Wages and their impact on hunger and poverty
ASK THIS | February 27, 2005
News organizations should investigate whether soaring executive pay and a stagnant minimum wage may be contributing to poverty in America. (Fifth in a series)
By Joel Berg
Q. How, if at all, has the growing gap between executive pay and worker pay contributed to the increasing poverty, hunger and food insecurity in America? How has the ratio between corporate pay and the pay rate of average employees changed over the last few decades? When executives ask their employees to take pay cuts or work over holidays for free (as U.S. Airways executives did recently), do they cut their own pay?
Q. How has the federal minimum wage of $5.15 an hour – as well as other government policies that keep wages low for many workers – contributed to the increasing poverty, hunger, and food insecurity in America? Why has Congress raised its own salary seven times (to the current level of $158,000 annually) since it last raised the minimum wage (which equals about $11,000 a year for full-time work) in 1997?
The gap between executive pay and the pay of average workers in America is higher than at any time in modern history, and far exceeds the gap in Western Europe or Japan. In the 1990s, executives defended this pay as a logical response to soaring profits, but as profits waned the pay continued to soar.
According to the group United for a Fair Economy, "After declining for the last two years, the gap in pay between average workers and large company CEOs surpassed 300-to-1 in 2003. In 2002, the ratio stood at 282-to-1. In 1982, it was just 42-to-1... According to Business Week’s 54th Annual Executive Compensation Survey…the average large company CEO received compensation totaling $8.1 million in 2003, up 9.1 percent from the previous year. Business Week’s survey covers the 365 largest companies that have reported their executive pay to date.
“The average production worker fared less well in 2003. Their annual pay was $26,899 in 2003, up just 2.1 percent from 2002 according to the Bureau of Labor Statistics. The average worker took home $517 in their weekly paycheck in 2003; the average large company CEO took home $155,769 in their weekly pay. If the minimum wage had increased as quickly as CEO pay since 1990, it would today be $15.71 per hour, more than three times the current minimum wage of $5.15 an hour."
The link between soaring executive pay and poverty
From these figures I think it's fair to say that executives have, in effect, chosen to give themselves massive pay increases INSTEAD OF paying their rank-and-file workers more. For instance, according to the AFL-CIO executive pay database, David N. Siegel, president and CEO, US Airways Group, earned $8.996 million in total compensation in 2003, including stock option grants.
Airline industry-wide entry-level flight attendants often earn $13,000 in their first year. I am not sure how much they make at US Airways but let's say for the sake of argument that they make $2,000 more than the industry standard, or $15,000 a year. That is still about $2,000 below the poverty line for a family of three.
Thus, if the head of the airline paid himself merely $1 million a year, that would give the airline an extra $7.9 million for additional wages for flight attendants. If you divide $7.9 million by $2,000, that equals 3,950. In other words, if the head of US Airways paid himself "only" one million dollars per year, he could provide fully 3,950 entry-level flight attendants a raise of $2,000 each, enough to potentially lift them from below the poverty line to just above it. If every other significant US Airways executive did likewise, they could significantly increase salaries for many of their employees facing poverty. Given that poverty is the main cause of hunger in the U.S., such a step by high executives in every industry would also decrease hunger.
Some conservative economists would argue that executive compensation is totally unrelated to worker pay, but I think recent history proves that such a claim is hogwash. In the 90s, they argued that top executives earned a lot of money because they took in great profits for their shareholders and boosted the economy. So what is the justification for such high salaries when companies are losing money and may even face bankruptcy? The honest answer is that executive compensation is often set in a highly arbitrary manner unrelated to market conditions, often by corporate boards full of cronies who ask few questions. If they chose to, they could easily reduce the gap between executive and worker pay, thereby decreasing hunger.
Between the end of the Depression and the mid 80s, most full-time workers earned enough to feed their families, but workers' wages since then have not kept pace with rising housing, day care, health care, and other costs. Today, many full-time workers can't afford to feed their families and must rely on food pantries. That is how the pay gap directly increases poverty, and thus hunger.
While Congress has raised its own salary seven times since 1997 (most recently, to $158,000 per year), it has failed to raise the minimum wage even once during that time. The federal minimum wage remains only about $11,000 for a full-time year of work, $5,000 below the poverty rate for a family of three. According to the Minnesota Budget Project, "The value of the federal minimum wage has eroded significantly during the past twenty years. Even after increases in the 1990’s, the value of the minimum wage is still 24 percent lower than in 1979. To have the same buying power as in the 1970's, the minimum wage would need to be $6.80 an hour, rather than $5.15 an hour as it is today.
Additional experts who can be contacted by the press:
Ellen Vollinger, Legal Director, Food Research and Action Center
Betsy Leondar-Wright , Communications Director, United for a Fair Economy
617-423-2148, ext. 13