Column: An Economy that Works for Everyone
With Labor Day having recently passed, this is a good time to reflect on the state of our economy and ask important questions about whether it is truly working for all of our families.
I’m pleased that here in Massachusetts we have taken a number of meaningful steps in recent years to improve the economic quality of life for poor and working families. In 2014, the state legislature passed legislation to gradually increase the minimum wage to $11 per hour by January 1, 2017. This increase is expected to raise the wages and standard of living for more than 600,000 workers. In the November, 2014 election, Massachusetts voters overwhelmingly approved a ballot referendum to create a statewide earned paid sick time policy, a benefit that was previously unavailable to many lower-wage workers. Then, in 2015, the legislature and Governor Baker significantly increased the state Earned Income Tax Credit – widely viewed as one of the most effective anti-poverty programs – for the first time in decades.
These are important and impactful victories for Massachusetts workers and their families, but we need to do more. As the state and national economy has grown over the last three-and-a-half decades, very few have benefited from this growth. As the Massachusetts Budget and Policy Center pointed out in Labor Day 2015: Important Gains, Many Challenges for MA Workers, “Since the late 1970s, wages and incomes for most working families have stagnated. By contrast, for the highest income households, incomes have grown at ten times the rate of income growth for the bottom 90% of the population.”
This is not because people are working fewer hours or are less productive. In fact, most people are working longer hours and sometimes multiple jobs. Worker productivity has climbed an astonishing 65% since 1979. But most workers have not been getting their fair share of these gains.
On the other hand, when it comes to CEO salaries and compensation for top corporate executives we see a very different picture. According to the Economic Policy Institute, in 1965, the average CEO-to-worker compensation ratio was 20-to-1; in other words, a CEO was paid on average about twenty times what the average employee in their company made. That ratio grew to approximately 30-to-1 by 1978. Today, these figures seem positively quaint. According to an AFL-CIO study conducted in 2013, the average CEO is now paid 272 times more than the average worker in Massachusetts corporations that are included in the S&P 500 index. And there are some particularly egregious examples, such as Framingham-based TJX Companies CEO Carol Meyrowitz whose total compensation of $28.69 million in 2015 was 1,159 times more than the median TJX worker pay of $25,000.
Are top corporate executives today so much more skilled than their peers in years past that they deserve such excessive compensation?
A new U.S. Securities and Exchange Commission rule that will require larger public companies to disclose the ratio of their CEO’s compensation to the median pay of their workers is a good first step in beginning to address this inequity in our economy.
To encourage greater balance and fairness between the compensation paid to top executives and the wages paid to workers, I have filed legislation, Senate Bill 1509, An Act relative to excessive executive compensation. This bill would require certain corporations and financial institutions to pay a higher corporate excise tax (an additional 2% of corporate income) if the CEO or highest paid employee earns more than 100 times what the median worker earns.
From World War II through the late 1970s, prosperity was broadly shared. This raised living standards for the vast majority of Americans and led to more robust economic growth overall. I believe our current economic trajectory is unsustainable. We must aggressively pursue policies that address income and wealth inequality in our Commonwealth and our nation.