June 19, 2011
The Post had a major front page article on the growth in inequality in the United States over the last three decades. While it is good to see the Post taking note of this enormously important development, the piece does manage to misrepresent some key points.
First, there has been new research that sheds additional light on the identity of the top earners, but we have long had a pretty good idea of who the big earners were. There are regular reports from Fortune and other sources on the pay of top executives at the major corporations. The growing gap between this pay and the pay of ordinary workers has long been noted in reports by my friends at the Economic Policy Institute and Institute for Policy Research and elsewhere. So telling us that many of the big earners are CEOs at major companies is not exactly news.
Neither is it news that many of the top earners are Wall Street types. There are news articles every year on the bonuses paid out at Goldman, Citigroup and the rest. We already knew that the financial sector accounted for a hugely disproportionate chunk of the top earners.
The other major flaw in this piece is its seeming willingness to accept the explanation that higher pay is explained by the growth of companies. First, this does not appear to have been the case in the 50s and 60s when the economy and many companies grew very rapidly, with no comparable explosion in pay at the top.
Second, the rise in pay for top executives far exceeds the growth of companies. While there has been some increase in concentration over the last three decades, it has not been nearly large enough to explain the rise in pay of top earners. Many of the huge companies of the 60s and 70s, for example General Motors and AT&T, have been seriously downsized relative to the size of the economy.
The increased size of companies could at best explain a small portion of the rise in executive pay and would not explain at all the huge gap between the pay for top executives at U.S. companies and the pay for top executives for large foreign corporations like Toyota or Volkswagon. These gaps are likely explained by the corruption of the corporate governance process in the United States where the CEOs get to largely decide the people who determine their pay. Stockholders are likely to exert more control elsewhere and thereby keep pay for top executives more in line with the market.
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