COMMENTARY | In the debate over macroeconomic strategies those who favor maintaining the status quo have long pointed out that the American middle class was the envy of the world. While we dickered about economic reform and the minimum wage and CEO pay, we could still go to sleep at night knowing that the U.S. middle class was the wealthiest in the world. Now, LIS is reporting that Canada’s middle class has surpassed the U.S. middle class as the wealthiest in the world, says CBS. This is a wake-up call for policymakers at all levels in the United States.
No longer being number one in terms of middle class earnings means that we can no longer pretend that everything is okay. The status quo no longer works. We have been falling behind in education…and now we are falling behind in middle class economic backbone. If we do nothing the problem will only get worse.
The reason for our fall and Canada’s rise? In the U.S. the rich have been getting richer as middle class wages have remained stagnant, while Canada has seen more uniform economic growth. We can no longer ignore the fact that CEO compensation in the United States has increased exponentially, even in the midst of corporate malaise and scandal, while middle class pay struggles to keep pace with inflation. “Trickle down” economics is not working.
So, what can we do?
We can set up a market to invest in workers’ human capital, we can limit the pay of corporate officers, and we can raise the federal minimum wage.
These three options would still allow strong free market principles to maintain competitiveness and innovation while minimizing abuse of rank-and-file employees. In fact, allowing investors to purchase shares of stock in individuals’ current and future earnings expands traditional free market principles, more than making up for any alleged loss occurring through limitations on corporate executive pay. And, since corporations must meet numerous government standards to receive their charters, why not cap CEO pay based on the wages of the lowest-paid employee?
If you’re a CEO and you want a pay raise, simply boost the pay of your workers. If you are confident in your abilities the increased corporate revenue should easily allow you and all of the workers to experience those raises, right? After all, you receive the big bucks to achieve results. When you get those results you can certainly treat yourself – just treat everyone else on the way up the corporate ladder as well. The government, therefore, is not really capping your pay at all – you can always get yourself a nice raise if your performance allows for true increases in corporate revenue.
Oh, and “caps” on corporate executive pay would be good for shareholders by freeing up corporate cash to use toward increased production, right? Since CEOs work for the shareholders, technically they should have already limited their own pay to divert more funds toward capital and research-and-development, or toward production-boosting performance pay for workers, right? Surely a CEO making $30 million per annum could divert half of that toward boosting corporate productivity and not worry about missing a mortgage or kids’ college tuition payment.