Article

The New York Times recently reported that the average CEO made nearly $10 million last year. That's the average salary for CEOs at 179 large companies. The average worker, on the other hand, earns just under $30,000 per year, according to the Bureau of Labor Statistics. This means that CEOs now take home upwards of 250 times the average worker's wage.

What is it about the American labor market that produces such massive inequality?

The problem is not that a few fat cats are pulling ahead of the pack. The rest of us have seen little change or even falling income, in inflation-adjusted terms. In the past three decades, economic growth has generally benefited only those at the very top of the income ladder.

Since 1973, the bottom fifth of families have seen their income fall by an average of 0.2 percent per year, while the bottom 40 percent have seen no growth at all. At the same time, the top fifth of families have seen their income rise by 1.1 percent per year. The growth in inequality abated—but did not reverse course—during the high employment years of the late 1990s. Since the recession of the early 2000s, however, inequality has begun to grow again. Families whose total income places them in the bottom fifth of households lost ground, as their incomes fell by 1.9 percent, to $17,984 between 2002 and 2003, while income for those in the top income brackets rose—by 1.1 percent, up to $86,867.

Growing inequality over the past few years has been accompanied by economic growth and rising productivity. Between 2003 and 2004, the gross domestic product increased by 3.0 percent and productivity increased by 4 percent. But it was not enough to generate strong job growth. As of March, four years after the recession began, the economy has generated only 415,000 net new jobs. Had the share of Americans working remained at its 2000 level, 4.5 million more people would have had jobs by now.

It wasn't always this way. Economic growth used to benefit all families. In the decades after World War II up until 1973, family income grew at about the same pace for families across the income distribution. The bottom fifth of families saw their income rise by an average of 2.6 percent per year, as did the top fifth of families.

What's changed? The disconnect between economic growth and incomes is the result of a shift in the balance of power away from workers towards CEOs and corporate profitability. While wages have been falling, after-tax profits have grown by 18.2 percent in 2004 and 14.3 percent in 2003.

There are no longer countervailing forces to prevent the wealthy from appropriating all the gains from growth. Labor is no longer a strong force to be reckoned with and government is not protecting worker's paychecks. Unions used to provide good jobs for a third of America's workers. Now, union density in the private sector has dipped into the single digits.

When baby boomers were growing up, the government took responsibility for ensuring decent labor standards. Congress passed legislation that protected workers, and regulatory bodies such as OSHA and EEOC enforced these protections. Today, young people entering the workforce are faced with a virtually unregulated labor market as Congress has essentially abdicated its responsibility to provide a decent floor for workers. A prime example is the minimum wage, which has not been increased since 1997.

Another example is the crisis in health care. By closing their eyes to the most pressing concern facing Americans, Congress has left families on their own to struggle with fewer resources and safety nets. Without a level floor for wages, benefits, or working conditions regulated by the government, business is free to compete on the basis of lower compensation.

It's time Congress looked around and noticed that for most of us, the American Dream is a far-away fiction. While CEOs earn more than they can possibly spend, most Americans are struggling to make ends meet on less.

Dr. Heather Boushey is a research economist with the Center for Economic and Policy Research in Washington, D.c=

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.