minimum wage.
Many look at a stagnant minimum wage as bad, but is this true? What is minimum wage and what is the purpose? The other day my neighbor asked my son if he would mow his lawn on a weekly basis. They decided on a price without the government stepping in. Had my son wanted too much, the neighbor was free to higher some other local kid or higher a professional lawn service. Does this have anything to do with minimum wage?
As an engineer one of my tasks is to cut costs. I look for better tools for operators to use, outsourcing and automation. When minimum wage increases there is an increase in FICA taxes paid by the employer, which is ultimately paid by the consumer. Every time the cost of labor goes up, it makes my task of justifying outsourcing or automation easier, but this is not always a bad thing for the operator who would be displaced. In my line of work, I have always found them another better position where human interaction was critical to the process.
However, when we look at the minimum wage dollar amount, we should also look at just how many workers actually earn minimum wage. Sure the ratio of CEO to minimum wage may have increased by a significant amount, but what I think would be a better gage would be CEO to medium worker wage. This second ratio I think would show a much smaller increase.
We should also be looking at how many stay at minimum wage and how fast others rise above minimum wage during their careers. In my area most fast food restaurants pay far more than minimum wage.
The government learned that price controls on oil back in the mid 70’s failed miserably. Minimum wage is just another form of a price control.
Median wages have declined over the past 30 years. Between 1970 and 1997, the real median income declined 19% for men under 35 and declined 10.6% for men between 35 and 44. Generally, households have remained steady or increased a bit by having two incomes instead of one. Meanwhile, since 1973 the average income of the top 1 percent of Americans has doubled, and the income of the top 0.1 percent has tripled.
In any event, if median income has remained stagnant or have fallen, then it has done the same or worse when compared to CEO income. The rich have gotten a *lot* richer in the past 30 years.
The benefits of productivity increases of the American worker over the past few decades have gone almost entirely to the upper, upper class.
Doug,
I think any current discussion of the concentration of wealth among the CEO’s and the highest rungs of the Investor class should mention the increasing practice of Global Labor Arbitrage. Global Labor Arbitrage is an often more accurate discription of what is occurring in our economy today than Globalism, Free Trade, Outsourcing, OffShoring, Near Shoring….. I posted a long comment on this in the Old Economy vs New Economy thread.
https://www.masson.us/blog/?p=1555#comments
Doug,
Worst of all are all the cases of CEO recieving huge pay days inspite of the fact they clearly ran their companies into the ground or even declared bankruptcy wiping out the shareholders, not to mention the pension fund.
Then look at the Big Oil companies. Raymond at Exxon getting 400+ million in compensation. The funny thing is while profits are up at the Oil companies all of them are quitely showing significantly declining proven and potential reserves. One could rationally make an argument for Oil execs earning reasonable paychecks if they were actually finding more oil and gas or at least looking for it. But many of them are actually spending far less on a percentage basis on exploration, research and development. The secret reason is because the oil industry themselves report internally that there are no more historically major oil discoveries out there to be found. This is really being kept from the public because of industry propaganda and misleading data that cover up the effects of mergers in boosting reserves and profits. The real source of Oil industry profits have been to spend literally spend hundreds of millions world wide to dissuade governments from doing to do more concerning energy conservation and convince the public that peak oil and global warming are not real. Without the massive increase in world oil demand in the last 15 years, all those SUVs sure help big oil, oil prices would be far lower.
The oil profits seem high, but when compared to Microsoft or any other large company, they are actually small. Oil companies make about 4 to 6% on sales. It is not that profit margins are up, but that sales are up. When the price oil companies pay Arabs or others for oil increase, they make more in dollars, but the same percent of sales.
Our government representatives have done the American consumer a disservice. In the massive energy bill they subsidize wasteful Ethanol production which promotes the same millennia old burning process of converting energy to work. Instead of letting energy reach its own level playing field they regulate directly and indirectly the price.
For example, in the past they will momentarily drop the sales tax on gasoline. These gives the impression energy is cheaper, but in reality the state will collect taxes. Sometimes it is a good thing for the state to collect less, but when running deficits, we all pay.
There is no easy solution, but driving smarter (some times shorter is not less energy – stop & go) and combining trips can save a tremendous amount of energy. Keep in mind 45% of oil is used to produce gasoline. This means if everyone could cut back 10%, we could cut 18% of our oil imports. This would signficantly reduce the price of oil.
The price of oil is not a linear function.
it is inappropriate (but entirely convenient for some) to compare compensation of X to wages of Y…