Tag Archives: wage gap

Not so golden: Wealth gap lasting into retirement

William Kistler views retirement like someone tied to the tracks and watching a train coming. It’s looming and threatening, but there’s little he can do.

Kistler, a 63-year-old resident of Golden, Colorado, has been unable to build up a nest egg for himself and his wife with his modest salary at a nonprofit. He has saved little in a 401(k) over the past decade, after spending most of his working life self-employed. That puts him far behind many wealthier Americans approaching retirement.

“There is not enough to retire with,” he said. “It’s completely frightening, to tell you the truth. And I, like a lot of people, try not to think about it too much, which is actually a problem.”

With traditional pensions becoming rarer in the private sector, and lower-paid workers less likely to have access to an employer-provided retirement plan, there is a growing gulf in the retirement savings of the wealthy and people with lower incomes. That, experts say, could exacerbate an already widening wealth gap across America, as more than 70 million baby boomers head into retirement — many of them with skimpy reserves.

Because retirement savings are ever more closely tied to income, the widening gulf between the rich and those with less promises to continue — and perhaps worsen — after workers reach retirement age. That is likely to put pressure on government services and lead even more Americans to work well into what is supposed to be their golden years.

Increasingly, financial security for retirees reflects how much they have accumulated during their working career — things like 401(k) accounts, other savings and home equity.

Highly educated, dual income couples tend to do better under this system. The future looks bleaker for people with less education, lower incomes or health issues, as well as for single parents, said Karen Smith, a senior fellow at the Urban Institute, a Washington think tank.

“We do find rising inequality,” said Smith, who added that it’s a problem if those at the top are seeing disproportionate gains from economic growth.

Incomes for the highest-earning 1 percent of Americans soared 31 percent from 2009 through 2012, after adjusting for inflation, according to data compiled by Emmanuel Saez, an economist at University of California, Berkeley. For everyone else, it inched up an average of 0.4 percent.

Researchers at the liberal Economic Policy Institute say households in the top fifth of income saw median retirement savings increase from $45,539 in 1989 to $160,000 in 2010 in inflation-adjusted dollars. For households in the bottom fifth, median retirement savings were down from $8,433 in 1989 to $8,000 in 2010, adjusted for inflation. The calculations did not include households without retirement savings.

Employment Benefit Research Institute research director Jack VanDerhei found that in households where annual income is less than $25,000, nine in 10 saved less than $10,000, up slightly from 2009. For households with six-figure incomes, 42 percent saved at least $250,000, up from 34 percent five years earlier.

The days of retirees being able to count on set monthly payments from pensions continue to fade among non-government workers. Only 13 percent of private-sector workers now participate in “defined benefit” plans, compared with a third of such workers in 1985. They’ve been eclipsed by “defined contribution” plans, often 401(k)s, in which employers match a portion of employee contributions.

Americans know they need to save for retirement. The trick for many is actually doing it. It’s estimated that about half of private-sector workers don’t take part in a retirement plan at their current job.

“Over the years, all I’ve been able to do, especially as a single parent, is just pay your bills every month,” said Susan McNamara, a 62-year-old adjunct professor from the Boston area. “Anything that’s left over is used up when your car breaks down or when the furnace breaks down. … There’s never anything left over, ever.”

McNamara is divorced and her son is now grown. But she has had heart issues linked to cancer in 2004 and related financial worries. She sold her home to meet expenses. McNamara has a defined contribution plan from past stints as a full-time professor, but its balance is under $50,000.

Or consider Kistler, who makes $41,000 a year working as a benefits counselor for a nonprofit health care provider. He has no substantial savings beyond the 401(k) worth roughly $19,000, and he has debt. He plans to keep working.

Kistler is philosophical about being on the short end of a retirement gap, though he wonders what will happen when boomers in his financial situation begin retiring by the millions.

“This next 10 to 15 years is going to be quite interesting,” he said.

EBRI, a Washington-based nonpartisan research group, projects that more than 55 percent of baby boomers and the generation that follows them, Generation X, will have enough money to last through retirement.

But EBRI also found the least wealthy boomer and Gen X households are far more likely to run short of money in retirement. Under some models, 43 percent of those in the lowest quarter run short of money in the first year of retirement.

