Gap Widening Between the Rich and Super Rich

Photo (cc) by A.Davey

Americans know that economic inequality – the gap between the rich and everyone else – has grown significantly. But income inequality among the wealthy is growing even faster.

The New York Times reports that the income gap between the top 1 percent and top 0.1 percent has expanded even more than the divide between the 99 percent and the 1 percent. Economists have coined the phenomenon “fractal inequality.” The Times says:

It is not just that the rich have pulled away from the average American. It is that the richer you are, the more you have pulled away.

A report from the Economic Policy Institute says, “The average annual earnings of the top 1 percent of wage earners grew 156 percent from 1979 to 2007; for the top 0.1 percent they grew 362 percent.”

To put this into perspective, in 2012, the average household income was distributed as follows, according to the Times:

  • $30,997 – bottom 90 percent.
  • $1.26 million – top 1 percent.
  • $6.37 million – top 0.1 percent.

Part of what’s driving this is CEO pay. “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005,” the institute report says.

From 1978 to 2011, compensation for chief executives skyrocketed 725 percent, while workers experienced a 5.7 percent increase, the Times reports. The ratio of chief executive to worker compensation has ballooned from 18-to-1 in 1965 to 209-to-1. The Times adds:

Not all of that increased compensation for managers is because of improving performance, either. The growth of earnings for executives has outpaced growth in the stock market or in corporate earnings, by a wide margin.

Several explanations have been offered for that — boards that are very CEO-friendly, and the “peer benchmarking” system of determining CEO pay.

James Surowiecki of The New Yorker explains:

They look at the CEO salaries at peer-group firms, and then peg their CEO’s pay to the 50th, 75th, or 90th percentile of the peer group — never lower. This leads to the so-called Lake Wobegon effect: Every CEO gets treated as above average. With all the other companies following the same process, salaries ratchet inexorably higher.

Thanks to new rules, we know more than we ever did about CEO pay. But now the Securities and Exchange Commission is considering a rule to require public companies to disclose the ratio between the CEO’s compensation and the median compensation of all other employees.

What do you think? Would that help control the growth of CEO pay? Share your comments below or on our Facebook page.

Karen Datko contributed to this post.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Prepare Your Finances for Retirement in 7 Steps
How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

7 Reasons to Carry Mortgage Debt Into Retirement
7 Reasons to Carry Mortgage Debt Into Retirement

It often makes financial sense to not pay off your mortgage before retiring.

9 Ways to Get Affordable Vet Care
9 Ways to Get Affordable Vet Care

Medical care for your furry friends can be expensive. Here are some tips to get affordable vet care.

These 12 Reusable Products Save You Money Over and Over
These 12 Reusable Products Save You Money Over and Over

Buy reusable versions of these household items, and you won’t have to spend another dime on them for years.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

These Major Appliances Got the Worst Reviews in 2020
These Major Appliances Got the Worst Reviews in 2020

Consumer Reports says these home products got the worst ratings from experts.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

3 Cable TV Companies Hiking Prices for 2021
3 Cable TV Companies Hiking Prices for 2021

Still married to your cable company? Hold on to your wallet!

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.