Posts Tagged ‘equal pay’
Thursday, September 27th, 2012
The latest numbers from Folio about who makes what in the world of magazine editing reaffirm what we already know: women make less money than men in comparable positions. Male editors-in-chief or editorial directors of magazines make $100,800 to women’s $85,100. For executive editors, men pull down $84,200 to women’s $65,700. And for senior editors, men make $63,600 to the $58,200 women take home in salary. What those numbers don’t tell us is how to start rectifying those pay gaps, which, as Folio editor Bill Mickey told The Atlantic Wire, start to seem inevitable: “We don’t have any further insight into that number, except that the gap has historically been about the same and I believe aligns with national trends across other industries.” We’ve collected data on gender and pay and gender and bylines for a long time. But if we want things to change, we need to start cross-referencing these numbers to see who’s doing worse, who’s doing better, and why.
Folio’s numbers, for example, break out pay not just by gender, but by whether the editors at business-to-business publications, consumer magazines, and trade publications, where they are geographically, by size of publication, and by years in the business. Looking at the numbers by gender alone are discouraging—they make it look like everyone is doing badly. But if we started cross-referencing those numbers, we might be able to see if some kinds of publications do better than others. Are women able to get a leg up in business-to-business magazines? Are the numbers skewed by bigger-than-normal pay gaps in New York, the center of the magazine industry? Are the numbers closer to parity in entry-level positions, indicating that time is doing the work to change a culture of pay inequality that magazines previously haven’t done?
These are the same kinds of questions that it would be useful to apply in film and television as well, where there is much less comprehensive salary data in any case. Knowing if women do better in dramas or comedies, in shows or films produced by different studios or airing on different networks or distributed by different companies would help us figure out who’s doing exceptionally poorly, and who’s made strides.
Until we figure out who’s doing better and who’s doing worse, we won’t be able to start asking questions about the specific cultures and practices that produce pay gaps and those that are proving successful at closing them. There are challenges, to that, of course, most significant that these surveys survive on some kind of anonymity. The organizations and individuals who are doing poorly would never want to be exposed as being so. And even organizations that do better may be hesitant to step forward to talk about their practices, for risk of exposing themselves to scrutiny for the work that still remains, and to questions from their own employees about whatever gaps persist. The fact that we lack information about salaries is intentional, and always to the benefit of companies that pay those salaries. Without accurate, cross-referenced data, it’s difficult for individuals to know if they’re being paid fairly and to negotiate if they’re not. And without those numbers, it’s impossible for us to identify industry-wide best practices, either. Numbers like these are an opening step in a road towards actual, useful transparency, rather than the end of it.
This blog originally appeared in Think Progress on September 27, 2012. Reprinted with permission.
About the Author: Alyssa Rosenberg is a culture reporter for ThinkProgress.org. She is a correspondent for TheAtlantic.com and The Loop 21. Alyssa grew up in Massachusetts and holds a B.A. in humanities from Yale University. Before joining ThinkProgress, she was editor of Washingtonian.com and a staff correspondent at Government Executive. Her work has appeared in Esquire.com, The Daily, The American Prospect, The New Republic, National Journal, and The Daily Beast.
Tuesday, June 12th, 2012
For some high school graduates looking to get some more education and increase their income, or for people with college degrees looking to retrain into a new field, a certificate can be a good alternative to an associate’s or bachelor’s degree. But like just about everything else, certificates pay off less for women than for men:
Men who earn certificates earn 27 percent more than high school educated men. Women with a certificate, by comparison, only receive an average 16 percent increase in earnings over women with a high school diploma.
Some of that difference is because men are more likely to get certificates in higher-paying fields, such as construction, while women are more likely to get certificates in lower-paying fields, such as cosmetology. But that doesn’t explain the entire gap:
A male with a certificate in computer and information service can earn about $72,000 per year—more than 72 percent of his peers with an associate’s degree and more than 54 percent of male bachelor’s degree holders.
Notice we said “male.” Thanks to gender inequity, just as a man with a bachelor’s degree can out-earn a woman with a master’s degree, women don’t benefit from certificates as much as the guys do. A woman working in that same field only earns about $57,000.