VanDerhei, EBRI’s research director, said members of that group are relying mostly on Social Security and lacked consistent access to retirement plans over their careers.

Many of those retirees will find that it won’t be enough, David John of AARP’s Public Policy Institute said, noting the average monthly Social Security retiree benefit last year was about $1,300.

“In the long run, if we have significant numbers of people retiring on Social Security and very little else, there’s going to be a tremendous pressure on state and local governments for additional services, ranging from health to housing to libraries,” John said. “There’s going to be significant pressure on the national government to provide additional support.”

John said a good first step would be to ensure more workers have the ability to save through employer-sponsored retirement plans.

For many, it will mean working to a later age and cutting back.

In Brooklyn, 60-year-old Madeline Smith is already thinking about a modest future. While she has no illusions about living the “little fairy tale” of a cushy retirement, she also is confident she can get by, maybe working part-time, living simply or even renting out her house.

“Sometimes you have to learn to be a little bit more conservative,” she said. “I think a lot of people are learning that now as they get older.”

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Thomas Piketty and ‘Capital in the 21st Century’ set the economics field ablaze

If you’d like to live in Downton Abbey, the good news is that our economy has entered a second Gilded Age of opulence and elegance. The bad news is that you’ll likely end up among the vast majority stuck sweating in the kitchen.

In a new book, Thomas Piketty, the French economist who helped popularize the notion of a privileged 1 percent, sounds a grim warning: The U.S. economy has begun to decay into the aristocratic Europe of the 19th century. Hard work will matter less, inherited wealth more. The fortunes of the few will unsettle the foundations of democracy.

The research Piketty showcases in his book, “Capital in the 21st Century,” has set the economics field ablaze. Supporters cite his work as proof that the wealth gap must be narrowed. Critics dismiss him as a left-wing ideologue.

Digging through 300 years of economic data, tax records, 19th century novels and modern TV shows, Piketty challenges the assumption that free markets automatically deliver widespread prosperity. Instead, he writes, the rich will get richer, and everyone else will find it nearly impossible to catch up.

Investments in stocks, bonds, land and buildings – the “capital” in his title – almost always grow faster than people’s wages. By its nature, capitalism fuels inequality and can destabilize democracies, Piketty argues.

Economists once viewed the three decades after World War II as proof of capitalism’s ability to build and share wealth. Piketty counters that the period was a historical outlier, a result of two world wars and the Great Depression leveling the fortunes of the old establishment.

In 2012, the top 1 percent of U.S. households received 22.5 percent of the nation’s income, the most since 1928. Piketty thinks higher taxes on wealth can curb inequality’s spread. He also thinks that sending more people to college and sharpening their skills through training could help slow the “inegalitarian spiral.”

In an interview with The Associated Press, Piketty, 42, held forth on the “dangerous illusion” of the meritocracy, why China is unfairly blamed for flat U.S. wages and his fix for limiting inequality.

Here are excerpts of the interview:

Q: What is the impact of a growing wealth gap?

A: The main problem to me is really the proper working of our democratic institutions. It’s just not compatible with an extreme sort of oligarchy where 90 percent of the wealth belongs to a very tiny group. The democratic ideal has always been related to a moderate level of inequality. I think one big reason why electoral democracy flourished in 19th century America better than 19th century Europe is because you had more equal distribution of wealth in America.

Q: Your research shows that profits on investments – capital – increase faster than wages and economic growth. But a lot of people think greater inequality can help fuel stronger growth.

A: When inequality gets to an extreme, it is completely useless for growth. You had extreme inequality in the 19th century, and growth was not particularly large.

Because the growth rate of productivity was 1 to 1.5 percent per year (in 19th century Europe), and it was much less than the rate of return to wealth, which on average was 4 to 5 percent, the consequence was huge inequality of wealth. It’s important to realize that innovation and growth in itself are not sufficient to moderate inequality of wealth.

Q: Are we automatically on a course that leads us back to the Gilded Age?

A: Nobody knows. The main message of the book is that there is no pilot in the plane. There is no natural process that guarantees that this is going to stop at an acceptable level.

Q: Would inequality matter if wages were still growing for the middle class?

