On this Labor Day weekend, let’s consider who we’re celebrating: the workforce. With wage increases struggling to keep up with inflation, some wonder if American workers are getting what they deserve. Let’s take a look at how wages for workers and executives are changing in today’s economy.
Are Americans getting fair pay for a hard day’s work, and seeing their lives improve as they work harder and provide more value to their employers?
Sadly, the answer is no.
Average Worker’s Wages Are Barely Keeping Up With Inflation
The average worker in the private sector earned $23.98 per hour in July 2013, according to a report by the Bureau of Labor Statistics. That’s up from July 2006, when the average worker earned $20.31 — $23.53 when adjusted for inflation. So, in fact, workers have only seen a $0.45 increase in hourly income during that seven year period.
It gets worse. Employee output grew 1.7 percent between 2007 and 2012, meaning that employers are making more of a profit off their workers than they are paying back to them.
And that gap between employee value and salary is getting bigger; harder work is not getting compensated with higher wages.
So, who’s actually getting paid more?
Average CEO Pay Outpaces Employee Compensation by 300 Times
While a worker makes an average of $34,645 in the United States, the average CEO makes upwards of $12 million.
It hasn’t always been like this. Between 1936 and 1939, CEO compensation was around $1.1 million in inflation-adjusted dollars. By 2005, that number ballooned to $9.2 million. Most of that growth began in the 1990s, when CEO pay rose from 1989’s level of $1.8 million to 1999’s rate of $4.1 million. In the next six years, CEO pay doubled.
So, execs are doing fine. While everyone else is seeing less cash in their pockets. Skyrocketing executive pay is making the rest of us look like paupers, as the gap between workers’ and executives’ compensations widens.
According to the Bureau of Labor Statistics, the average CEO in the United States makes 354 times as much as the average worker.
According to a 2010 study, the rapid rise in executive pay is the result of more stock-based payment in public and private companies, while base salaries have risen moderately above the rate of inflation in the last 30 years.
Why Does America Have Such a Huge Income Gap?
Labor’s position in the economy today is substantially weaker than in the past. Not only are most Americans finding it harder to afford the same goods and services, but the rich are getting much richer.
Just how well is America fairing when it comes to income inequality? According to the World Bank, nearly 100 countries have less income inequality than the U.S. In those other nations, the gap between the their poorest and richest residents is smaller than it is in the U.S.
Which countries have a smaller income gap? Among countries with a similar degree of development and wealth to the United States, the United Kingdom is one. Canada is another. So are Australia, Switzerland, Denmark, Norway, New Zealand and Italy. In fact, the European Union as a whole is indexed with a 30.7 Gini coefficient, whereas the United States has a higher level of income disparity, at 45.
Here Are Two Explanations for Income Inequality in America
Why has America become a place where crippling poverty and bombastic wealth live side by side? It depends on who you ask. On the left, people attribute it to low taxes for corporations and the rich, combined with inadequate social services from the government, low minimum wage and poor workers’ rights.
According to the right, the opposite is to blame: Too much regulation is to blame, with the wealthy lacking the freedom to let their wealth trickle down. Plus, Americans just aren’t educated enough, hard working enough and efficient enough to command more money in the labor market.
Whatever your political beliefs, one thing is undeniable: The vast majority of workers, whether in a cubicle, on the factory floor or behind a department store counter, lack the power to demand higher wages, while executives can command bigger bonuses than ever.
So What’s the Best Way to Commemorate Labor Day?
So for Labor Day 2014, it might be wise for Americans to spend some time in front of a spreadsheet instead of behind a grill to see if they’re bucking the trend or getting the short end of the stick. Do you think you’re getting paid a fair wage for a fair day’s work?
Photo credit: John Walker