Fighting the Income Divide
Income inequality is a major threat to America. Among developed nations, the US has by far the greatest inequality. This leads to higher crime rates, lower life expectancy, higher rates of poverty, a larger number of welfare recipients, lower levels of happiness, and decreased child well-being.
These claims are backed up by extensive research of income disparities within the United States, as well as by the views of the general public. Gallup poll results from 2014 cite the American dissatisfaction with current income and wealth distribution in the US. Within America, 67% of survey respondents stated that they were at least somewhat dissatisfied with current wealth and income distribution, while only 7% were very satisfied with the current situation. The majority of respondents of both major parties and the politically unaffiliated were all dissatisfied with this current inequality situation. Wealth distribution can be viewed as a bipartisan issue, from analysis of this data.
Public health researcher Richard Wilkinson describes the negative trends correlated with income inequality, in his TED Talk speech:
“We collected data on problems with social gradients, the kind of problems that are more common at the bottom of the social ladder. Internationally comparable data on life expectancy, on kids’ math and literacy scores, on infant mortality rates, homicide rates, proportion of the population in prison, teenage birthrates, levels of trust, obesity, mental illness — which in standard diagnostic classification includes drug and alcohol addiction — and social mobility. We put them all in one index. They’re all weighted equally. Where a country is a sort of average score on these things. And there, you see it in relation to the measure of inequality I’ve just shown you, which I shall use over and over again in the data. The more unequal countries are doing worse on all these kinds of social problems. It’s an extraordinarily close correlation. But if you look at that same index of health and social problems in relation to GDP per capita, gross national income, there’s nothing there, no correlation anymore.”
This proves that not only are income disparities a concern for most Americans, but that it is a real issue that affects the whole of society.
In addition to having negative societal impacts, high levels of income inequality also hurt the economy. When a large majority of a society has very little money while the few rich hoard the nation’s gains from economic growth, economic growth slows down. This is largely because the median consumer doesn’t have enough money to pay for goods and services. According to the economic policy institute, ever since median wages began to grow slower than economic productivity in America, economic productivity growth has been halved. This clearly demonstrates economic harm. The median wage stagnation is caused by the rich taking in a larger percentage of GDP growth, which accounts for the slower income growth of the median worker.
However, there is a solution. If America enacts a law that limits the highest-earning person’s compensation at a company to a government-determined multiple of the lowest salary at the same company, then inequality will decrease. This type of policy is to be referred to as Wage Ratio Legislation.
Wage ratio policy has roots in history reaching back to ancient times. The philosopher Plato suggested in 400 B.C. that Athenian incomes of the wealthiest residents should never exceed five times the income of the poorest residents. In the late 1800s J.P. Morgan suggests that businesses should adhere to a ratio of 20:1 between the richest and poorest workers of a company. Many companies, such as Mondragon Co-Operative Corporation, Ben and Jerry’s, SEMCO SA, and Whole Foods voluntarily created wage ratio policies internal to their own workforces. In 2010, David Cameron, the British Prime Minister from the Conservative Party, proposed a 20:1 wage ratio policy for public services in the UK. In 2013, Switzerland held a referendum in an attempt to adopt a 12:1 national wage ratio policy.
While societies throughout history have shown interest for a wage ratio policy, current statistics show why America needs this type of law now more than ever. As shown by an AFL-CIO study, America’s CEO-to-worker pay ratio is the highest of 18 developed nations, at 1:354, while the next largest ratio is in Canada, at only 1:206 (AFL-CIO). This statistic proves that America is by far the developed nation with the most income inequality within its businesses.
Our nation’s economy was not always like this. Inequality between executives and workers has grown, as is shown by the Economic Policy institute:
“From 1978 to 2014, inflation-adjusted CEO compensation increased 997 percent, a rise almost double stock market growth and substantially greater than the painfully slow 10.9 percent growth in a typical worker’s annual compensation over the same period.”
By looking at the history of the US economy, it seems to be out of control. How do we make sure that both bottom and top earners get fair shares of economic growth? The answer is simple: Wage Ratio Legislation. It directly limits the growth rate of earnings of the upper class to the growth rate of the lower earners.
Proponents of Wage Ratio Legislation want executives’ wages to be limited by how much they pay their workers. Critics of this type of law want executives who work hard expanding businesses to benefit from their work, as in a free market system. The solution to the critics’ concerns is an adjustment factor. The adjustment factor increases a company’s maximum wage ratio by a set value for each worker employed by the company. This keeps the limit on executive pay relative to worker pay, while at the same time rewarding entrepreneurs for growing their businesses and for hiring more workers.