A: There are two big forces that are squeezing the middle class. One is the rise of the very top executive compensation, which implies that the share of labor income going to the middle and lower class is shrinking. That has been quite spectacular in the U.S. The other force we see is that the share of a country’s income going to labor tends to decline when the share that goes to capital is rising.

Q: You call meritocracy a “dangerous illusion.” That goes against how a lot people think the U.S. economy works.

A: Our modern democratic ideal is based on the hope that inequalities will be based on merit more than inheritance or luck. Sometimes, meritocratic arguments are used by the winners of the game to justify the role of unlimited inequality. I don’t think there is any serious evidence that we need to be paying people more than 100 times the average wage in order to get high-performing managers.

Q: People in Europe and the United States have a nostalgic view of the post-World War II period. We saw growing national prosperity that benefited everyone. Is it possible to get back to that?

A: It was really a transitory period due to very exceptional circumstances. Growth was extremely high, partly because of post-war reconstruction. Also, growth was exceptionally high because population growth as a rule had been extremely large in the 20th century. This isn’t really an option for policymakers. The other reason I think we should not be nostalgic is that part of the reason the inequalities were lower in the `50s and `60s is that the wars destroyed some of the inherited capital that were the sources of earlier inequality.

Q: Why do you think a wealth tax would address the destabilizing force of rising inequality?

A: Instead of having a flat tax on real estate property, you would have a progressive tax on individual net worth. You would reduce the property tax for the people who are trying to start accumulating wealth.

Q: Every American politician says education is the answer to inequality and immobility. Is more education the answer?

A: This is the most powerful equalizing force in the long run. But it’s not enough. You need both education and taxation.

Q: How did watching U.S. TV shows like “House,” “Bones,” “West Wing” and “Damages” help you with this book?

A: They tell us stories about how you can get rich, get poor, etc. The people who are heroes of the series, many of them have Ph.Ds. They represent the model of skill-based inequality. … (The shows are) like novels in the 19th century. They’re able to show in an extreme way a kind of deep justification or deep criticism of the inequality structure.

Q: Your critics see you as pushing a political agenda about class divide.

A: This is a book about historical facts. People can do what they want to do with it. The book has four parts, and Part No. 4 is about policy implications. … To me, this isn’t the most important part. If you disagree with these 100 pages, that’s fine. The whole purpose of the first 500 pages is to help people to make their own conclusions.

Carter: U.S. dormant on inequalities between black and white

Former President Jimmy Carter on Tuesday night lamented continuing inequalities between black and white Americans during a 50th anniversary celebration of the Civil Rights Act in Texas that will feature four of the five living U.S. presidents this week.

Carter said “too many people are at ease” with black unemployment rates that exceed the national average and schools in some places that he described as basically still segregated.

Carter, 89, was the first president to speak at the Lyndon B. Johnson Presidential Library in Austin, which is holding the three-day summit to mark the anniversary of the landmark 1964 law that banned widespread discrimination against racial and ethnic minorities and against women.

“We’re pretty much dormant now,” Carter said. “We accept self-congratulations about the wonderful 50th anniversary – which is wonderful – but we feel like Lyndon Johnson did it and we don’t have to do anything anymore.”

The unemployment rate for blacks was 12 percent in February, compared with 5.8 percent for whites.

Carter, who grew up in Georgia, recalled being influenced by black culture and calling for the end of racial discrimination after he was elected governor of that state in 1970. But four decades later, Carter expressed regret at racial and gender inequalities that he says are persistent.

The 39th president touched on wage gaps between women and men and reiterated his support for gay marriage. During a wide-ranging interview to a packed auditorium, Carter also chalked up loosened rules on political campaign contributions as partly the reason for a new era of gridlock in Washington.

“What happens is that the political environment is flooded with money since the Supreme Court made that stupid decision,” Carter said, a reference to the high court’s 2010 Citizens United ruling.

“A lot of that money that pours into the campaigns is spent on negative commercials. … So by the time the election’s over, you have a polarized Texas or polarized Georgia, red and blue states. Then, when people get to Washington, they don’t trust each other,” he said.

President Barack Obama is scheduled to give the keynote address Thursday. Bill Clinton will speak today, and George W. Bush will be the event’s final speaker Thursday.

George H. W. Bush, 89, is the only living president not attending the summit. He said in a statement that he regretted that he couldn’t attend.

