Separate Realities: The Dream and the Iceberg - Scarecrow Press

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58 Chapter 2 The growing gap between top and bottom income groups is even more evident when we compare changes in the shares of income after federal taxes for different income groups. According to a 2005 Congressional Budget Office (CBO) study, in 1981 the after-tax income share received by the top 10 percent of U.S. households was 27.9 percent, while the bottom 40 percent received only 18.9 percent. 53 Another 2005 CBO study found that in 2003 (the most recent year available), the after-tax income share of the top 10 percent group ($190,400 average after-tax annual income, 2003 dollars) had grown to 33.9 percent, but the bottom 40 percent share had shrunk to 15.3 percent ($22,450 average after-tax annual income, 2003 dollars). 54 The CBO also projected federal tax rates under current law from 2001 to 2014. These projections indicate the effective federal tax rates on income received by the top 10 percent would decrease through 2014 (increasing in this group’s income share) and that tax rates for the bottom 40 percent would increase (further decreasing this group’s income share). 55 Top-earning groups have far outdistanced average wage earners over the past two decades, but the very highest paid groups, such as the chief executive officers (CEOs) of major U.S. firms have done the best. During the 1980–2005 period, average total compensation for CEOs at large U.S. firms increased about 800 percent. In 1980 average total annual CEO compensation was forty-two times what average workers earned. But like the Energizer Bunny, the CEO group kept going and going. In 1990, the CEO-to-average worker pay ratio grew to 107:1 and then jumped to 269:1 in 1996. In 2000, it reached a peak of 525:1, declined to 281:1 in 2002, climbed to 301:1 in 2003, and rose to 411:1 in 2005. 56 In 2005, average total compensation for CEOs at two hundred of the largest U.S. corporations was $11.3 million, but median total compensation was $17.9 million for CEOs at the one hundred largest U.S. firms. 57 By comparison, average CEO pay at large U.S. firms was $9.8 million in 2003, $3.4 million in 1990, and $1.4 million in 1980 (all amounts in 2005 dollars). 58 While CEO pay increased dramatically, the average annual incomes of production workers in the same period decreased slightly from $33,758 in 1980 to $33,509 in 2005 (in 2005 dollars, forty hours per week for fifty-two weeks). 59 Minimum-wage workers did even worse. They experienced a 30 percent decrease in their real average annual incomes, dropping from about $14,460 in 1979 to $10,300 in 2005 (both amounts in 2005 dollars for two thousand annual working hours.) 60 If production and minimum-wage workers had received 800 percent pay increases (like CEOs) since 1980, in 2005 their annual incomes would have been about $261,000 and $47,000 respectively. Few minority members or women become CEOs. One study found that minorities make up only about 1 percent of Fortune 500 top executives. 61 While women make up almost half of the U.S. workforce, in 2005 only two Fortune 500 firms had women CEOs or presidents and ninety of those five hundred firms didn’t have any women corporate officers. 62 When women do become senior corporate managers, they earn less than men: “Female managers’ earn-
Separate Realities 59 ings now average 72 percent of their male colleagues’ [earnings].” 63 Females were also totally absent from the one hundred fifty highest paid CEOs in the 1990–2004 period and only one nonwhite male made the list—“Charles Wang, founder and former CEO of Computer Associates.” 64 Losses in Benefits Although executives are doing well, members of the new working class, as we have seen, generally find their incomes shrinking. In recent years, the falling incomes of many workers have been matched by reductions or stagnation where fringe benefits are concerned. During the 1979–1989 period, the “annual growth in hourly benefits” (including employer-provided health insurance, pension plans, and payroll taxes) amounted to just $0.04 per year. 65 In the 1987–2005 period, fringe benefits for private-sector hourly wage earners as a percentage of workers’ total compensation remained nearly flat at 19.4 percent in 1987 and 19.7 percent in 2005. 66 (“Fringe benefits” include employer-paid pension plans, insurance [health and life], and payroll taxes [the employer portion of Social Security and unemployment taxes].) Reductions in pension and health-care coverage over the past several years illustrate the extent to which workers’ benefits have fallen. The proportion of all private-sector workers covered by all types of employer-provided pension plans declined from 50.6 percent in 1979 to 45.5 percent in 2004. White workers in the private sector saw pension coverage (of all types) fall from 52.2 percent (1979) to 50.6 percent (2004). Minority members fared less well than whites as pension coverage for blacks fell from 45.8 percent in 1979 to 42.2 percent in 2004; for Hispanics it fell from 38.2 percent in 1979 to 25.0 percent in 2004. By contrast, the percentage of women workers covered by employerprovided pensions in the private sector rose slightly from 41.3 percent in 1979 to 44.3 percent in 2004. 67 Not only has the proportion of workers covered by employer-provided pensions declined, but so has the quality of such plans, which tend to fall into two categories. First, defined-benefit plans “are generally considered the best plans from a workers’ perspective because they guarantee a worker a fixed payment in retirement based on pre-retirement wages and years of service regardless of stock market performance.” Second, defined-contribution plans provide for employer contributions to an individual worker’s retirement account (to which workers often can add). 68 Under these plans, retirement income depends upon the investment options provided by employers and upon investment decisions workers make over time. Because of these conditions associated with defined contribution plans, workers are often presented with substantial limitations and uncertainties that can make retirement income problematic and unpredictable. 69 The proportion of full-time private-sector workers in medium and large firms (one hundred workers or more) covered by defined-benefit pension
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