European Tribune - Community, Politics & Progress.

WSJ says pay inequality is bankrupting the system

by Jerome a Paris
Tue Jul 21st, 2009 at 05:48:22 AM EST

Pay of Top Earners Erodes Social Security
Executives and other highly compensated employees now receive more than one-third of all pay in the U.S., according to a Wall Street Journal analysis of Social Security Administration data -- without counting billions of dollars more in pay that remains off federal radar screens that measure wages and salaries. (...)
The pay of employees who receive more than the Social Security wage base -- now $106,800 -- increased by 78%, or nearly $1 trillion, over the past decade, exceeding the 61% increase for other workers, according to the analysis. In the five years ending in 2007, earnings for American workers rose 24%, half the 48% gain for the top-paid. The result: The top-paid represent 33% of the total, up from 28% in 2002.(...)
Social Security Administration actuaries estimate removing the earnings ceiling could eliminate the trust fund's deficit altogether for the next 75 years, or nearly eliminate it if credit toward benefits was provided for the additional taxable earnings.

There is a specific US issue here that Social Security contributions are subject to a cap (a profoundly regressive rule), but you can find similar mechanisms in each country (in France, you have the bouclier fiscal, which caps the marginal tax rate and has the same effect) and the conclusion is that major chunks of public deficits - and of future social benefits "holes" - that we are fearmongered into worrying about could be completely eliminated by taking care of such incredibly unfair loophooles that favor the rich.

And it needs to be underlined that increasing inequality, and massively boosted incomes at the top mean that an ever larger chunk of incomes and GDP escape taxation (or social contributions), thus worsening the deficits of governments, pensions and healthcare systems.

Thankfully, that also points to an easy solution to all of these "problems": as they were created by lower taxes on the rich, they can be solved by higher taxes on the rich.

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WSJ says pay inequality is bankrupting the system | 14 comments (14 topical, 0 editorial, 0 hidden)

Re: WSJ says pay inequality is b (4.00 / 4)

I was just looking at this earlier this morning.

One of the things that I've noticed with the recession has been that a large number of people who want to retire can't, because although they have the savings to do so, they can't get health insurance. And secondly, because there's a pretty steep drop in benefits if one retires at age 62 (maxes out at about 1769 USD a month for those who reach the cap) as opposed to 65 (maxes out at about 2172 USD a month for those who reach the cap).
So a nearly 18.5% drop in benefits unless they wait until 65.

You have about 8.8 million people working between the ages of 60 and 64 in the US, and about 14 million unemployed. There are about 6 unemployed for every job opening. That creates tremendous downward pressure on wages. If even 25% of that 60-64 group could be induced out of the market with a public option for health insurance, and a guarantee that much of the 18.5% gap in benefit between retirement at 62 and 65 would be covered. Then you could cut unemployment by 16%, reducing the rate to 8% from 9.5%. And reduce the applicants per job to just over 5. Together with job creation measures, direct job creation measures, you could drive it down further.

Right now if nothing is done, the labor surplus is going to force down wages even more, making the situation worse and worse.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Jul 21st, 2009 at 06:21:42 AM EST

Re: WSJ says pay inequality is b (4.00 / 4)

I'd like to point out InWales' story on retirement age discussion in the UK that touched similar subjects...

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Tue Jul 21st, 2009 at 09:48:40 AM EST
[ Parent ]

Re: WSJ says pay inequality is b (4.00 / 3)

Cool.

I've been away.

Too much work for the summer. Research on the growth of neo-liberal thought.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Jul 21st, 2009 at 09:59:45 AM EST
[ Parent ]

Re: WSJ says pay inequality is b (none / 1)

Research on the growth of neo-liberal thought.

Deriving from personal, political or academic interests?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Tue Jul 21st, 2009 at 12:03:53 PM EST
[ Parent ]

Re: WSJ says pay inequality is b (none / 1)

Academic.

I'm looking at the links between a group called the Mont Pelerin Society, founded in 1947 in Switzerland by Frederick Hayek, and groups (academic,journalistic, and policy) in the United States.

It's really amazing. I think that I'm going to force (talk) my colleagues into getting together a panel for an academic Marxist conference happening this fall.

It's pretty cool.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Jul 21st, 2009 at 01:07:21 PM EST
[ Parent ]

Re: WSJ says pay inequality is b (none / 0)

I just forwarded an e-mail call for papers for the 2009 Rethinking Marxism Conference at Amherst. I am a little over half way into Nitzan's new book Capital as Power. Looks like this conference and the book should be of interest to you.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Tue Jul 21st, 2009 at 04:52:43 PM EST
[ Parent ]

Re: WSJ says pay inequality is b (none / 1)

That's the conference I was looking at. I've got a motley crew of colleagues doing Marxist IR that is trying to put together abstracts. In all likelihood, we'll be going.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Jul 21st, 2009 at 05:37:32 PM EST
[ Parent ]

Wage differentials (4.00 / 2)

I've been trying to retrack down some figures (I think they were OECD) which showed wage differentials between top and bottom 10 % in various countries. The figures were pre 2006 at least. I do not remember if they were pre-tax figures.

As I recall, in Finland it was about 40:1. In the USA about 470:1.

You can't be me, I'm taken

by Sven Triloqvist on Tue Jul 21st, 2009 at 06:57:08 AM EST

Re: Wage differentials (4.00 / 3)

The Luxembourg Income Study (LIS) gives this information. For Wave V (circa 2000) we get this:

This is income, not strictly wages, but it's still revealing.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Jul 21st, 2009 at 09:58:20 AM EST
[ Parent ]

Re: Wage differentials (3.50 / 2)

For some reason I would have thought the US would have topped this chart.

by PrestonMB on Tue Jul 21st, 2009 at 02:45:44 PM EST
[ Parent ]

Re: Wage differentials (none / 1)

Welcome to ET, Preston!

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Tue Jul 21st, 2009 at 03:03:30 PM EST
[ Parent ]

Welcome to ET (none / 0)

The US, for all its faults, does have a social safety net. And it doesn't have the kind of crushing, desperate poverty that you find in places like Mexico, or the wholesale oligarchy that was imposed on Russia after the Wall came down.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 21st, 2009 at 03:11:43 PM EST
[ Parent ]

Not a specific US issue (4.00 / 2)

European Tribune - WSJ says pay inequality is bankrupting the system

There is a specific US issue here that Social Security contributions are subject to a cap (a profoundly regressive rule)

The same kind of cap exists in the UK.

I believe in Spain social security contributions (and therefore retirement pensions) are calculated off the "base salary". It is very common for wage increases to come in the form of "complements" which means that a lot of the income doesn't count for social security, hurting both the system (less revenue) and the worker (lower pension entitlement).

And because people tend to be concerned with the progressivity of income tax only, this very regressive tax is never discussed.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Tue Jul 21st, 2009 at 09:58:16 AM EST

Request (none / 1)

Would you please cross-post this essay at docudharma?

by Magnifico on Tue Jul 21st, 2009 at 12:39:04 PM EST

WSJ says pay inequality is bankrupting the system | 14 comments (14 topical, 0 editorial, 0 hidden)

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