CEOs and Income Inequality

      

Income Inequality 2025

 

This week the Connecticut Mirror, an online news source, reported on a study by the AFL/CIO that indicated there was a growing disparity between the income of corporate CEOs and ordinary workers. The Connecticut Mirror likes to run such stories since they seem to provide hard statistical evidence for its pet issue of inequality in Connecticut, whether it be racial, gender or economic. 

Considering that the source of this story is a large labor union, one should be careful about evaluating its results and conclusions. Actually, one only has to read a couple of paragraphs of the Mirror article to see that the AFL/CIO study is a classic, self serving case of comparing apples to oranges. 

In the first place, the study compares the average compensation of CEOs in large corporations to the median compensation of all other employees of these companies. I don’t want to bore readers with a discussion of the difference between “average” and “median” but using one or the other can be statistically significant. The “median” batting average of the NY Yankees would be the number that half the team is over, and the other half is below. Outliers like Aaron Judge with his .350 average would have little impact on the median figure, but a large impact on the team average. 

Not only does the AFL/CIO study compare the “average” compensation of CEOs to the “median” compensation of all other employees, but also, it includes the total compensation of CEOs, including stock options and bonuses, but excludes the value of benefits like health insurance and retirement contributions received by ordinary corporate employees.

Moreover, the AFL/CIO study includes part-time employees in its calculations, something that obviously drives down the median income figure.  On the other hand, it does not factor in the huge amount of income tax that would effectively reduce average CEO compensation. *

Nevertheless, the study concludes that the disparity between CEO compensation and ordinary corporate employees reached an all-time high of 285-1 in 2024, up from 268-1 in 2023. One union executive claimed that the numbers in the study “only begin to scratch the surface of how runaway executive pay is fueling economic inequality.”

The Connecticut Mirror headline agreed, “Report: Gap between CEO and worker pay is widening in US, CT.” It makes you wonder if reporters and editors read their own stuff. The article did report that median income in Connecticut is about $60,000 per year, 50% higher than the national median income of about $40,000. Apparently, half the people in Blue State Connecticut make more than $60,000 per year. 

Ironically, the AFL/CIO reported alarming income inequality in 2024, the last year of the Democratic Biden Administration. In Connecticut, Democrats have also ruled for decades.

 

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* Note: For those interested in a more professional examination of these figures, here is a Weekly Bystander post originally written during the first Trump administration.

I have long suspected that the statistics used by progressive advocates to complain about income inequality in America were either flawed or misrepresented. In the June 25 edition of the Wall Street Journal an opinion piece co-authored by Phil Gramm, a former chairman of the Senate banking committee, and Robert B. Ekelund, Jr., a professor emeritus in economics at Auburn University, bore out my suspicions.

The authors cite a new study prepared by the Cato Institute’s John F. Early, a former assistant commissioner of the Bureau of Labor Statistics that provides the “most comprehensive accounting to date of how taxes and government payments affect income distribution in the U.S. Apparently, the traditional statistics used by the Census Bureau do not take into consideration about $1 Trillion dollars in annual government spending.

The value of Medicaid, food stamps, the earned income tax credit and about 85 other Federal government programs is not included. Also, state and local income supplements are not included in calculations of income. On the other hand, reductions in income due to all sorts of taxes are not factored into income distribution statistics.

Here is the authors' conclusion. 

“The most surprising finding is the astonishing degree of equality among the bottom 60% of American earners, generated in part by the explosion of social-welfare spending and the economic and wage stagnation during the Obama era.”

In 2013 the income of the bottom 20% in this country amounted to only 2.2% of total earned income but when other forms of income and taxes are factored in, its share jumped to 12.9%, a six-fold jump in earnings. Similarly, the next 20% saw its share of the nation’s income jump from 7% to 13.9%. 

When we get to the middle class in the next 20% or third quintile, their total income was not far from their earned income. Primarily wage earners, this group took home only 15.4 % of the national income, not much more than those in the two quintiles at the bottom. 

The real inequality, however, is in the fact that this group had to work for most of its income while those in the lower quintiles did not. In fact, many of these middle income families had to work two or more jobs to just stay even with those in the lower quintiles. 

Not surprisingly, when taxes are taken into consideration, even the well to do in the top 20% saw their share drop from “57.7% of earnings to 39.3% of consumable income.” I suspect that a society in which the top 20% make only 40% of the consumable income is unprecedented in American or even world history. Even in Communist countries like the former Soviet Union, China, and Cuba, the disparity between rich and poor was much greater.

Based on these new statistics it would appear that income inequality is not the great problem that progressives make it out to be. According to the authors, a much greater problem is the discontent in people who have to work hard to have the same spendable, after tax income of people who do not work at all.

Rather than Russian collusion or Hillary Clinton’s lackluster campaign, Senator Gramm and Professor Ekelund believe that it was this discontent in the middle class that led to Donald Trump’s victory in 2016. The headline above their article was "How Income Equality Helped Trump." The Gramm/Ekelund article was adapted from their forthcoming book, “Freedom and Inequality.” Progressives will never stop complaining about income inequality, but it was income equality that did them in in 2016. 

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