Johnson’s presidency is often viewed in the dark shadow of the Vietnam War, but the library believes his legacy deserves as much attention for the Texan’s victories on civil rights.

The summit began with former Republican Mississippi Gov. Haley Barbour and San Antonio Mayor Julian Castro, a fast-rising Democrat, urging Congress to tackle immigration reform before the end of the year.

“The stupidest thing we can do economically is make them leave. We don’t have anybody to replace them,” said Barbour, referring to the estimated 11 million immigrants who are in the country without legal documentation. “So the impracticality of sending them home should be obvious to everyone.”

Their discussion was interrupted by a woman in the crowd shouting she was a DREAMer and calling on Castro to urge Obama to stop deportations of families.

No one removed the woman, who began shouting again when the panel was over.

Castro, the keynote speaker at the 2012 Democratic National Convention, did not respond to the woman but later said he was troubled by families who are deported after minor crimes such as traffic stops.

“My hope is that his administration will go about it in a different way. I’m not comfortable with the number of deportations,” Castro said.

The library also has a “Cornerstones of Civil Rights” exhibit that features the original Civil Rights Act of 1964 and Voting Rights Act of 1965, both signed by Johnson, and a copy of the 1863 Emancipation Proclamation signed by President Abraham Lincoln that declared all slaves in Confederate states free.

5 tycoons who want to close the wage gap

As the middle class struggles to make gains and President Barack Obama strives to shine a spotlight on the issue of income inequality, an unlikely constituency is looking for ways to close the nation’s growing wealth gap: A handful of top U.S. business tycoons.

These advocates point to notions of fairness and admit to twinges of guilt, but the core concern driving all of them – left, right and libertarian – is a belief that the economy doesn’t function efficiently when the wealth gap is wide. They are proposing solutions that range from pressuring fellow entrepreneurs to pay workers more to simply giving their money back to the government to redistribute.

Since roughly 1980, the wealthy have been prospering while the middle class stagnates or falls behind. Members of the 0.1 percent now make at least $1.7 million a year and grab 10 percent of the national income, while the median annual household income has dropped, landing at $51,017.

The gap is growing wider. Income for the highest-earning 1 percent of Americans soared 31 percent from 2009 through 2012, after adjusting for inflation. For everyone else, it inched up an average of 0.4 percent.

As U.S. society has grown more unequal, rich men and women have set up clubs and foundations to encourage economic parity, and they are actively lobbying for change.

The figure of the fairness-conscious billionaire has a precedent, said Harvard Business School professor Michael Norton. During the Gilded Age, at the end of the 1800s, tycoons took steps to increase equality and help the working class.

“Names like Carnegie, Mellon and Rockefeller – the (Warren) Buffet and (Bill) Gates of their days – grace universities, museums and medical centers in part because the originators of those fortunes gave back,” Norton said. “In the same way that some businesspeople are now taking steps to address climate change due to its effects on costs and revenues … the notion that inequality can be bad not just for ethical reasons, but for financial reasons, is one that is increasingly embraced by businesspeople.”

Here’s a look at some of these opponents of the widening gap between the poor and, well, themselves.

BUFFETT: THE BILLIONAIRE PIED PIPER

The most visible of the superrich Robin Hoods is investor Warren Buffett, who has persuaded dozens of billionaires to give away large portions of their fortunes. Buffett, 83, is the second-richest American, according to Forbes magazine, with a net worth of $58.5 billion. He heads Berkshire Hathaway Inc., which owns everything from the insurance company GEICO and Dairy Queen to underwear maker Fruit of the Loom.

For years, he has advocated policies to close the wealth gap, saying reforms are necessary for the nation’s continued prosperity. Buffett has famously complained that he pays a lower tax rate than some of his most menial-wage employees. That’s because, like many moguls, much of his income comes from capital gains and dividend payments, which are taxed at a lower rate than ordinary wages. His activism gave rise to Obama’s proposed “Buffet rule,” which would ensure that anyone making more than $1 million per year pay at least the same rate as middle-income taxpayers.

The self-made Omaha, Neb., magnate has also for years targeted unequal wealth accumulation. Buffet advocated for a progressive estate tax before members of Congress, saying in 2007, “Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.”

