US economy undervalues workers, overvalues CEOs

Al Gore portrays himself as fighting for working Americans in his campaign for the presidency.

Do workers need a champion?

"Definitely," says Lawrence Mishel, vice president of the Economic Policy Institute, a Washington think tank. Though workers have enjoyed gains in their wages since 1995, they have been "pitifully low" in relation to the nation's prosperity.

Every two years, EPI prepares a book on "The State of Working America," releasing a draft in time for Labor Day.

This year's report shows that persistent low unemployment, higher labor productivity, and a rising minimum wage have led to broad-based wage gains at all wage levels. The median hourly wage - the level at which as many earn more as those who earn less - grew 2.6 percent a year between 1995 and 1999. That's far better than the 0.6 percent annual growth in the 1989-95 period.

But not all is rosy.

The typical family is working more hours. It is taking on historically high levels of household debt that far outpace small stock market gains. Total household debt has soared to 95.4 percent of after-tax "disposable" income.

And income inequality continued to grow in the late 1990s, though at a slower pace than earlier in the decade.

Taking advantage of the Labor Day atmosphere, two "progressive" institutions took a poke at "executive excess."

Executive pay jumped 535 percent in the 1990s (before adjusting for inflation), note the Institute for Policy Studies in Washington, and United for a Fair Economy (UFE) in Boston.

That rise far outstripped the 297 percent gain in the Standard & Poor's 500 index of stock prices and the 32 percent growth in worker pay. Inflation rose 27.5 percent in the decade.

"The productivity gains of the last 25 years have not gone to the workers," complains Chuck Collins, co-director of UFE and one of several authors of the CEO compensation review. "The gains have gone to shareholders and CEOs. Labor's contribution is undervalued. Management's contribution is overvalued."

Mr. Collins offers some surprising statistics:

*If the average annual pay for production workers had grown at the same rate in this economic boom as it has for CEOs, workers' 1999 annual earnings would have been $114,035 instead of $23,753.

*If the minimum wage had similarly grown, it would stand at $24.13 an hour, instead of the current $5.15 an hour. (Congress is currently considering raising the minimum wage by $1 over two years.)

*The ratio between the average CEO's pay and that of the US president has soared from 2 to 1 in 1960 to 62 to 1 today.

*The CEOs of the 50 top Internet companies hold together $11.7 billion in unrealized stock options - about five times the net worth of the bottom one-third of American households.

It remains to be seen, of course, whether the stock market will remain buoyant enough for these CEOs to actually realize that option wealth.

Nonetheless, Collins and his fellow authors worry that the increasing gap between pay for top-level jobs in government and those in private companies will create a damaging brain drain from government service.

Some 65 percent of the federal government's senior executives will be eligible for retirement by 2004, they note.

Should something be done about income inequality - far worse in the United States than in other wealthy countries?

Mr. Gore's tax-cutting proposal would help a little by targeting tax savings more toward middle- and low-income Americans, reckons Mr. Mishel, one of three authors of the EPI book.

George W. Bush's across-the-board tax cuts at all income levels would give more tax goodies to the already well-to-do that pay the most in income taxes. But it would not reverse the growing income inequality, he notes.

Gordon Richards, chief economist of the National Association of Manufacturers, says that workers, especially those in the middle class, should spend less on luxuries and take advantage of various opportunities to invest in stocks.

These include Individual Retirement Accounts, 401(k) retirement plans, and so on.

"There is no reason why most of the worker population shouldn't own stocks," he says. They make "good wages" - on average $39,000 a year. "But they are not saving and investing."

Though approving of broader ownership of stock, Collins notes it's "hard to pay the rent" with such investments. He calls for "eliminating public subsidies for wage inequality" by limiting the deductibility of executive pay from corporate income, perhaps to salaries that do not exceed 25 times a firm's lowest-paid worker.

According to Business Week, CEO pay in large firms is now 475 times that of the average worker.

(c) Copyright 2000. The Christian Science Publishing Society