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What Does Widening U.S. Income Gap Mean for Future of Economy, Americans?

The jobs report for April was released Friday as well as a new report that finds executive pay is soaring at a level higher than that of 2007. Jeffrey Brown discusses the findings with AFL-CIO Office of Investment’s Vinetta Anand and The Council on Competitiveness’ Deborah Wince-Smith.

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    The jobs numbers for April were released on the same day, today, as a new report that finds executive pay is soaring once again.

    Jeffrey Brown picks up that part of the story.


    The Associated Press, which released the study on CEO compensation, put it this way: In the boardroom, it's as if the great recession never happened.

    CEO pay, including salaries, bonuses, and stock options, was up 24 percent last year, to a level higher than 2007, just before the recession hit. The 10 highest-paid executives made a combined $440 million. Six of them came from the world of media and entertainment, including the heads of Viacom and CBS.

    The study came a day after the Fortune 500 list was released, showing corporate profits increased by 81 percent last year, or more than $300 billion.

    And we look more at pay, profits, and jobs now with Deborah Wince- Smith, president and CEO of the Council on Competitiveness, a nonpartisan group that works with business, universities and labor to enhance American competitiveness. And Vineeta Anand, she studies corporate governance and other issues as chief research analyst in the AFL-CIO Office of Investment.

    Welcome to both of you.

    VINEETA ANAND, AFL-CIO Office of Investment: Thank you.


    Deborah Wince-Smith, I will start with you.

    Start with the CEO pay issue. What explains the fast rise and quick return to pre-recession levels?

    DEBORAH WINCE-SMITH, Council on Competitiveness: Well, I think one of the main issues is that we're seeing tremendous success of U.S. corporations, in terms of their profits, their revenue and their share value.

    So, that is a good sign that shows that we are continuing to rebound from the recession and that we are really going to see increased productivity and standard of living that ultimately comes from this wealth generation.


    Vineeta Anand, a good sign to see these hikes in CEO pay?


    Well, actually, as shareholders — and we are shareholders representing workers through the pension plans — we are very worried, because CEOs and the rich have gotten richer in the United States, whereas everybody else has been left behind.

    The disparity has grown so that, in 1980, CEOs made about 42 times the pay of an average worker. And in 2010 it was 324 times. So, that's a huge jump. And it is as if the recession never happened.

    You quoted the AP numbers. And our own database we launched earlier last month, Executive Pay Watch, showed that 299 of the S&P 500 CEOs made a collective $3.4 billion. And that could support 103,000 workers making average wages.


    Well, Deborah Wince-Smith, what — that reflects what a lot of people wonder. And we just heard a segment where we talked about slower growth and a lot of people feeling pain for a long period of time. So, what's the other side of the — the positive sign that you are seeing in CEO pay growth?


    Well, putting aside CEO pay growth, I think what we really need to look about — look at is the fact that what is going on in the global economy is a fundamental restructuring.

    We have really left a 20th century non-high-skilled economy. The jobs of the future are requiring entirely different skill sets. So the disparity we're seeing in income is often directly linked to educational levels and skills levels.

    You know, we can't in the United States compete on low wages or standardized products or services. We have to compete on this higher-value work. Now, the fact is the American worker is 10 times more productive than a worker in China. In the long run, that is fantastic.

    But, of course, it means that automation, the use of all these new technological capabilities that drive this productivity does displace workers who don't have those skills and where we don't need those types of performance anymore in the workplace.


    And does — and…


    So, really, what we need to be focused on is, how do we transition to this new economy? How do we have the education, the skills and the training so we can really capitalize on our entrepreneurship, our innovation, our great research and development?

    Because we can't really be looking back. We have to look forward.


    Vineeta Anand, a new economy?


    Well, you know, Jeff, we have been talking about a new economy since the 1980s. We have been talking about how the United States left behind manufacturing and moved into service, and now into the information age in the 21st century.

    But the fact of the matter remains that what you are seeing is almost 14 million people are still unemployed, as Judy said a little while ago, and, as David Leonhardt said a little earlier in the show, that if the jobs continue to grow at the rate they're growing, we're in a really troublesome spot.

    So, it is not education. It's not that we lack the technical skills. It's the fact that companies are not hiring. In 2010, they had a record $1.89 trillion of cash on their balance sheets. They are not using it to create jobs.


    Well, that goes — Deborah Wince-Smith, that also goes to this other study we cited, the Fortune 500, and the huge growth in corporate profits.

    And, yet, there's still — we have — we heard it again just now. We have been hearing it for months. There's a — it's better on jobs, but there's still a reluctance to hire.


    Well, first of all, I want to say that we are really a great manufacturing nation. And there is a big recognition at the Council on Competitiveness — we're working on this — that we have to not only maintain our manufacturing prowess; we have to lead this whole new change in how things are designed, built, logistics, supply chain. This is a tremendous opportunity for our country.

    But, you know, the issue of corporate profits, companies sitting on, you know, over $1.5 trillion, where are they investing it? Are they investing it in the United States? There is a global race for the best investment, the best high-value activity.

    And, so, what is the environment for that capital? You know, we had some very powerful data at the council about three years ago that the value of profits U.S. companies make outside the United States is three times the value of all our exports.

    But are they bringing that money back? Well, they are facing double taxation. We're facing the highest corporate tax rate in the world, a very tough regulatory environment. So are the jobs going to be here, or are these jobs going to be around the world, where there is tremendous demand and also where there's a growing middle class?

    You know, 80 percent of all middle-class consumers will be outside the United States by 2020. So, we have to make sure that we are not hobbling our companies' determination of their investment by things that put us uncompetitive against the rest of the world.

    Let's not compete on the cost of capital and on wage structure. Let's compete on invasion and high skills.

    And one thing I want to add, we have a tremendous shortage of middle skills. Do you know a skilled welder in this country, without a college degree, but high technical skills, makes $100,000 a year, and we're begging for them.


    Well, I mean, it's interesting, Vineeta, and there's a lot of things you would agree on about the kinds of things that need to be done. But you're — you're saying you're worried, in the meantime, that this is all — this is all exacerbating income inequality.



    Actually, in 2009, income inequality rose to levels that we saw before the Depression. The top 20 percent of Americans controlled 90 percent of all wealth. In the meanwhile, the median household wealth fell to about $62,000.

    So, what we're seeing is, the divide is continuing to grow. And the reason for that is, very largely, that the rich are getting richer. CEOs are continuing to make more money. Last year, as AP said, 24 — a 24 percent increase — we said 23 percent increase — but the fact remains is, the average worker who had a job got a 3.3 percent raise, and many people didn't even get a raise.

    So, while I agree with Deborah — I think she's right in one sense. We need to bring jobs back to the United States. But we also need to have the government help. The government has to help create jobs. We have to invest in the infrastructure. We won't get up to the levels we saw in the Clinton administration otherwise. We had a 3.5 percent unemployment rate. Does anybody remember that?


    All right.

    I don't know the answer to that, but we will continue this discussion.

    Vineeta Anand, Deborah Wince-Smith, thank you both very much.


    Thank you.

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