Research Desk: How has the CEO/employee pay gap changed?
By Dylan Matthews,
Tom Cantlon asks via e-mail:
I’ve wondered how much more workers would have if the ratio of top-wages to typical-wages were similar to the ’60s.
The Economic Policy Institute’s State of Working America project has the numbers you want. Here’s how the ratio of average CEO compensation to average production worker compensation has changed from 1965 to 2009:
The early ’90s and early ’00s recessions led to downticks in the ratio, with the latter drop being more dramatic, presumably because of the collapse of dot-com executive pay when the tech bubble burst. A similar drop has happened due to the financial crisis.
According to the EPI figures, the average CEO received $8,917,000 in compensation in 2009, while the average production worker got $48,130. If this 185.3 ratio were narrowed to 1965’s 24.2 figure solely by increasing average production worker pay, then the average production worker would get around $368,471. If it were narrowed solely by reducing average CEO pay, then the average CEO would get $1,164,746 a year.
If achieving that kind of ratio again is even possible, it would come about through a combination of the two, but most likely the shift would come primarily through lower CEO pay. One could imagine a very steeply progressive income tax with rates that keep rising for incomes over $1 million taking a big bite out of a nearly $9 million compensation package. By contrast, it is difficult to conceive of a policy change that would lead the average manufacturing worker to increase their pay nearly eightfold without changing executive pay.