Buffett, who did not immediately respond to questions submitted via his assistant, has played a key role in encouraging his peers to redistribute their wealth by choice. In 2010, he launched the Giving Pledge program in which wealthy entrepreneurs publicly promise to donate at least half of their riches to charity. Adherents including Facebook CEO Mark Zuckerberg, oil tycoon T. Boone Pickens and former New York Mayor Michael Bloomberg.

UNZ: THE REPUBLICAN WHO FAVORS A RAISE

Not all members of the super-rich taking up the issue of inequality are progressives. Ron Unz, a Silicon Valley millionaire and registered Republican who once ran for California governor, is advocating the highest minimum wage in the country for his home state. Unz rose to fame when he spearheaded a 1998 ballot proposal that dismantled California’s bilingual education system. He later became publisher of The American Conservative, a libertarian-leaning magazine.

Lately, he has become obsessed with the idea that a wage hike is the best way to advance the conservative ideal of reducing dependence on government programs. Frustrated with the gridlock in Congress, Unz is pouring his own money into a November ballot measure that would increase the minimum wage in California to $12 an hour in 2016.

At that level, he said in an interview with The Associated Press, “every full-time worker would be earning almost exactly $25,000 and every full-time worker couple $50,000. Under normal family circumstances, those income levels are sufficiently above the poverty threshold that households would lose their eligibility for a substantial fraction of the various social welfare payments they currently receive, including earned-income tax credit checks, food stamps and housing subsidies.”

Unz, whose fortune comes from founding Wall Street Analytics Inc., argues that by not paying a living wage, companies are forcing the government to subsidize them through massive welfare spending. An advocate for the free market, Unz opposes any kind of subsidy. The wage proposal has led him to work with strange bedfellows, including Ralph Nader, the consumer advocate and former independent presidential candidate, and progressive economist James Galbraith.

Unz, 52, trained as a theoretical physicist, has an IQ of 214 and has written scholarly papers on the Spartan naval empire. His political rivals and allies alike have made much of his nerdy demeanor. But his unorthodox background seems to have given him the confidence to go against the conventional wisdom of his party.

“The thing that’s really shocking is that the Republican response to the problem is to call for increased welfare spending. From a free-market perspective, businesses should compete without subsidies,” Unz said. “If they can’t compete, then maybe they should go out of business.”

HANAUER: HELPING PEOPLE BUY WHAT AMAZON SELLS

Seattle venture capitalist Nick Hanauer believes the growing wealth gap threatens the economic system that has given him his wealth. One of the early investors in Amazon, Hanauer started the Internet company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion.

But Hanauer said he doesn’t consider himself a “job creator.” If no one can afford to buy what he’s selling, the jobs his companies create will evaporate, he reasons. In his view, what the nation needs is more money in the hands of regular consumers.

“A higher minimum wage is a very simple and elegant solution to the death spiral of falling demand that is the signature feature of our economy,” he said in an interview with the AP last summer.

Hanauer, 54, advocates raising taxes for the rich and hiking the minimum wage to the unheard-of heights of $15 an hour. He has co-authored a book and launched an organization called The True Patriot Network to help push such proposals. In 2012, he advanced his ideas in a TED talk – one of the wonky, provocative lectures that have become a required feather in the cap of web-savvy thought leaders. But TED organizers refused to post Hanauer’s lecture on the web, because they said it was too partisan.

SILBERSTEIN: THE QUIET ADVOCATE

Steve Silberstein made his fortune in the early days of computers by co-founding Innovative Interfaces, a software company that creates technology for hundreds of college and university libraries. He sold the company, settled in a secluded town in Marin County, Calif., and became a philanthropist.

Now, at 70, he is a low-profile member of a movement to organize institutional investors in opposing what he and others say are exorbitant executive salaries.

Silberstein advocates a policy that would tie corporate tax rates to the difference in compensation between the CEO and an average worker. A company with a CEO-to-worker-compensation ratio at the 1980 level of 50-to-1 would pay tax at the current rate of 35 percent; companies with a larger pay gap would be taxed at a higher level, and those with a narrower gap would pay a lower rate.

