U.S. workers’ pay stagnates, CEOs’ skyrocket - Activate World

U.S. workers’ pay stagnates, CEOs’ skyrocket

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Technologists now predict that automation and artificial intelligence will bring both benefits and stress to the future of work. Currently, the majority of new jobs in the U.S. are in the service industries like healthcare, hospitality, retail, and building services, and most pay mediocre wages. This is in contrast to the tech sector that offers professionals high paying jobs and opportunities to advance, but fewer jobs overall. Automation is changing the nature of work and pushing workers without college degrees into low paying jobs with little prospects for advancement. 

Economists are reassessing their long-held belief that technological progress lifts society as a whole and are concerned about the new work dichotomy. Recent research shows that robots are reducing the demand for workers and depressing wages that have risen more slowly than worker productivity. As it pushes workers to the less productive parts of the economy, automation helps explain an economic paradox: despite increasing information technology, robots, and artificial technology, overall productivity growth remains sluggish. 

The New York Times looked at the tech and services workforces in the Phoenix, Arizona area. Technology has long been a big part of the region’s economy with major operations of Intel and NXP semiconductors. From 2010 to 2017, the productivity of workers in this sector (a measure of the dollar value of their production) grew by about 2.1 percent per year, according to an analysis by the Brookings Institute. According to government statistics, the pay is excellent, averaging $2,790 per week. However, the industry doesn’t generate that many jobs. In the Phoenix area there were 16,600 employed in the semiconductor industry in 2017, 10,000 fewer than three decades ago.

The 58 most productive industries in Phoenix — with productivity ranging from $210,000 to $30 million per worker – according to the Brookings Institute’s analysis — employed only 162,000 people in 2017, 14,000 more than in 2010. Employment in the 58 industries with the lowest productivity, topping out at $65,000 per worker, grew 10 times as much over the period, to 673,000.

Economists are having a hard time trying to understand our current technological revolution. In a new study, David Autor of the Massachusetts Institute of Technology and Anna Salomons of Utrecht University found that over the last 40 years, jobs have decreased in every single industry that introduced technologies to enhance productivity. The growing awareness of robots’ impact on the working class raises the question once again: Could automation go too far? Could it be that businesses are not reaping large rewards for the money they are spending to replace their workers with machines?

Another area of concern is the pay disparity between corporate executives and workers. The median employee compensation for 104 of the companies, or roughly 10 percent of the Russell 1000, is below the federal poverty level of $25,750 for a family of four. That’s the number below which workers are eligible for government assistance.

The CEO-to-worker compensation ratios for companies in the Russell 1000 Index shows the average CEO received total compensation of $11.8 million during the most recent year for which numbers are available, including salary, bonus, stock grants, options and other benefits. The average CEO-to-worker pay ratio was 248-to-1. For the 104 companies whose median employee pay falls below the poverty line, the ratio is a whopping 917-to-1.

There is growing social unrest about pay inequity between the tech and service industries and especially between CEOs and the workers that are essential for their success. Representative Alexandria Ocasio-Cortez of New York has proposed doubling the top tax rate to 70 percent from 37 percent. Billionaire investor Ray Dalio warned well-heeled attendees at the World Economic Forum in Davos last month that Ocasio-Cortez’s ideas are gaining traction. 

Noteworthy:

  • Employee pay and benefits as a percentage of gross domestic income fell to 52.7% in last year’s third quarter, for the fourth straight quarterly decline, according to data from the Bureau of Economic Analysis. It was as high as 59% in 1970 and 57% in 2001.
  • Up to 43 percent of U.S. households don’t earn enough to afford basic living expenses such as housing, food, child care, health care and transportation, according to a 2018 study from the United Way’s ALICE Project. The study found that 66 percent of jobs in the U.S. pay less than $20 an hour.
  • Companies can afford to give workers a raise. Firms in the Russell 1000 posted an average profit margin of 10 percent in 2018, the highest since 1995, the first year for which numbers are available.

Quests and Actions (Q&A) 

  • Is raising the federal minimum wage more than an ethical issue? When big employers fail to pay workers a living wage, are taxpayers forced to step in and make up the difference by paying for extra Medicaid, housing assistance, and food stamps?
  • In the future, greater emphasis will be placed on retraining and lifelong learning as the U.S. workforce tries to stay competitive in the global marketplace and respond to technological changes. Does your employer promote a constant learning mindset?  What are some examples?
  • Youth, less educated workers, and underrepresented groups all appear likely to face significant challenges from automation in the coming years. How can business and civic leaders help with adjustment strategies for people in the AI era of automation?

Sources: The New York Times, The Wall Street JournalThe Washington Post

Photo by Vladimir Solomyani on Unsplash