Income Inequality: An honest question (Representatives, minimum wage, solution, companies)

[mainebrokerman]

male pole dancers and strippers don't come anywhere's near a womans salary....maybe someday we can only hope..

[ohio_peasant]

In my experience, resentment over inequality is rarely between the hourly worker or entry-level employee, and the CEO; rather, the people whose success is being resented, are the senior engineers and CPAs and middle-managers, earning 2-3X the median income. It's the upper middle class that gets tarnished with the label "elite", while the stratospherically wealthy are lionized as being paragons of economic vitality.

Originally Posted by Ummagumma

The CEO doesn't own the company. He/she an employee too.

This is an important point. There are occasionally founder/entrepreneur CEOs, like Bill Gates or Steve Jobs, but most are employees who had nothing to do with building the business. They were brought in to manage the company. In theory, the real owners are the stockholders, and the CEOs serve at the pleasure of the stockholders. In practice, even large stockholders - like pension funds or mutual funds - lack the cloud to much affect corporate governance. The C-suite employees become de facto owners.

[usayit]

Originally Posted by Ummagumma

Except that their wages are inflated, that's the whole problem.

Defined "inflated".

A good or service (which is what a CEO provides through his employment) is determined by market value. It isn't set by some sort of definition of "too inflated".

I will agree though... we have a problem with job opportunities. But focusing on the CEO's salary is focusing on a symptom rather than the root of the problem.

[mkpunk]

Originally Posted by cpg35223

I think compensation should be directly tied to a company's performance. Likewise, I've always felt those ratios of CEO pay versus the pay of the lowest pay flunky in the company are rather nonsensical.

Look at Steve Jobs. I'm pretty sure that Steve Jobs was compensated in one way or another far beyond the pay of an entry-level employee. But could anybody else in that company do what Steve Jobs did? Not in a million years.

The real nonsensical thing about CEO pay is that regardless of if the company is high on the hog or failing because of their lack of vision, they are given that pay and even golden parachutes when the companies fail, meanwhile we see many stuck without severance pay. Pay for executives should be directly tied to performance.

[freemkt]

Originally Posted by Ummagumma

Except that their wages are inflated, that's the whole problem.

Winner-take-all markets operate that way. Only a small number of people can be, say, a CEO or a starting NFL quarterback or a starting MLB pitcher. That is why, for example, a starting NFL quarterback is paid millions more than a second-string or third-string NFL quarterback. MLB teams each have a 25-player active roster; this means at any time there can be only 750 active MLB players. The 750th best active player earns at least the MLB guaranteed minimum salary ($507,500 in 2016), while the 751st player at best is paid chump change on an obscure Triple-A team.

[greywar]

Its also the fact that it takes a certain level of income to provide opportunity. Yes yes spare me your personal stories of starting from nothing. The reality is that the data indicates money equals opportunity.

We are no longer the land of opportunity we once were, and we all lose out because of that.

[Aery11]

Originally Posted by greywar

Its also the fact that it takes a certain level of income to provide opportunity. Yes yes spare me your personal stories of starting from nothing. The reality is that the data indicates money equals opportunity.

We are no longer the land of opportunity we once were, and we all lose out because of that.

I still maintain that we could give absolutely everyone the exact same amount of money today and tomorrow some would be broke (zero left), some would be deep in debt, and some would be a bit ahead of the game, and some would be rich. Some would create their own opportunities, some would just cry in their soup, spend their money and say there are no opportunities, and some wouldn't even get out of bed.


There is income inequality because humans are not equal in terms of their abilities, ambition, energy, vision, etc. Not much you can do about that on a general basis. If you want to be paid like a CEO, if you have the drive and ability to get there and don't, there is a good possibility it is your own fault, even when there are limited openings. If you really had the drive, you would find a way to get there. Proof for that is that some do. And if you get there and want to make even more money, you negotiate it and if you do it well enough, you may get it.


Sure there are crooked people who get rich by stabbing others in the back or who were born with silver spoons of one kind or another and get hoisted up by the coattails whether they are worth it or not .. but, in general, the inequality in incomes at the end of the day is directly related to creating or recognizing opportunity - not waiting for it to be handed to you - and having the skills, abilities and insight to make it happen for yourself - and assuming enormous responsibility for the operation of large conglomerates too. The money is not free.


Yes, it does make one salivate sometimes to see what look like exorbitant amounts that some CEOs make, but, jealous or not of the imaginary freedom that kind of money might bring me if I had it, I am not usually angry they are richer and more powerful than me - as long as everything they have done is legal and aboveboard. I probably could have been there too if I had wanted to enough.