That’s just one of the ways that the value of getting a certificate is variable: fewer than half of certificate-holders work in a field related to their training, and those working in other fields see just a 1 percent increase in median pay relative to high school graduates. But those who do work in the field they’ve trained in earn only slightly less than the median worker with an associate’s degree. Impact varies by race, as well, with Latinos getting the biggest earnings boost from a certificate over a high school diploma, while African Americans benefit the least from certificates. White certificate holders get much less of a boost than Latinos—but because white high school graduates earn more than Latinos, white certificate holders don’t need a big increase to keep out-earning Latinos.
The picture on certificates is mixed: Some certificates in some fields can mean real pay increases for some people. The picture on gender inequity remains clear: In any level of education, in just about any field, women are left behind.
This blog originally appeared in Daily Kos Labor on June 12, 2012. Reprinted with permission.
About the Author: Laura Clawson is labor editor at Daily Kos. She has a PhD in sociology from Princeton University and has taught at Dartmouth College. From 2008 to 2011, she was senior writer at Working America, the community affiliate of the AFL-CIO.
Thursday, April 19th, 2012
Last week, I talked with a cashier at a Ralph’s grocery store in Orange County, Calif. She told me she lives with and supports her 82-year-old mother and her disabled 56-year-old sister. She represents a growing group in the United States: a working woman who is head of household and also a family caregiver.
But with the rise of the low-wage retail giants like Wal-Mart, she is also part of a shrinking group: a union worker with rights on the job, health benefits, paid sick days, vacation and possibly a pension or retirement fund. And with a union contract, she won’t be arbitrarily paid less than a man doing the same job with the same seniority.
Wal-Mart = Unequal Pay
In June 2011, a sex-discrimination lawsuit brought by 1.5 million current and former female employees of Wal-Mart reached the Supreme Court, bringing national attention to the company’s policies of paying women less than men in every job category and promoting women less – often in spite of better job performance. The Court decided against allowing the women to pursue the lawsuit as a single class but Wal-Mart will likely have to face these claims individually for years.
Wal-Mart’s treatment of women workers is bad news for everyone fighting for equal pay. As the largest retailer in the United States and the world, Wal-Mart “leads the way” in setting standards and has the effect of depressing retail wages in every community where it opens shop. Right now, average pay for all Wal-Mart workers is $8.81 an hour and “full-time” is considered 34 hours a week. Imagine the woman I talked to at Ralph’s trying to support her family on that income in
Equal Pay Day
Yesterday, we marked Equal Pay Day, which symbolizes how far into 2012 women must work to earn what men were paid in 2011. Women now earn 77 cents for every dollar men earn. We have not made a lot of progress since Equal Pay Day was first instituted back in 1996 when women earned 73.8 cents for every dollar men earned. I think the rise of companies like Wal-Mart and the demise of union jobs have a lot to do with our lack of progress in this area.
Let’s recommit to defeating Wal-Mart and what it stands for: low wages, bad working conditions, unequal treatment of women workers, union busting and a
business model that hurts the ability of working families to survive.
More and more families depend on a woman’s paycheck to put food on the table and a roof overhead. Two-thirds of women are either dual earners or the heads of households. Women are also carrying out the bulk of caregiving duties in families. We need decent wages and flexible workplaces with paid sick days and family leave. While Equal Pay Day is still fresh in our minds, let’s commit to getting involved in raising the standard of living for working women everywhere.
Let’s build the movement for workplaces that support caregivers. Let’s start with Wal-Mart.
For information on how to get involved in supporting positive change at Wal-Mart, go to http://makingchangeatwalmart.org/ For information on local campaigns advocating for paid sick days and paid family leave go to http://familyvaluesatwork.org/.
This blog originally appeared in AFL-CIO Now blog on April 18, 2012. Reprinted with permission.
About the Author: Jenya Cassidy is a regular blog contributor to MomsRising.org.
Thursday, March 22nd, 2012
The women who work in Idaho Gov. Butch Otter’s (R) cabinet make substantially less than their male colleagues, according to a McClatchy analysis of state salary data. Despite chairing the state Agriculture Department, for instance, Director Celia Gould makes less than male directors.
Gould has been with the administration since its first day in 2007 and oversees 259 employees; Commerce Director Jeffrey Sayer, by contrast, joined the administration in October and oversees 53. And yet, Sayer makes nearly $40,000 a year more than Gould, the highest-paid female employee. In fact, across Otter’s administration, the median wage for women is nearly $20,000 less than the median wage for men, McClatchy found:
She is the highest-paid of the women in Otter’s Cabinet but ranks just 16th among all top full-time officials. The median salary for 11 women in the Cabinet is $85,446; the median for the 33 men is $103,002.
