海角大神

As CEO pay grows, hourly workers increasingly left behind

The billions of dollars in bonuses paid out to Wall Street executives could double the pay of more than 1 million American minimum wage workers, writes Robert Reich. So why does so much wealth flow into the hands of so few?

It鈥檚 often assumed that people are paid what they鈥檙e worth. According to this logic, minimum wage workers aren鈥檛 worth more than the $7.25 an hour they now receive. If they were worth more, they鈥檇 earn more. Any attempt to force employers to pay them more will only kill jobs.聽

According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn鈥檛 be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.聽

"Paid-what-you鈥檙e-worth" is a dangerous myth. 聽

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today鈥檚 dollars. Today, America鈥檚 largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.聽

Does this mean the typical GM employee a half-century ago was worth four times what today鈥檚 typical Walmart employee is worth? Not at all. That GM worker wasn鈥檛 much better educated or productive. He often hadn鈥檛 graduated from high school. And today鈥檚 Walmart worker is surrounded by digital gadgets 鈥� mobile inventory controls, instant checkout devices, retail search engines 鈥� making him or her highly productive.聽

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they鈥檇 be unionized if they didn鈥檛 come close to matching the union contracts.

Today鈥檚 Walmart workers don鈥檛 have a union to negotiate a better deal. They鈥檙e on their own. And because fewer than 7 percent of today鈥檚 private-sector workers are unionized, non-union employers across America don鈥檛 have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.聽

By the same token, today鈥檚 CEOs don鈥檛 rake in 300 times the pay of average workers because they鈥檙e 鈥渨orth鈥� it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don鈥檛 want to be seen by investors as having hired a 鈥渟econd-string鈥� CEO who鈥檚 paid less than the CEOs of their major competitors. Either way, the result has been a race to the top.聽

If you still believe people are paid what they鈥檙e worth, take a look at Wall Street bonuses. Last year鈥檚 average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, New York鈥檚 state comptroller. Remember, we鈥檙e talking bonuses, above and beyond salaries.

All told, the Street paid out a whopping $26.7 billion in bonuses last year.聽

Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail.聽

People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from America鈥檚 smaller banks. That鈥檚 because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones won鈥檛 be bailed out if they get into trouble.

This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger.聽

How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, it鈥檚 about eight tenths of a percentage point.聽

This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount 鈥� roughly a year. 聽

Recall that the Street paid out $26.7 billion in bonuses last year. You don鈥檛 have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because they鈥檙e聽 too big to fail is about three times what Wall Street paid out in bonuses.

Without the subsidy, no bonus pool.聽

By the way, the lion鈥檚 share of that subsidy ($64 billion a year) goes to the top five banks 鈥� JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks鈥� typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits. 聽

The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasn鈥檛 because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions 鈥� big Wall Street banks 鈥� that hold a privileged place in the American political economy.聽

And why, exactly, do these institutions continue to have such privileges? Why hasn鈥檛 Congress used the antitrust laws to cut them down to size so they鈥檙e not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)?聽

Perhaps it鈥檚 because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties.聽

America鈥檚 low-wage workers don鈥檛 have privileged positions. They work very hard 鈥� many holding down two or more jobs. But they can鈥檛 afford to make major campaign contributions and they have no political clout.聽

According to the , the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of America鈥檚 1,085,000 full-time minimum wage workers.聽

The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit.

But I don鈥檛 expect Congress to make these sorts of adjustments any time soon.聽

The 鈥減aid-what-your-worth鈥� argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done.聽

Don鈥檛 buy it.聽