[oldtrader]

What a lot of people do not realize, is that the CEO earns a lot of money, if the company makes money. A big part of their salary will be in bonus payments and for exceeding certain goals. If the company does not do well, they may make as little as $1 per year as these extra payments do not kick in.

People in large companies, with the ability to run them profitable in CEO positions, are few and far between. The competition for the best possible CEO for the company, forces the firm to pay more for that talented individual, than they pay for janitors who can be found anywhere.

I was working in Michigan as division sales manager for Michigan and Ohio for a large corporation early 60s. I got to know a man by the name of George Romney (Mitts dad), who was brought in to save an auto company in serious trouble. He did the job and saved the company. I worked on his campaign as governor of Michigan. When he won the elections the state was in such bad shape, they could not even afford to meet payrolls due to the machine politics that was running the state. Within 1 1/2 years the state was in the black, due to George's management skills. In just a few years due to his management skills, he saved a big corporation, and then pulled a state out of the bottom and made it able to pay the bills, and put it into the black.

If a CEO does not do the job they are hired for, they don't last long. And a big part of their pay is from meeting and exceeding profit goals. The equivalent for lower level higher income is a commission salesman. I never drew a salary from the time I left the Navy in 1954 till I finally retired. I was always on commission, overrides on others production, and bonus. By the end of the first year out of the Navy, selling furniture I was earning over $125,000 in today's dollars. And that was just the start. The majority of the people that go into sales, fail. But for the ones that do well, they are very high earners. If we don't produce, we don't take home a dime. If we do the sky can be the limit. Same for a CEO. They make their big money, only if the company brings in a lot of profit for the stock holders. The ones that can do that, are few and far between.

The successful CEOs are worth what they get paid, or they would not have been hired. Of course they are much more valuable than the lower paid employees. They are the ones that make sure the others have jobs, and the company makes a profit. If there were a lot more people capable of doing the job they do, their salary and bonus arrangement would drop to much lower incomes for them.

[I Notice Romance]

I find it difficult to discuss earnings inequality until we establish:

• What amount of it is down to purely returns on skills. Labor markets - theoretically: more on failures in a moment - are supposed to compensate individuals on the basis of their productivity. If it is the case that matching is perfect and people are all placed optimally then I have zero issue. This is probably the case for a considerable, very probably majority part, of inequality.
  • It's worth noting as an addendum here that the introduction of personal computers and automation more generally in the last few decades have made a certain upper strata of the population profoundly more productive whilst eliminating a host of formally middle-class jobs. It's an open question as to whether we should be either compensating the losers here or enabling their transition to the upper strata (I am more inclined towards the latter).
• What amount of it is down to search frictions. In particular, imperfect geographical mobility. There's two sorts worth discussing here. I both cases labor will be unable to realize its full wage: but just one matters.
  • The sort where individuals don't want to leave their communities behind for a host of understandable reasons. Or the sort - which looks like it might become more relevant in the future - where laid of steelworkers from Michigan aren't willing to emigrate to California to pick avocados or garden. In such a case, earnings inequality is probably a particularly awful measure of happiness inequality.
  • The sort where individuals are inhibited by circumstances relating to market failures. So, the steelworker that might want to garden and maintain pools might find that zoning regulations have priced him out of the California housing market. Or perhaps systematic inefficiencies in healthcare markets means that he remains in Michigan to tend to his ailing mother. In such a case we have to consider whether it is worth fixing those issues (it probably always is - but don't tell Californian home-owners).
• What amount of it is down to individuals being unable to realize the full extent of their skills. This typically occurs either through barriers to education (lots of evidence that deficiencies in pre-school education for working class children explains a significant portion of later differences) or recognition of education (think of all those licensing laws of dubious utility). This is always bad.
• What amount of it is down to systematic and institutionalized discrimination across class, racial, gendered lines, or otherwise. This can be down to patterns in hiring (working class kids have a harder time getting into investment banks, for example) or patterns in consumption (there is a greater demand for female strippers). I would claim that the former is almost always bad - the latter should be approached on a case by case basis.

In other words, I am fine with tacking some of the sources of persistent inequality because it leads to harmful inefficiencies for it all. The residual is natural and I am content with it insofar as it encourages a culture of personal responsibility and growth.

Everyone else, it seems to me, is just wasting their time with the symptoms.

[jazzcat22]

Don't care about income inequality---sounds like two year olds being upset that another kid has more toys than them. What I do care about is that everyone has "enough"---enough food, shelter, education, and health care....Let's work on that first and revisit the income inequality later.