When people consider income inequality, they might fixate on CEO compensation. After all, in 1978, CEOs at large U.S. companies made about thirty times the average worker. Today, they make nearly three hundred times as much. Conventional wisdom holds that certain CEOs are permitted to earn vast amounts of money because they supply prestigious and lucrative positions to their board members, who in turn rubber stamp their pay packages.
But as pointed out by a recent Washington Post article, it’s not quite as simple as that. Growing income inequality is not simply about a small group of supremely compensated super managers, but about super companies where many employees earn tremendous sums of money. Research by four economists, including David Price and Nicholas Bloom of Stanford, analyzed private earnings data for companies between 1978 and 2012.
They found that the pay gap between executives and their own workers barely changed during this time. What has changed is the pay gap between every worker at the highest paid firms and others. In other words, inequality has exploded because the top one percent of companies earn more and pay their fortunate employees more.
