The Marketplace Report: U.S. Workers and Wages
MADELEINE BRAND, host:
Back now with DAY TO DAY.
Since the 1970s, CEO compensation has gone from 40 times to more than 300 times the average worker salary. That's according to a study by Harvard University and the Federal Reserve, and Treasury Secretary John Snow says that's okay. In an interview with the Wall Street Journal today, Snow says it's just a labor market efficiently rewarding more productive people.
Joining us to talk about this is John Dimsdale in the MARKETPLACE Washington Bureau, and John, I imagine a lot of people are going to be upset by what Secretary Snow said. Tell us more.
JOHN DIMSDALE reporting:
Well, you know, he equated it to like a star system of corporate chief executives, sort of like baseball players and football players, and he equates CEOs to them. Now, he admits that he doesn't fully understand exactly why there is this star system, but he has faith that the marketplace, the labor markets, are setting pay levels efficiently. They're rewarding more productive workers, like you said.
BRAND: There was a lot of talk last year on Capitol Hill about challenging those increases in pay packages. Any evidence that's having an effect?
Mr. DIMSDALE: Well, there could be. There was a study out today from the Corporate Library, which is a corporate watchdog that advocates more shareholder activism in business, and they find that the rate of pay growth may be slowing. Whereas executive salaries rose about 30 percent in 2005, in 2005, they went up only 11 percent.
I asked the author of that study, Paul Hodgson, whether he shared Secretary Snow's faith in the efficiency of the markets to set executive pay.
Mr. PAUL HODGSON (Senior Research Associate, The Corporate Library): I would trust the market if the models for CEO compensation were constructed more efficiently than they are now. The only real long-term link between CEO compensation and the growth in the economy is the company stock price, and we all know that stock price can go up and down for all sorts of reasons that are outside management's control.
BRAND: Now, Secretary Snow also claimed that all Americans are sharing in the economic expansion. What's been the reaction to that?
DIMSDALE: Well, that's also raising a lot of questions. He told the Journal that per-person income has risen more than 8 percent since President Bush came into office, and that figure really differs from what most studies show average Americans--that they're struggling to hold onto their salaries. The Census Bureau, for example, reports that median family income fell 3.6 percent between 2000 and 2004. Now, median is the operative word there. Half of the families did better, half of them worse.
Secretary Snow is using averages, and the experts say that, you know, these big wage increases at the upper end of the wage scale pushed the averages way up. Many, if not most economists say that the lowest paid workers have seen the fewest wage gains since the recovery began in 2001.
Coming up later today on MARKETPLACE, Madeleine, there's a report that's kind of relevant to this. Why is the stock market hitting six-year highs?
BRAND: John Dimsdale of public radio's daily business show, MARKETPLACE, and MARKETPLACE is produced by American Public Media.
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