Breakaway Wealth

According to Peter Whoriskey of the Washington Post (2011):

The evolution of executive grandeur — from very comfortable to jet-setting — reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening.

For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent. But economists had little idea who these people were. How many were Wall street financiers? Sports stars? Entrepreneurs? Economists could only speculate, and debates over what is fair stalled.

Now a mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap.

The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.

The top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, according to the analysis, with nearly half of them deriving most of their income from their ownership in privately-held firms. An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. In all, nearly 60 percent fell into one of those two categories.

Other recent research, moreover, indicates that executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of America has stalled.

Source: Whoriskey, P (2011, June 18), With Executive Pay, Rich Pull Away from Rest of America, Washington Post.