Silberstein took a step into the spotlight when he produced the documentary “Inequality for All,” featuring former U.S. Labor Secretary Robert Reich. It premiered last year at the Sundance Film Festival.

“He’s one of the quiet leaders of the entire movement toward wider prosperity,” Reich said. “An increasing number of wealthy businesspeople are becoming concerned that the economy can’t function without a strong middle class to keep it going.”

Silberstein told the AP his views are not so different from that original American industrialist, Henry Ford, who famously paid his factory workers enough to purchase one of the cars that came off his assembly line.

“As a result he became rich,” Silberstein said. “If the economy goes well, everybody does well, including the wealthy.”

Like many left-leaning executives troubled by the wealth gap, Silberstein insists that his ideological views play only a small part in his concerns.

“It’s a problem, and everybody is losing as a result. It’s self-interest and the interest in my country, too,” he said.

HINDERY: THE TITAN WHO WANTS TO PAY MORE TAXES

Leo Hindery Jr., the New York City media and investing mogul, is one of hundreds of wealthy people directly asking Congress to raise their taxes as a member of Patriotic Millionaires. The group was formed in 2010 to advocate for the end of Bush-era tax cuts for people making more than $1 million a year. Hindery is also a member of Smart Capitalists for American Prosperity, and he was among a group of entrepreneurs who went door-to-door in the halls of Congress in early February asking for a higher minimum wage.

A managing partner of the media industry private equity fund InterMedia Partners, Hindery was previously chief executive of AT&T Broadband and of the YES Network, the cable channel of the Yankees. He says he’s turned down raises to ensure that he never makes more than 20 times the salary of his employees. He is also one of the biggest Democratic fundraisers in the nation.

The 66-year-old argues that giving rich people tax breaks makes no economic sense because people like him don’t put their extra dollars back into the economy.

“Do you think I don’t own every piece of clothing, every automobile? I already have it. You spend money. Rich people just get richer,” he told the AP.

Hindery credits his Jesuit upbringing with giving him the tools to look beyond his own economic advantages.

“How can we believe in the American dream when 10 percent of the people have half the nation’s income? It’s immoral, I think it’s unethical, but I also think that it’s bad economics,” Hindery said. “The only people who can take exception to this argument are people who want to get super rich and don’t care what happens to the nation as a whole.”

Tax Day study: U.S. has largest pay gap in world

The new executive pay watch, prepared by the AFL-CIO, was released on Tax Day and shows that the world’s largest pay gap exists in the United States, where CEOsof the largest companies made 354 times the average income of the average rank-and-file worker.

AFL-CIO president Richard Trumka said the pay gap is by far the widest in the world. In 2012, CEOs received on average $12.3 million while the average rank-and-file worker took home around $34,645, according to Trumka, who said the new data confirms CEO-to-worker pay disparities have increased dramatically over the past several decades.

Thirty years ago, CEOs were paid 42 times that of rank-and-file workers in the U.S.

For Wisconsin, the AFL-CIO survey shows:

• The average CEO pay was $4,907,639 in 2012.

• Average worker pay in 2012 in Wisconsin was $38,869.

The union’s Executive PayWatch is the most comprehensive searchable online database that tracks CEO pay at S&P 500 companies.

In addition to the new data, Trumka said PayWatch explores how CEO-backed groups such as the Business Roundtable and Fix the Debt are “drumming up a deficit scare to conceal their efforts to get more tax cuts for corporations, while hacking at Social Security, Medicare and Medicaid benefits for working people.”

Trumka said, “American chief executives continued to do very well for themselves last year, while workers struggle to make ends meet. We are calling out the hypocrisy of rich CEOs who have the gall to ask for corporate tax cuts to be paid for by squeezing the retirement security of working America. The American public deserves to know the truth about their self-serving agenda.”

Closing a corporate tax loophole that allows U.S. multinational companies to avoid taxation on overseas profits would raise $42 billion in new revenue in 2013 alone, according to the AFL-CIO.

PayWatch also contains a Mutual Fund Votes Survey, which examines votes cast by the largest mutual fund families regarding CEO pay to help investors compare how mutual fund families voted on compensation issues, and a map that allows users to compare and contrast CEO pay ratios of top executives.

On the Web…

http://www.aflcio.org/Corporate-Watch/CEO-Pay-and-You