The Great American Paycheck Squeeze

Fair warning – this may end up being one of those long, whiny political posts, so if you aren’t into that sort of thing, just skip down to the next post.  But if you are interested in my perspective of things, I’ll do my best to rationally and constructively explain myself.  Either way, I’m sure I’m going to be called some names, but sometimes I just want to throw some stuff out there.

As many of you know, I love watching CBS Sunday Morning.  Yes, I attend church (well, most of the time) so I end up recording it on the DVR so I can watch it later in the day.  I like to describe it as NPR for TV, I always feel a bit more cultured, educated, and enlightened after watching it.

Yesterday they had a segment about the American salary.  You can read an abbreviated version of the segment here, but I posted the entire segment on YouTube that you can watch below if you are interested.

A few parts of the segment got my attention, but these two screengrabs really stood out.

Per the graph, as productivity increased, so did wages, up to around somewhere in the seventies.  The video states the year 1979, but the summary article I linked to above states “around 1970.” So sometimes in the seventies as productivity increased, wages for the typical worker did not, but the salary of wages skyrocketed.

So what happened around that time to cause executive compensation to increase and workers to level off even as productivity increased?  Tax cuts for corporations, and this is the reason why I’m not a big fan of the corporate tax cut.  Many of my conservative friends will argue that corporate tax cuts will allow businesses to grow and add more workers, and that the income made by the wealthy create jobs for the middle and lower class.  But here’s my take . . .

When corporations receive a tax cut, instead of using those extra funds to grow the company or hire more workers, those funds are instead used to increase the salaries of the executives in charge, which both of those screengrabs above support, which means that the rich only get richer while the middle and lower classes are stuck in a curmudgeon.

As for the argument that the income of the wealthy create jobs for the middle and lower class, I can’t completely refute that rationale.  However, it’s my thinking that if the exuberant salaries were diverted from the executives to the workers, the middle and lower class, then the buying power of both of those classes would benefit the economy, and that the increased buying power of those two large classes would be better for the economy than that of a smaller wealthy class that purchases luxery goods.

Some may argue that if stockholders are upset at the salaries that are being paid to the executives are outlandish, then the stockholders would display their anger.  That’s another argument I can’t agree with since the major shareholders of these companies are insurance and mutual fund giants – people that are all in the same club (probably country club).   Once again, the middle and lower class are stuck in a curmudgeon.

I have a feeling some of you are calling me nothing more than a bleeding heart liberal and a socialism lover, but that’s not my intent as I type this at an hour in which I should be asleep.  I love capitalism, but I think the tax laws just favor the corporations more than they do the individual, and unjustifiably so.

You certainly don’t have to agree with anything I said, but I hope I was able to express my perspectives regarding these issues in a rational, constructive and non-offensive manner.

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8 Responses to The Great American Paycheck Squeeze

  1. David Bryant says:

    Yes, you were able to express your thoughts in a 'rational, constructive and non-offensive manner' and I don't know if I can forgive you for that. What good is 'rational, constructive and non-offensive manner' political commentary? It doesn't incite wailing and gnashing of teeth on talk radio. It doesn't provide fodder for me & my tribe to talk bad about someone else and their tribe…or them to talk bad of us. Frankly, I think we have way to much 'rational, constructive and non-offensive manner' politics nowadays. What we really need is more folks to draw a line, pick a side, and start throwing mud across at the other side. 'Rational, constructive and non-offensive manner' has no place in today's political climate.

  2. John says:

    Your comments did a fine job. However, you left out the elephant of the arguement.

    Given a reasonable level of competition, corporate taxes are simply a tax on the middle and lower classes. That is the way the federal government is able to stay somewhat afloat.

    Do corporations get the tax revenue that they pay from their officers? Board members? Executives? Savings? No. Corporate taxes are simply an expense, which is calculated into the prices they charge their customers, the public. So every single person who buys anything in the US, pays taxes through corporations. They are simply a collection agency for the US government.

    The problem with that is, this situation makes it harder for US corporations to compete glabally, export their goods, vs countries with lower tax rates.

    And that is all the truth.

  3. Daniel says:

    As someone who generally takes a Libertarian view on most political issues, I will actually agree that in a perfect world, executive pay would not work the way it does. I actually don't have an issue with high paychecks for executives when their company is doing really well, it's just that all too often they get them even if their company is tanking. Shareholder's stand by and let this happen in most cases for many reasons, most often because they had to promise the compensation as a way to get the executive to take the job in the first place. I think most board's consider it a risk worth taking because the upside of the executive doing well far outweighs having to pay them millions if they do badly. If they don't do it, then someone else will and the executive will go there instead.

    In my opinion, the problem with trying to fix this legislatively is that you could create a 5000 page compensation bill and companies will still find a way around it (just like campaign finance). All you're really doing is giving more money to lawyers and risking potentially severe unintended consequences.

    I think the bigger question of the executives keeping the money that should be going to middle and lower class workers is also somewhat debatable. I mean the idea of people being paid what they are 'worth' is still alive in my opinion. I put worth in quotes because people are really paid not only on their productivity, but more importantly how difficult it is to find someone else to do the same job. Most boards and shareholders believe a good executive can be worth billions in extra shareholder wealth, so risking a few million to get him or her is worth it. Finding another cashier or even software engineer (in my case) is not nearly as difficult or risky. This isn't something that just developed in the past twenty years.

    I'm just rambling now. My point is even if you were going to try to 'fix' the problem, you better make sure you are addressing the fundamental issue and not just causing much bigger problems. The fundamental problem might be something completely different – like a broken education system.

  4. Shawn Wilson says:

    I think that I am becoming of the opinion, to hell with political parties, to hell with those that rant and rave on tv/radio (hannity, beck, Limbaugh,) and lets sit down and talk about how to make America a better place for everyone. Blacks, Whites, Red, and Yellows!! I am so sick of politics that if someone blew up Washington and had to start over I wouldn't be opposed to that. Of course I hope that doesn't happen because there would be a lot of good people that work for a lot of bad that would be left jobless…….hell, maybe it's still a good idea!!

  5. Brokelyn says:

    Props too you, Keith, for sticking your neck out on this issue. And for doing so in a calm manner 🙂 How would it change your perspective if I told you that the stock market, as measured by the S%P 500 (generally considered a decent index of overall US company valuations) increased from 101 to 1,323 from 1979 to 2007? So, valuations increased over 1,200% during this time. Anyone could have participated in that increase by investing whatever they could afford in the stock market. Chief executives are overpaid in my view, but they have helped companies create a lot of value for a lot of people over the years — even people who did nothing more than buy their stocks.

  6. Brokelyn says:

    Part of the increase in compensation you cited is related to stock options — top executives get a lot of those–they are tied to performance. So, when companies are performing well, these people get paid ridiculously well. When companies perform poorly, these people (theoretically) lose a lot of money. This was not an important source of income in 1979. Ironically, the study you cited ended in 2007, right as the markets were heading into a massive downturn. That downturn killed compensation for a LOT of top executives. If someone would recalculate the income differential at the end of 2008 or in 2009, you'd see a smaller disparity (though still larger than I think is truly fair).

    Keith, as always, "thanks for nothing!"

  7. Daniel says:

    Keith,

    I also like the fact that you approached this subject in a rational and well thought out way and I've enjoyed reading the different posts. I have my ideas on the subject, but there are certainly smarter people than me who study this and I could be wrong. It was an interesting video to watch though.

  8. Steve G says:

    What's really interesting about this is the power of presentation: That graphic on the supposed relationship between wages and productivity is a fantastic example of how junk statistics can be presented in a way to have a powerful influence. You certainly were taken in.

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