Question

1. Read Lawrence Mishel and Jessica Schieder, “CEO Compensation Surged in 2017” and “The Undeserving Rich” in Real World Micro (chapter 8.6). What has happened to the income of the richest Americans compared to the income of the rest? Does rising inequality reflect greater productivity for CEOs and other rich people? Do Mishel and Schieder believe that rising compensation is due to rising productivity for CEOs? What evidence do they advance to support their argument? Do you agree? Why?

2. How does your response in question two bear on Okun’s argument about the benefits of inequality and the costs of redistributive programs?

Answer 1

The income of CEO's and the richest Indians have grown very high as per the recent survey. In the companies, the average CEO to worker's compensation is 312:1 which mentions a state of high income inequality. This is due to rising stock options compensation in the CEO's salary structure.

Rising inequality does not show greater productivity of the CEO's, Rather it is due to power of the CEO's to set their salary structure. It is being studied that in the last decade wages of the CEO have grown very high compared to wage compensation given to the workers or the average wages of the college graduates. This is only because of the CEO's power to set to salary and not because of their higher education or qualification.

As a result, the fruits of the economic growth goes only to the top level employees of the company and not to the common wage earners. I totally agree with the statement as the rising income inequality in US supports this fact and thus the average CEO to worker's compensation ratio is very high i.e., 312:1.

Okun supported the fact of income inequality stating that in an economy one cannot have perfect equality or perfect efficiency but one must decide how much to sacrifice one for the other. It has been studies that one percent increase in the compensation of top 20% workers of the company would bring the economy down by 0.08 percent whereas rise in the income of bottom 20% of the workers would actually boost the economy.