“We really do have a glass ceiling in Idaho,” said Rep. Wendy Jaquet of Ketchum, the senior Democrat in the Legislature and a member of the budget committee.
While the pay gap between Otter’s male and female employees is substantial — the women make roughly 82 cents for every dollar earned by men — it isn’t as large as the overall pay gap between men and women in America. American women make about 77 percent of what men make, and the gap is even larger for minorities. In 2010, black women made 67.7 percent of all male earnings, while Latino women made just 58.7 percent. That wage gap costs women huge sums of money — a woman with a college degree, for instance, will earn $723,000 less over a 40-year career.
Despite legislative efforts, the gap isn’t closing. President Obama signed the Lilly Ledbetter Fair Pay Act, which made it easier for women to sue for pay discrimination, in 2009. Senate Republican, however, blocked the Paycheck Fairness Act, which would have updated the Equal Pay Act, closed many of its loopholes, and strengthened incentives to reduce pay discrimination, earlier this year.
This blog originally appeared in ThinkProgress on March 21, 2012. Reprinted with permission.
About the Author: Travis Waldron is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Travis grew up in Louisville, Kentucky, and holds a BA in journalism and political science from the University of Kentucky. Before coming to ThinkProgress, he worked as a press aide at the Health Information Center and as a staffer on Kentucky Attorney General Jack Conway’s 2010 Senate campaign. He also interned at National Journal’s Hotline and was a sports writer and political columnist at the Kentucky Kernel, the University of Kentucky’s daily student newspaper.
Tuesday, March 20th, 2012
While it’s well-known by now that women consistently earn less than men even though they often attain better education — 77.4 cents for every dollar earned by their male counterparts in 2010 — Bloomberg News’ Frank Bass reports a new development: this gap is widest on Wall Street.
Parsing census data, Bass found that the six jobs with the largest gender gap in 2010 were insurance agents, managers, financial clerks, securities sales agents, personal financial advisers, other financial specialists — all in “the Wall Street-heavy financial sector”:
The financial sector pays women in the six major jobs with the biggest salary gap from 55 to 62 cents for every $1 made by men, according to the census. Female bank tellers, with a median salary of $23,695, came closest to narrowing the gap in the industry, pulling down 96 cents for every $1 earned.
One reason female professionals make less money in the financial sector is that they tend to wind up in lower-paying positions such as in public finance rather than on trading desks, said Louise Marie Roth, a University of Arizona sociologist and author of “Selling Women Short: Gender and Money on Wall Street.”
Women often simply don’t know how much they’re being underpaid because a large percentage of Wall Street salaries are based on bonuses that are kept secret, she said.
The gap is hardly confined to the financial sector — wide disparities exist in many other high-education sectors, such as among doctors and lawyers — but it’s notable that all six of the job categories with the highest discrepancy are in a single sector.
Bass notes that “women who want to earn more on Wall Street than their male colleagues have one reliable option. They can set up a shoe-shine,” where women make $1.02 for every dollar men make.
This blog originally appeared in ThinkProgress on March 19, 2012. Reprinted with permission.
About the Author: Alex Seitz-Wald is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Alex grew up in California and holds a B.A. in international relations from Brown University. Prior to joining ThinkProgress, Alex interned at the NewsHour with Jim Lehrer on PBS and at the National Journal’s Hotline, where he covered key senate and gubernatorial races. Alex also co-founded and edited the Olive & Arrow, a blog on foreign affairs for and by young progressives. At Brown, he contributed to several publications and served on student government.
Wednesday, May 4th, 2011
Here are a few employee rights Short Takes worth noting:
It’s A First: Major League Baseball Player Takes Paternity Leave
National Public Radio recently announced that Texas Ranger’s pitcher Colby Lewis became the first major league baseball player to take paternity leave. The new MLB collective bargaining agreement allows players 24 – 72 hours off due to the birth of a child so Lewis took advantage of it. Shortly after the news, NBC Sports reported that another player, Washington National’s shortstop Ian Desmond, was also preparing to take leave to be at his wife’s side during the birth of their first child. It comes as no surprise that some folks aren’t happy about the new rule. For more, read here.
