Lythgoe 1

Beau Lythgoe

Professor Dominguez

English 2010

20th July 2020

For the Sake of Our Children

Intergenerational mobility is at risk in the United States. Minimum wage has not risen for

over a decade at the federal level, and when accounting for inflation and buying power, has held

nearly constant for the last thirty years. The compensation to the top 90% of earners has risen

steadily since the 1970’s while the average earner is left to compete for the scraps. The cost of

education continues to outpace inflation as it has for the last forty years and it is becoming less

profitable to pursue a four, six, or eight-year post-secondary degree.

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While the federal minimum wage has not changed drastically in the last twenty years,

there have been many states and cities that have taken it upon themselves to raise the wage of

low-income workers. Notice Figure 1 on the following page. This graph shows the minimum

hourly wage in the United States, Canada, Brazil, and the Russian Federation in 2019 US

Dollars, adjusted each year for inflation and considering differences in buying power. This data

was provided by the Organisation for Economic Co-Operation and development, which focuses

on reducing inequality in countries and communities around the globe.

Real Hourly Minimum Wage in 2019 Dollars

11
10
Real Hourly Wage in 2019 Dollars

9
Canada
8
7 United States
6
5 Brazil
4
3 Russian Federation
2
1
0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Notice the slight uptrend in real minimum US hourly wages during the period from 2007
Figure 1 [CITATION Dev20 \l 1033 ]

to 2009. In this period, legislative amendments raised the (at the time) minimum hourly earnings

from $5.15/hr to $5.85/hr on July 24 2007, again to $6.55/hr on July 24 2008, and once more to

$7.25/hr on July 24 2009, where it remains to this day. The gradual decline in real hourly

earnings of a minimum wage worker since then can be attributed to changes in buying power

over time and most notably, inflation.

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It is because of inflation that the minimum wage must continue to rise. If a worker

expects to have the same buying power in this upcoming year, they must be able to earn 2-3%

more as well. While that may seem like a small feat, remember it is because of the compounding

of interest over time that a thirty-year mortgage becomes enticing. The monthly payments on a

thirty-year fixed-rate mortgage remain the same through the life of the loan, so after accounting

for 29 years and 11 months of inflation, the last payment you make will only be worth $0.54 per

dollar of the first.

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Nonfarm Business Sector: Real Output Per Hour of All Persons Log2 (1947-
2019)
120.000
100.000
80.000
60.000
40.000
20.000
0.000

Nonfarm Business Sector: Real Output Per Hour of All Persons

Figure 2 [ CITATION USB20 \l 1033 ]

Let us talk about productivity. It was not too long ago-just a single lifetime in which

computers have matured enough to change just about everything. Even without the use of

computers, improvements in the fabrication and production process have been the source of

increased productivity. Had the federal minimum wage scaled with this increase in productivity,

it is projected that the hourly earnings of a minimum-wage worker would break the twenty-dollar

mark. As you can see in Figure 2, which used data supplied by the U.S. Bureau of Labor

Statistics, the non-farm labor productivity in the United States has nearly doubled over the last

quarter-century.[ CITATION USB20 \l 1033 ] So, where is the money? At the top.

The CEO to average worker ratio is a bit difficult to completely comprehend, and even

more so to quantify. First, many CEOs receive benefits that are hard to value. Many are given

stock packages from the company, stock options, bonuses, and more. The stocks are particularly

hard to quantify the value of because these individuals and corporations only engage in stock

transactions planned well into the future. These large sums are almost never exercised all at

once, but rather over time. Fluctuation in a stock’s value can have a significant impact on an

individual’s worth, even over short periods. The CEO to average-worker ratio is computed two
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Historical CEO to Average Worker Compensation Ratio

400

350

300

250

200

150

100

50

0
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20

Realized Granted

ways, the only difference between them being whether the stock options are taken and realized.

By taking the realized value of a CEOs annual compensation and dividing it by that

corporation’s average employee salary, you get the CEO to Average Worker wage ratio.

Beginning in 1965, the ratio was between 15.5 and 19.9. It rose steadily to the 100 mark in the

early 90s, before exploding in the last few decades to 241.1-345.9 in 2007, before returning

below the 200 mark and maintaining itself just under 300 in recent years.[ CITATION Law19 \l

1033 ]

Notice the most prominent points on this chart. The maximum value occurred during the

late 90s leading into the tech bubble. Another prominent peak of greed occurred during the 2007

financial crises. Unfortunately for CEOs the following year, they would take home a meager

200x the annual salary of an average worker.

