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Income Inequality in the U.S. is Growing at an Unprecedented Pace

How many times have we heard CEOs state that they had to outsource because they couldn’t afford to pay higher wages to American workers? How many executives have complained that if we raise the minimum wage we are going to make the U.S. less competitive? Many of those same executives have also told us that unions are to blame. They argue that unions have made too many demands on behalf of workers, forcing companies to move their headquarters to other states or even other countries.

So why is it that since 1979, the before-tax income of the top 1 percent of America’s households has increased more than four times faster than the bottom 20 percent? In other words, companies don’t have enough money to pay their employees more and yet CEO’s income continues to rise at an unprecedented pace. The average ratio of CEO compensation to worker is now 347 to 1. That has grown from 42 to 1 in 1980*. And while the stock market is at an all-time high and companies are making record profits, many Americans are struggling to pay their bills every month and are one catastrophe away from complete financial ruin. The hypocrisy is almost laughable.

This trend is not new, but the disparity in economic equality has grown at a phenomenal pace and many American’s do not even realize how large the gap has become. Chris Rock said it best when he stated that “if most poor American’s knew how wealthy the richest Americans really were, there would be riots in the streets.” In a paper written several years ago by Michael Norton and Dan Ariely, they analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the percentage of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. The average American believed that the richest fifth own 59%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth. The Walton family, for example, has more wealth than 42% of American families combined.

Unfortunately, with the new tax law that is being put into place, we may see the disparity increase even further. Politicians are telling Americans that the corporate tax cut will lead to more investment in the U.S. and more jobs. Companies like Walmart announced that they will be raising the minimum wage for employees to $11.00 as well as giving out bonuses, and they attribute these benefits to the new corporate tax rate. While that seems like great news, that still means that a full-time employee will earn less than $23,000 per year. In addition, Walmart also announced that they will be closing 63 Sam’s Club stores and laying off thousands of employees.

Obviously, companies need to do what is necessary to stay competitive and keep their stockholders happy. However, why is it that American workers always seem to bear the brunt of cost-savings measures? According to Meridian Compensation Partners, the average annual total compensation for CEOs of companies in the S&P 500 in 2015 was $12.0 million. Maybe shareholders should start demanding that CEOs cut their pay first before they put thousands of their employees out of work.

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