New Rules For The Americans With Disabilities Act
New regulations were issued by the Equal Employment Opportunity Commission and will take effect May 24th. The new rules were mandated by the ADA Amendments Act of 2008 (“ADAAA”). The law made significant changes with respect to the interpretation of the term “disability” under the Americans with Disabilities Act.
Before the amendments, many employees who were discriminated against were not protected because the courts narrowly construed “disability” and determined that they were not disabled. The change in the legislation, which is spelled out in the final regulations, makes it crystal clear that the term “disability” should be broadly construed to include coverage. As legal commentator noted:
The message from Congress and the EEOC for business couldn’t be any clearer. Stop focusing on whether someone is disabled and focus on the potential discrimination and reasonable accommodation.
The new regulations also list certain impairments which will almost always be considered a disability including deafness, blindness, autism, cancer, cerebral palsy, diabetes, epilepsy, and major depression. Employees with these disabilities were often excluded from coverage in cases interpreting the law before the ADA amendments. In other words, thousands of employees who had cancer, diabetes, epilepsy, etc. lost their discrimination cases because their employers argued, and the courts agreed, that they were not disabled under the ADA.
The bottom line is that thanks to the ADAA and the new regulations, ADA litigation will finally turn on whether the disabled employee was discriminated against – not whether he or she meets the definition of disabled under the Act. This is really good news and it’s about time. For more, read here.
Discrimination Lawsuit Raises Issue Of Who Is A Man
I ran across this very interesting story in the NY Times about a recently filed discrimination case and it’s worth talking about because it will make new law. The case is about El’Jai Devoureau, who was born a female, but identified himself as a man his whole life. In 2006, after he began taking male hormones and had a sex change operation, he adopted a new name, and received a new birth certificate from the State of Georgia which identifies him a male. His driver’s license and social security records also identify him as a male.
The legal problem for Devoureau came up when he began working part time as a urine monitor at Urban Treatment Associates in Camden. His job was to make sure that people recovering from addiction did not substitute someone else’s urine for their own during regular drug testing. On Devoureau’s second day, his boss confronted him stating that she had heard he was transgender. She asked if he had any surgeries. He refused to answer, stating that was private, and was fired.
Devoureau sued claiming discrimination. Michael D. Silverman, executive director of the Transgender Legal Defense and Education Fund said it was the first employment case in the country to take on the question of a transgender person’s sex.
New Jersey is one of 12 states that ban discrimination based on transgender status. The federal Employment Non-Discrimination Act (ENDA), which would provide basic protections against workplace discrimination on the basis of sexual orientation or gender identity nationwide was reintroduced in Congress in April.
In its defense, Urban Treatment claims that the firing was legitimate since the sex of the employee in this particular position is a bona fide occupational qualification (“BFOQ”), an exception to employment discrimination laws which permits an employer to give preference to one group over another in narrow circumstances. (for more about the BFOQ exception, see here)
This groundbreaking case will certainly be an interesting one to follow.
Fair Pay Act And Paycheck Fairness Act Reintroduced On Equal Pay Day
Data from the U.S. Census Bureau in 2009 shows that women who worked full time earned, on average, only 77 cents for every dollar men earned. The figures are even worse for women of color. African American women only earned approximately 62 cents and Latinas only 53 cents for each dollar earned by a white male.
Accordingly, Senator Tom Harkin most appropriately chose April 12, 2011 — Equal Pay Day — to reintroduce the Fair Pay Act of 2011. Harkin has introduced this bill every congress since 1996. The bill would require employers to provide equal pay for jobs that are equivalent in skills, effort, responsibility and working conditions. It would also require companies to disclose their pay scales and rates for all job categories.
Under current law a women who believes she is the victim of pay discrimination must file a lawsuit and go through what is almost always a long drawn out legal discovery process to find out whether she makes less than the man working beside her.
Many will recall that it took Lilly Ledbetter nearly 20 years before she discovered she was being paid less than men doing the same job which prompted her to file a lawsuit. After the U.S. Supreme Court ruled against her in 2007 — because it held that the case was filed too late — Congress passed the Lilly Ledbetter Fair Pay Act which helps level the playing field for victims of wage discrimination. The bill was signed in 2009 by President Obama – but it didn’t go far enough.