Wage Ratio Legislation will have countless other benefits. Aside from simply reducing income inequality which improves society according to the research of Richard Wilkinson, Wage Ratio Legislation ensures that worker purchasing power will rise along with inflation. If the value of US currency decreases and executives are compensated for a loss of purchasing power, workers will see the same percent boost in their incomes.
A national wage ratio policy will also decrease government spending on welfare programs, since workers will have higher wages & more purchasing power. This welfare spending will be further decreased by an overall increase in economic prosperity across the nation. This prosperity will stem from higher wages, which leads to more spending in the economy. This extra spending creates a demand for more goods, which allows businesses to create jobs in order to fill the demand. Morale and productivity are increased. As businesses grow more successful, executives will gain larger incomes. Since the Wage Ratio Legislation ensures that an increase in executive pay leads to a similar percentage increase in worker pay, this will translate into higher wages for workers whenever the economy grows. Therefore, the trickle-down economic system will be a success under the supervision of our proposed law.
When workers believe that their company’s pay is fair and equal, they will be more willing to work hard to make their company succeed. They will also be more able to work hard since they will not have to spend as much time worrying about financing their day-to-day necessities and expenses.
Public school districts will be better as well, since a higher tax revenue in areas that suddenly have higher-paid workers will result in more funding for local school systems. This creates a more educated and sought-out workforce, attracting companies around the globe to invest in hiring American workers.
Wage Ratio Legislation doesn’t have the potential to hurt small businesses because the ratio is too large to affect these businesses. If a small business owner isn’t making a lot of money or is making an average business owner income, the company would already be well within the allowed wage ratio. This law would only affect businesses that can easily afford to pay workers more, take a pay cut, or both. The average small business owner makes $68,000 annually, which is more than eleven times less than the minimum income that could possibly be affected by Wage Ratio Legislation using the hypothetical ratio of 1:50+(.0003*number of employees) suggested by our organization. On the other hand, S&P 500 companies top an excessive median CEO compensation of $10 million. According to the US Census, 50.8% of workers are employed at large businesses with 500 workers or more each. At the same time, only 17.3% of US businesses have 500 workers or more. This shows that while a majority of workers in the US work at companies that will likely be affected by Wage Ratio Legislation, a very small percentage of business owners will actually be affected. Essentially, Wage Ratio Legislation helps a majority of workers while regulating a tiny minority of rich business owners, while freeing many other business owners from regulation who cannot afford to pay. The only people who must pay as a result are those who keep an unfairly large share of wealth and economic growth for themselves.
While this law is beneficial to the working class, many people may have concerns about loopholes. Many of these have already been addressed, and others will be solved when a more detailed version of the law is written. For example, the Wage Ratio Legislation will include contracted workers in addition to employees. Part-time workers will be included by defining the number of hours in a year of a full-time job, and multiplying hourly wages by this number of hours. In the adjustment factor, part-time workers will count as fractions of workers, based on what percentage of a full-time job’s hours that they work in a year. If a company makes a profit exceeding the margin set by the wage ratio, that company must put this excess capital towards either workers whose raise in yearly income will not exceed the ratio, towards taxes to the federal US government, or both.
In addition to loopholes, wage ratio critics have other concerns. Some believe that companies would move jobs overseas as a result. However, this is false, as direct service jobs cannot be outsourced. These jobs account for 7 of the 8 lowest-paying types of jobs in America. These eight types include food preparation and food service workers, dishwashers, cashiers, hosts/hostesses, amusement park attendants, movie theater ushers/ticket takers, farm workers, and personal/home care aides. The only one of these that is not a direct service job, farm workers, will not likely be outsourced further due to existing crop subsidies and climatic differences.
Additionally, as workers make more money due to Wage Ratio Legislation, there will be a greater demand for goods and services in America. As a result, more direct service jobs will be necessary, and both large and small businesses will create more of these jobs to cater to the increased demand for products.
Due to the above arguments, we urge the American people to collect petition signatures, to contact their representatives and senators in Congress, and to help further the wage ratio cause. If the working class unites behind this idea, we’ll all see an improvement in our quality of life, our incomes, and in the nation as a whole.
