- Paul Constant is a writer at Civic Ventures and the cohost of the “Pitchfork Economics” podcast.
- The average CEO of an S&P 500 company earns 324 times more than their median worker, one study found.
- Closing the gap is on companies, and doing so will be good for everyone, Constant argues.
Last Sunday marked the 13th anniversary of the day that the federal minimum wage increased to $7.25, where it’s remained today. This is by far the longest period without a federal minimum-wage increase since the wage was established in 1938.
And because that number has stayed stuck while prices keep rising, the Economic Policy Institute warned that the federal minimum wage now has less actual spending power than at any point in the last 66 years.
At the same time that workers on the bottom of the wage scale are earning record lows, the highest wage-earners are taking home record pay. Last week, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), the largest group of unions in the US, issued its annual “Paywatch” report, which found that the average American CEO of an S&P 500 company earns 324 times more than their median worker, making on average $18.3 million in 2021 — a $2.8 million increase from 2020.
An employee earning the federal minimum wage would have to put in 2,524,138 hours on the job — that’s more than 288 years of 24-hour-a-day shifts — to earn what the average S&P 500 company CEO makes in a year.
Americans recognize that the inequality between our highest and lowest earners has grown too large. A JustCapital survey this year found that 73% of respondents believe CEOs are paid too much, with just 13% claiming that CEO compensation is set at “just the right amount.”
The obvious way to raise the floor for American workers is to increase the federal minimum wage, but Congress doesn’t seem poised to act anytime soon. If companies don’t significantly raise wages for their lowest-paid workers, ballooning inequality and its resultant declining consumer demand threaten to weaken the economy for everyone.
Despite most Americans making more than $7.25 an hour, the minimum wage still holds workers back
Most American workers earn more than the federal minimum wage. State and local leaders around the country have taken the minimum wage into their own hands over the past 13 years, adopting higher wages during the Fight for $15. Even though 20 states (including New Hampshire, Indiana, Pennsylvania, and Texas) still have a $7.25 minimum wage, the Department of Labor estimated that only a quarter of a million American workers earned exactly $7.25 per hour.
But that low minimum wage is still dragging down worker pay around the nation. The nonprofit Oxfam America published a report this year finding that almost a third of the American workforce is earning less than $15 per hour, and those low-wage workers are disproportionately female and nonwhite: 40% of women and 50% of women of color earn less than $15 an hour, compared to 25% of men. And a 2021 survey from USAFacts, a nonprofit founded in 2017, found that $15 isn’t enough to support a family anywhere in the United States.
Increasing the minimum wage is in Congress’ hands, but it’s unlikely to budge under the government
President Biden has raised the minimum wage for federal contractors to $15 per hour, but the power to raise the federal minimum wage rests with Congress. And despite the record-breaking time since the last federal minimum-wage increase, it seems that Congress won’t be acting to raise the wage anytime soon. Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have both voted against an increase to $15, and Republican Senators Mitt Romney and Tom Cotton countered the $15 vote with a complicated proposal to raise the federal minimum wage to just $10 over the course of four years.
With Congress gridlocked on the federal minimum wage, progressive outlets have started to get more creative in their efforts to combat wage inequality. The Drexel University Center for Hunger-Free Communities has issued policy prescriptions on the city, state, and federal level that directly tie the fortunes of the lowest earners to those of the highest. Cities including San Francisco, California, and Portland, Oregon, have adopted taxes on companies with high CEO-to-worker pay disparities.
Time for companies to step up
But while taxing companies who pay their CEOs exorbitant annual salaries while their low-wage workers struggle to make ends meet is certainly a creative policy solution to address spiking wage inequality, the best outcomes for everyone — including CEOs — would be if businesses paid their employees more.
A 2020 study from the RAND Corporation found that had American paychecks continued to grow at the same rate as they did from 1945 to 1974, the average working Americans’ paycheck would be $1,144 higher every month. Instead, all of that money, amounting to $50 trillion between 1974 and 2020, padded the already-huge fortunes of the wealthiest 1%, including CEOs and corporate executives.
When workers have more money to spend on local businesses, those businesses thrive and hire more workers to meet increased demand. By funneling pay that used to go to workers up to the corner office, these CEOs are starving local communities of the shared prosperity that built the American middle class in the 20th century. Reversing that flow of cash back to worker paychecks would help American families keep up with inflation driven by corporate price-gouging, as well as inject millions in consumer spending into our economy — a true win-win.