Spencer Uresk's Technology Blog

As a student of Economics (programmer by trade though!), I am interested in wage differences on a macro level. Today, I saw two news stories that are somewhat disturbing - increasing CEO pay, and a substantial increase in poverty.

On a micro level, wage differences and poverty are more easily explained. If I am poor, chances are, I can do something to improve that. I can go to school, read books to increase my knowledge, or learn additional skills to increase my income. This is an oversimplification, of course, but it does hold true for a lot of cases on a micro level.

On a macro level, however, poverty & dramatic wage differences are much harder to explain. When 12 + % of our population lives in poverty, what does this say about society as a whole? Do we tell those people collectively to become more educated? What jobs will they work when they get their new education? Who will take their jobs?

FYI - The definition of poverty is misleading, even folks who make 1.5 to 2 times the poverty level still can face difficulty and often qualify for government assistance, so more than 12% of our population does not make enough money to get by.

Unfortunately, here in the United States, our poverty rate is increasing steadily:

http://news.bbc.co.uk/2/hi/business/4198668.stm

On the other hand, CEO's are doing quite well:

http://money.cnn.com/2005/08/26/news/economy/ceo_pay/index.htm

http://www.faireconomy.org/press/2005/EE2005_pr.html

Fun stat for the day:

Quote:
"Had the minimum wage risen as fast as CEO compensation since 1990, the researchers calculated, it would now be $23.03 an hour instead of just $5.15. And the average production worker would be making $110,126 a year instead of $27,460."

Do we really value our CEO's 431 times more than our average workers? Are we, as a society, willing to say that it is okay for much of the wealth to be in the hands of a handful of people, while a large portion of our population goes without basic necessities in life?

Some may argue that CEO's add a great deal of value to our economy and society by employing people, innovating, and by contributing to our tax base. I agree in part, as some CEO's certainly add a great deal of value and are very good at what they do. I argue that a large portion do not. For example:

1. CEO's and other executives at many large companies have been involved in schemes to make it look as though they were making more money than they were, or doing other illegal things to improve stock prices. This has led to a loss of a large amount of jobs, destroyed pensions, and ruined good companies.

2. Increases in outsourcing may improve a company's bottom line, but is bad for our society as a whole.

3. Many companies rake in huge profits without paying a dime in income taxes, and many companies make a profit yet get a tax rebate. For example, in 1998, 24 companies with before-tax profits of roughly $12.0 billion received roughly $1.2 billion in tax refunds. [1] This does not count "research" money and other corporate handouts from the government.

4. Many companies pay their employees such low wages and provide such few benefits, that they end up costing local and state governments a great deal of money, meaning a company's labor costs are effectively subsidized by the public. Wal-Mart is the most glaring example of this (not to worry about the Walton family though - they have roughly $100 billion dollars).

At what point do we say 'enough is enough'? I'm not advocating communism - I'm advocating injecting a little reasonableness into Capitalism. Or, should we stick to pure, unchecked capitalism until the bitter end? I honestly don't have any easy answers, but the current trends I've described above are not good for any society or economy in the long run.

Thoughts?

[1] http://www.progress.org/archive/corp12.htm

posted by Spencer @ 5:27 PM