Harkin was also an original co-sponsor of the Paycheck Fairness Act which passed the House during the 111th Congress but was filibustered in the Senate. The Paycheck Fairness Act would close loopholes in the enforcement of the current equal pay laws, prohibit retaliation against workers for sharing salary information with co-workers, and strengthen penalties against employers for violations of equal pay laws.
The Paycheck Fairness Act was reintroduced on Equal Pay Day by Senator Kristin Gillibrand and Senator Barbara Mikulski. For more about it, read here.
It’s both disheartening and disturbing that women still must fight this hard for laws intended to effectively prevent wage discrimination which remains rampant in the workplace today. For more, read here.
images: blogs.orlandosentinel.com image.spreadshirt.com www.glbtq.comf
This blog originally appeared in Employee Rights Post on May 2, 2011. Reprinted with permission from the author.
About the Author: Ellen Simon is recognized as one of the leading employment and civil rights lawyers in the United States. She offers legal advice to individuals on employment rights, age/gender/race and disability discrimination, retaliation and sexual harassment. With a unique grasp of the issues, Ellen’s a sought-after legal analyst who discusses high-profile civil cases, employment discrimination and woman’s issues. Her blog, Employee Rights Post has dedicated readers who turn to Ellen for her advice and opinion. For more information go to www.ellensimon.net.
Wednesday, April 13th, 2011
Yesterday, equal rights advocates marked Equal Pay Day to remind the nation that women are paid just 80 cents for every dollar men earn, Sen. Tom Harkin (D-Iowa) introduced the Fair Pay Act of 2011 that would ensure that employers provide equal pay for jobs that are equivalent in skill, effort, responsibility and working conditions.
Harkin says that discrimination accounts for much of the pay gap and there are too many loopholes and barriers to effective enforcement of existing laws. “We need to strengthen penalties and give women the tools they need to confront discrimination.”
At the same time, we must recognize that the problem of unequal pay goes beyond insidious discrimination. As a nation, we unjustly devalue jobs traditionally performed by women, even when they require comparable skills to jobs traditionally performed by men.
Millions of jobs dominated by women such as social workers, teachers, child care workers and nurses are equivalent in skills, effort, responsibility and working conditions to similar jobs dominated by men says Harkin:
But the female-dominated jobs pay significantly less. This is inexplicable. Why is a housekeeper worth less than a janitor? Why is a parking meter reader worth less than an electrical meter reader? Why is a social worker worth less than a probation officer?
Commentator Debbie Hines writes on OpEdNews.com today:
Women’s salaries are outpaced by men almost everywhere from the highest paying occupation to the lowest paying occupations. Everywhere from doctors and lawyers to cashiers and lesser positions, women earn less than their male counterparts.
The Fair Pay Act would also require employers to publicly disclose their job categories and their pay scales, without requiring specific information on individual workers. Under current law women who believe they are the victim of pay discrimination must file a lawsuit and endure a drawn-out legal discovery process to find out whether they make less than the man working beside them.
It took Lilly Ledbetter nearly 20 years before she discovered she was being paid less than men doing the same job and was able to file suit. After the U.S. Supreme Court ruled against her in 2007, Congress passed the Lilly Ledbetter Fair Pay Act that helps level the playing field for victims of wage discrimination that President Obama signed in 2009. Says Harkin:
On this Equal Pay Day, let us make sure that what happened to Lilly never happens again by recommitting to eliminate discrimination in the workplace and make equal pay for equal work a reality
Click here for more information on the Fair Pay Act.
About the Author: Mike Hall is a former West Virginia newspaper reporter, staff writer for the United Mine Workers Journal and managing editor of the Seafarers Log. He came to the AFL- CIO in 1989 and has written for several federation publications, focusing on legislation and politics, especially grassroots mobilization and workplace safety. When his collar was still blue, he carried union cards from the Oil, Chemical and Atomic Workers, American Flint Glass Workers and Teamsters for jobs in a chemical plant, a mining equipment manufacturing plant and a warehouse. He has also worked as roadie for a small-time country-rock band, sold his blood plasma and played an occasional game of poker to help pay the rent.
This blog originally appeared in AFL-CIO on April 12, 2011. Reprinted with Permission.
Tuesday, March 29th, 2011
Hundreds of people will show their support outside the U.S. Supreme Court Tuesday, when the High Court hears oral arguments in what could become the largest class-action civil rights suit in U.S. history.
