UNCOMMON COMMON SENSE

By Bill Frayer

Fair Pay for Fair Work?

 

Bill-Frayer-2010Now that baseball season is back, I am reminded of the fact that Alex Rodriguez’ suspension will save the Yankees lots of money this season. His salary for 2013 alone was $28 million. That’s almost $173,000 a game, approximately four hundred times the salary of an average American wage earner. How can anyone justify such remuneration? The common justification we hear is, “He’s paid what he’s worth.  If he can demand that kind of money in the free market then, by definition, he’s worth it.” I don’t think we should buy that argument.  

Robert Reich, an economics professor at the University of California at Berkeley, who served in the Ford, Carter, and Clinton administrations, has been writing widely about the problems of growing income inequality.  The statistics I am using here come from his research. Now there are 1,085,000 people in the United States working for the minimum wage. The federal minimum wage is presently $7.25 per hour. The average pay for CEO’s at the top 350 firms was over $14 million in 2012, or 933 times the pay of the minimum wage worker.  I agree that the CEO’s are highly educated and sometimes provide valuable services to the companies they head, but no one’s labor is worth over 900 times another person’s labor!  Even if we compare the CEO’s wages with that of the average American worker’s wage of $44,000, that’s over 300 times higher. 

The average Wall Street bonus was about $164,000 last year. The total money expended just on bonuses for Wall Street executives was $26.4 billion. That’s enough to double the salary of all minimum wage workers in the United States! 

Fifty years ago, the average GM worker earned $35 per hour, and those jobs were frequently held by workers with a high school education or less.  Today, with a considerably higher cost of living, the average Walmart worker gets $8.80 an hour.  Fifty years ago, about a third of American workers belonged to unions; today only 7% of private-sector workers are unionized.  Complain about unions all you want, they served to more fairly distribute the money within corporations.  With union membership falling, the CEO’s are getting more while the workers are getting less.

This brings me to the primary question. Do people really earn money based on what they’re worth? That’s the myth of the free market, but it’s laughably false.  Why should a guy who can whack a baseball over a fence earn significantly more than a surgeon who can fix a heart or a brain? Why should that surgeon earn so much more than a front-line family practice physician?  Why should that family practice physician earn so much more than a good tax accountant? Why should the tax accountant earn more than an experienced teacher? Why should almost everyone earn significantly more than a Walmart worker? Of course, pay should be based on the amount of training one needs to acquire the skill level required to do the work, but we are not paying people based on what they’re worth.

My wife and my three children and I have all chosen to earn our living in education and social work; as a result, and we knew this going in, we all have earned less than others with similar or less education and training.  That’s fine.  We understand that.  But is that all we’re worth?  Isn’t it fair to ask if CEO’s, surgeons, and yes, baseball players are really worth the exorbitant sums they are paid.  We will never address the income inequality until we answer that question honestly.

 

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#1 Margaret Larson 2014-06-01 23:11
Unfortunately, the pay rates for baseball players vs. doctors vs. teachers vs. social workers are apples, oranges, pears and bananas. As much as we all like fruit salad, indeed you can mix it together but each fruit retains its flavor.

The pay level of jobs must be considered within the context of its respective 'professional segment,' or 'professional community.' In a capitalist country driven by market forces, to be considered within each 'professional community' are: experience and educational merit; revenue type/source and liquidity; competition for talent; and, unfortunately, plain old 'who's your Daddy.'

All that said, the real reason that CEO pay is so high is because of the rise in the power of the mutual funds, which has allowed boards of directors to maintain cozy relations with their superstar CEOs via a 'sky's the limit' compensation policy, with little interference from the average dazed-and-confu sed investor (a majority of us). Most public company boards of directors are stocked with wealthy individuals whose only real talent is wielding a rubber stamp, and without overseers imposing limits, pay rises beyond what is rational. As far as sports stars go, the American public is willing to pay hundreds of dollars per game to watch them play, are willing to contribute a large share of their local taxes to build them arenas in which to play, and then gobble up the endorsed products. If no one showed up for the game in protest of high salaries, or they forbade the tax bonds use to pay for the arenas (and instead insisted on the bond money going to schools), things would change.

Surely, we need a correction on the minimum wage in the USA, because recent history has shown that market forces do not support the standard of living that anyone would want for a fellow American ... without a minimum wage, the poor would be exploited within their poverty just as easily at $3.00 and hour as they can at $7.50. But otherwise, I fear that we're stuck with the high pay rates until there is some committed civic action on the matter, within the 'professional community' (for the underpaid), and with those who access it as a client (for the overpaid). Seems that the responsibility of a democracy strikes again!

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