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US executive pay trends 1936-2004

Look what's happened since the early 1980s.

From NYT, via Real-World Economics Review blog. Since the text in the graph is tiny, here are some key facts.  Executives are defined as the three highest paid officers of the 50 largest companies in 1940, 1960, or 1990. The dark line is the median, which rose from 25 times the average worker's pay in 1970 to 119 in 2000 before dropping back to 104 in 2004.  Meanwhile, the average pay of the top 10% (N=15) rose to 700 times the average worker's pay. 

Obviously, even the median pay of these elite executives has risen rapidly, but another reason for the growing disparity is that the wages of ordinary workers has been stagnant on an inflation-adjusted basis. Those real wages rose at an average annual rate of 2.2% from 1974-73 1947-73 [corrected 12/11/10] and then leveled off.  If they had continued rising at that rate for another 32 years to 2004, they would be just about exactly double what they actually were then (using the rule of 72).  That would mean the ratios of executive pay to worker pay would be half those on this chart. Since US executive pay was about twice the average in other advanced countries, it appears the other half of the gap increase was due to an apparent lack of competitive restraints on US executive pay. Of the two, I think the stagnation at the bottom is by far the larger social and economic problem than the rent-seeking at the top.

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