The Stand with the Women of Wal-Mart rally will take place as the nation’s highest court hears arguments on Wal-Mart v. Dukes to decide whether the case can move forward as a class action.
Ten years ago, a group of women who worked at Wal-Mart stores, led by Betty Dukes, filed a lawsuit alleging the corporation engaged in company-wide gender discrimination by paying women less than men, promoting fewer women to management positions and promoting male employees more quickly. The case, now a class action, has made its way to the Supreme Court.
Wal-Mart is challenging the decision by a lower court to allow the women employed at Wal-Mart stores across the country to join together in a class action lawsuit to challenge pay and promotion practices that discriminate against women.
If Wal-Mart succeeds in keeping these women from joining together, the already uphill battle for women to fight pay discrimination will get even worse. But If the women prevail, their case will become the largest class-action civil rights suit in the nation’s history, with some 1.6 million female Wal-Mart and Sam’s Club employees.
A coalition of women’s, workers’ and religious groups are sponsoring the rally, including the AFL-CIO constituency group, the Coalition of Labor Union Women (CLUW).
In a statement, the American Association of University Women (AAUW), another rally sponsor, says class action can send a strong message to employers to follow the law in the first place. Lisa Maatz, AAUW’s director of public policy and government relations, says:
This case illuminates the dirty little secret that women know all too well — that pay discrimination is alive and well and undermining the economic security of American families.
About the Author: James Parks’ first encounter with unions was at Gannett’s newspaper in Cincinnati when his colleagues in the newsroom tried to organize a unit of The Newspaper Guild. He saw firsthand how companies pull out all the stops to prevent workers from forming a union. He is a journalist by trade, and has worked for newspapers in five different states before joining the AFL-CIO staff in 1990. He also has been a seminary student, drug counselor, community organizer, event planner, adjunct college professor and county bureaucrat. His proudest career moment, though, was when he served, along with other union members and staff, as an official observer for South Africa’s first multiracial elections.
This blog originally appeared in ALFCIO on March 28, 2011. Reprinted with Permission.
Tuesday, February 2nd, 2010
One year ago, Obama signed the Lilly Ledbetter Fair Pay Act into law, ensuring that workers can go to court to protest pay discrimination. Now it’s time for the next step.
For almost twenty years, I got paid less than my co-workers. I was a woman doing the same work as the men on my team — and apparently, my gender was all the excuse my employers at a Goodyear tire plant needed to cut my paychecks. My salary was far lower, and I got lower raises – over and over again.
But one year ago today, to my amazement, the President signed the Lilly Ledbetter Fair Pay Act into law, which restored the law to make sure workers can go to court to protest pay discrimination.
And now it’s time for the next step. The right to go to court is important, but it isn’t enough. We need to do more to keep women from being discriminated against in the first place.
We need to pass the Paycheck Fairness Act. This bill gives teeth to the protections against pay discrimination. And women, who are still shortchanged in the workplace, deserve just that. The bill would empower women to negotiate for equal pay, create stronger incentives for employers to follow the law, and strengthen federal outreach and enforcement efforts. It would also strengthen penalties for equal pay violations.
But from where I sit, one of the most important aspects of the Paycheck Fairness Act is a provision that would prohibit retaliation against workers who ask about employers’ wage practices or disclose their own wages to co-workers. This would have been particularly helpful to me, because Goodyear prohibited my colleagues and me from talking about our wages. This policy delayed my discovery of the pay inequities between my male counterparts and me by — literally — decades.
For the past year, I’ve been speaking out to build up support of this bill, with the help of my friends at the National Women’s Law Center.
The bill has already passed the House, and now it’s up to the Senate. It is time to improve the law, not just restore it. You can count on my continued commitment to passing this Act and to ensuring that women will some day, as the President called for in his State of the Union, truly have equal pay for equal work.
About the Author: Lilly Ledbetter is a volunteer and mother of two. She resides in Jacksonville, Alabama.
Wednesday, January 6th, 2010
Photo by Martin Gardlin
A recent Time magazine poll found that 71% of Americans who responded want the government to place limits on the executive compensation at firms that received bailout money. Yet accomplishing this task selectively is impossible to do.
The government did appoint a czar of executive compensation for these corporations, but he approved a $7-million salary/$3.5-million bonus plan for the head of AIG, 80% of which is now owned by taxpayers. Few workers, executives included, would agree to work for less than the going rate. Executives are simply used to earning millions of dollars, and there is little that either the czar or shareholders can do about it unless Congress limits all executive compensation. But the chance of such legislation passing is slim.
