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  • 11.11.15

What Americans Think About Income Inequality

CEO pay is too high and wages are too low.

What Americans Think About Income Inequality

In the “dismal science” of economics, few things are more surprising than a best-selling book. Last year, Capital in the Twenty-First Century by French economist Thomas Piketty achieved such a status. The book explores in great detail the distribution of wealth in the past two centuries, and Piketty notes that it was only midway through the 20th century that the world saw its first ever large-scale study on income inequality (conducted by American economist Simon Kuznets). Prior to that, it wasn’t even possible. What changed things was something we all love to hate: taxes.

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It was around World War I that many countries adopted a progressive income tax. In order to make that work properly, you have to know how much money people make. Thus began a gathering and recording of information that, coupled with other tax information, has given us a steady supply of data on income levels for almost a century, enabling us to speak definitively about income inequality.
In Piketty’s book, the graph of the level of income inequality in America over the last hundred years looks like a “U” drawn by someone who got drunk two-thirds of the way through. It’s a high, straight-ish line until 1940, when it takes a straight drop and becomes a low straight-ish line until the 1980s, when it begins a steady, slanted climb. It’s also noteworthy that inequality was highest in the late 1920s, right before the Great Depression.

Until now, that is.

Dmitry Nikolaev via Shutterstock

Today, more than half of all income is going to the top 10% of Americans, and the top 1% are pulling in 22% of that income, which is more than twice as much as they did in the early 1980s. Corporate profits are as high today as they have ever been, but labor’s share of those profits is hitting 65-year lows. And the rise in the ratio of CEO pay to that of the average employee has been meteoric: In 1965, it was 20:1; in 1980, 42:1. Today? 373:1. Meanwhile, U.S. median household incomes, adjusted for inflation, are pretty much where they were in 1989.

Now let’s look at some social trends. In 1980, the infant mortality rate between Germany and the U.S. was roughly equal. Today, the American rate is double that of the Germans. We have the highest teenage birthrate in the developed world, over 25% of our children live with just one parent, and over 20% of them live in poverty. American school children routinely fall below other developed nations when it comes to literacy and math. U.S. college graduation rates rank 19th out of 28 OECD countries, and many of those who do graduate do so with a burden of debt so great that they will spend a large part of their working lives paying it back.

Is all of this pure coincidence? Is the correlation between rising income inequality and mounting social challenges an illusion? Can you have sustained, high levels of income imbalance and a thriving, stable, prosperous democracy? And should large corporations even care in today’s global marketplace? It’s not for me to answer these questions for you, but I do know this: America, like many other Western developed economies, is in desperate need of a new economic vision that drives sustainable growth without pushing society over a cliff.

KuLouKu via Shutterstock

Economics is an art as much as it is a science. The science of income inequality is the numbers, but the art involves the perceptions and experiences of the people. And because of the survey conducted by my organization JUST Capital (which surveyed 43,000 Americans across all demographics, thoroughly surveyed on a range of topics regarding many facets of corporate America), we know precisely how people feel about pay and income inequality.

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A sizable majority believe that corporate America is headed in the wrong direction. There’s some disparity along income brackets—48% of those making over $200,000 a year think corporate America is headed in the right direction, while only 20% of those making under $20,000 think this, but neither bracket shows a net positive attitude on corporations.

According to our survey, the top issue that corporations need to address is employee pay and benefits. Americans across the spectrum agree overwhelmingly that all workers should get a living wage, which is defined as enough to cover needs for food, housing, and medical care. Currently, one out of seven Americans belong to the ranks of the working poor. Upwards of 120 million Americans, after they pay all expenses, are in debt. What’s more, the American taxpayers shell out $153 billion for welfare programs that supplement the finances of Americans who work at some of our most profitable corporations, but don’t get paid enough to afford food or medical care.

And those CEO paychecks? Seventy-two percent of all Americans think a CEO-to-worker ratio of 209:1 is unjust. They believe the ideal level is somewhere between 15:1 and 40:1. (Plato, incidentally, favored a 4:1 ratio between the richest and poorest in society, but his opinion never made it into our survey.)

The numbers show that income inequality is real, and, as our survey shows, it’s clear that people are aware it’s a problem and feel like companies must do more to address it. We’ll discuss a potential remedy in a later article, but for now, we’re keen on getting as many Americans as possible–as employees, as consumers, as business leaders, as concerned citizens–in on this conversation, so that we can create the necessary incentives and rewards corporations need to take decisive action. As Piketty, that best-selling economist, writes, “the distribution of wealth is too important an issue to be left to economists, sociologists, historians and philosophers. It is of interest to everyone, and that is a good thing.”

About the author

Martin Whittaker is CEO of JUST Capital, a nonprofit dedicated to aligning corporate behavior with the values of the American people. A veteran of the sustainable finance and impact investing industry, Martin previously held senior management positions at Sonen Capital, MissionPoint Capital, Swiss Re and Innovest.

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