The third and final reason why individuals may be experiencing friction in their

economic mobility is that certain costs have outpaced inflation by a factor of two or more. Even

expenses that are encouraged such as education are becoming increasingly unattainable. The
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annual inflation rate is just under 3%, while many tuition expenses at colleges and universities

increase by 8% year over year. Contrary to my expectation, publicly funded schools have seen

the highest percentage of increase in tuition cost over the last decade. [CITATION USD18 \l

1033 ]

Historical Growth in National Health Expenditure

4,000.0 20.0
Annual Health Expenditure (Billions)

3,500.0 18.0
16.0
3,000.0

Annual Growth Rate (%)

14.0
2,500.0 12.0
2,000.0 10.0
1,500.0 8.0
6.0
1,000.0
4.0
500.0 2.0
- 0.0
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

Expenditures Annual Growth

Healthcare spending in the United States has also outpaced inflation. According to a

historical report of national health expenditures published by the Centers for Medicare &

Medicaid Services, it has done so consistently through the mid-20th century.

Figure 4 [ CITATION Cen19 \l 1033 ]

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18 Historical Inflation v Healthcare Expenditure Growth

16
14
Annual Growth (%)

12
10
8 Inflation
6 Healthcare Expenditure Growth
4
2
0
-260 64 68 72 76 80 84 88 92 96 00 04 08 12 16
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20

Compare the growth rate in spending to inflation over the same period in the chart below.

While the growth rates are not terribly different, if one outpaces the other, it will always grow

faster, and if given enough time, will surpass the other in value.

Figure 5 [ CITATION Cen19 \l 1033 ]

Buying Power Equivalent to $1 in 1960

1000

100 135
100
41
15
8
10 6

2 2
1
60 6 3 6 6 6 9 7 2 7 5 78 81 84 87 90 93 96 99 02 05 08 11 14 17
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

$1 in 1960 $1 of Medical Expenditure in 1960

The data from Figure 5 was compounded annually with equal starting values Given the

annual rate of inflation and the annual rate of medical expenditure growth, consider the buying

power of $1 and $1 of medical expenditure in 1960 relative to today.

Figure 6 [ CITATION Cen19 \l 1033 ]

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Notice that the graph lies on a logarithmic scale of two over a fifty-year span. Each unit

movement away from the horizontal axis is twice as big as the last. Using logarithmic scales can

help to aid in modeling, tracking, and predicting growth rates. Notice on the graph how drastic

the difference is between the required expenses and their 1960 equivalents. Achieving the same

buying power of a 1960-dollar in 2018 would require just over $8, while a medical expense over

the same period would require you to spend 128x the 1960-dollar amount.

There is a lot that can be attributed to this- technological innovation, improved access to

healthcare, government spending… but none of it explains the consistent issues in the United

States. We have disrespected and discouraged low-income workers by neglecting to increase the

federal minimum wage to a livable standard over the last decade. The average compensation

received by a CEO within a single calendar year is valued at the minimum of 200 years’ worth of

pay for their average employee and has been since the 21st Century. The bootstraps have been

exhausted- some opt to chew on the leather in a feeble attempt to subdue the progressing

starvation. Intergenerational social and economic mobility in the United States is disappearing.

The stagnating wages of the middle-class, coupled with increasingly expensive necessities such

as pharmaceutical drugs and a postsecondary education outpacing inflation leaves us concerned

for the wellbeing of those around us, worried for those who are suffering, and devastated that this

mess may be passed onto our children for generations.

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Works Cited

Barry T. Hirsch, D. A. (n.d.). Union Membership and Coveratge Database. CPS.

Centers for Medicate & Medicaid Services. (2019). National Health Expenditures; Aggregate

and Per Capita Amounts, Annual Percent Change and Percent Distribution: Calendar

Years 1960-2018. National Health Expenditure Accounts.

Development, O. f.-O. (2020). Real Minimum Wages. OECD.Stat. Retrieved from

https://stats.oecd.org/Index.aspx?DataSetCode=RMW

Jake Rosenfeld, P. D. (2016). Union decline lowers wages of nonunion workers. Economic

Policy Institute.

Lawrence Mishel, J. W. (2019). CEO compensation has grown 940% since 1978. Economic

Policy Institute.

U.S. Bureau of Labor Statistics. (2020, July 20). Nonfarm Business Sector: Real Output Per

Hour of All Persons. Federal Reserve Economic Data.