Why is limiting executive compensation so difficult? Because executives have a seemingly unassailable argument — market forces — that University of Chicago professor Steven Kaplan defended in an October debate: “Market forces govern CEO compensation. CEOs are paid what they are worth.”
Of course, market forces are cited not only to justify outsized compensation for executives but also poverty wages for workers. Textbooks claim that minimum wage laws and union wages create unemployment. Just what are these market forces, and should we let them determine executive compensation and wages?
When British economists David Ricardo and Adam Smith examined this question 200 years ago, they concluded that what a person earns is determined not by what the person has produced but by that person’s bargaining power. Why? Because production is typically carried out by teams of workers, managers and machines, and the contribution of each member cannot be separated from that of the rest. A driver and a bus, for example, generate $100,000 of income a year. The driver is paid $25,000. Is this because the driver had transported 10 of the passengers without the bus while the bus had transported 30 of the passengers without the driver? The driver’s pay is so small only because the driver is so weak at the bargaining table.
It was Smith who explained that the bargaining power of each party is determined by the laws that the government passes and the way that it enforces them, and that, as a rule, the government sides with employers against employees. He was particularly concerned with anti-unionization laws. Had he witnessed the largesse that boards of directors are permitted to offer executives, and the government’s behavior toward executives in the current crisis, he probably would have added that the government also sides with executives against shareholders and taxpayers.
Despite the logic of Ricardo and Smith’s explanation that it is power, not productivity, that determines what people earn, the notion that people earn what they “deserve” persists. It dates to the Haymarket riot of 1886 in Chicago — in which police and labor protesters clashed and several policemen and demonstrators were killed — and the labor unrest that followed. Concerned about this unrest, John Bates Clark, a Columbia University professor, warned in an 1899 book: “The indictment that hangs over society is that of ‘exploiting labor.’ If this charge were proved, every right-minded man should become a socialist.”
It was thus with a clear political agenda that Clark took it upon himself to prove that the charge of exploitation of workers was dead wrong. Clark’s “proof” was to ignore the fact that production is carried out by teams and that individual contributions cannot be measured. He simply declared that the contribution of each individual worker and each machine could be measured, and that the earnings of either workers and executives or machines are simply the values of these contributions.
In this view, if the government were to raise wages by law, employers would have no choice but to fire workers, because no employer can pay out more than the worker puts in. And if the government were to set limits on executive compensation, the bright and the talented would choose to work less or limit the level of their performance.
Evidence that Clark’s theory is wrong — that production is carried out by teams and that astronomical compensation is not a requirement for good performance — can be found everywhere. In 1941, Wassily Leontief, a Nobel Prize-winning economist, tried to alert economists to the fallacy of Clark’s theory. But Leontief, like Ricardo and Smith, was ignored. And Clark’s tale that earnings are determined by productivity alone is still being taught around the globe.
Corporate executives take a different approach: picking the argument that suits them. When it comes to their workers’ wages, Clark’s theory rules: The wage of each worker is equal to the value of his or her product, and raising wages will cause unemployment. When it comes to the executives’ own compensation, however, they hide behind the idea that an individual’s contribution can’t be measured. So even when the corporations they run lose big and their stocks decline, they still collect millions in pay. Executive compensation is now so large that executives’ work effort no longer has any relation to the level of their compensation.
Adam Smith got it right: The remedy for the rule of power is the rule of law. We need new laws to check the unfair distribution of the fruits of our labor. One such law could set a maximum ratio at any given company between the highest executive compensation and the lowest worker’s wage. Another could set a minimum ratio for the division of income between labor and shareholders. Still another could raise the minimum wage and tie it to the median wage, which would make the minimum wage a consistent living wage.
Overpaid executives take more than their fair share and leave too little for the rest of us, threatening our health — and that of society.
Moshe Adler teaches economics at Columbia University and is the author of “Economics for the Rest of Us: Debunking the Science That Makes Life Dismal.”
*This article originally appeared in The L.A. Times on January 4, 2009. Reprinted with permission from the author.
About the Author: Moshe Adler teaches economics in the department of urban planning at Columbia University and is the author of the just published book: “Economics for the Rest of Us: Debunking the Science that Makes Life Dismal.”