Income gaps likely to keep widening, whoever wins White House

A poll released yesterday suggested that if Republican candidate Mitt Romney won the election, Wall Street compensation would be boosted, said Bloomberg news agency.
The eFinanceCareers poll of 911 financial-market professionals found that 57 per cent expected the election to change compensation, while 32 per cent said it would not do so and 11 per cent said they did not know.
Of those who expect the US election to influence pay, 72 per cent viewed a victory by Romney as having a positive effect on compensation. If re-elected, Barack Obama, a Democrat, was viewed as positive for compensation by 18 per cent and negative by 71 per cent.
The high compensation of chief executive officers has been a hot debating issue since the global financial crisis erupted in 2008.
Rewards for CEOs, particularly in the financial sector, have been blamed for largely causing excessive risk-taking by these executives, leading to the crisis in the financial markets of the US and spreading to the rest of the world.
Obama has promised to address the issue of executive pay, which is not yet included in financial reform regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the president signed into federal law in July 2010.
y contrast, Romney has promised to repeal the act, arguing that it regulates businesses too much and is unpopular among those in the financial community.
The Republican’s stance is not a surprise, as he made his fortune from a career in private-equity investment. Romney has been viewed as representing the CEO class, while Obama has campaigned for the welfare of the middle- and lower-income groups.
Romney, representing the conservatives whose ideology relies on the free-market miracle, does not want the government to pay a bigger role in the economy.

BIGGER GOVT ROLE
Obama and his liberal supporters, however, want to increase the government role to correct the market’s failure to make progress on ensuring a fair share of income between diverse groups.
Two Nobel Prize-winning US economists – Joseph Stiglitz and Paul Krugman – and others, including Jeffrey Sachs, have forcefully argued for the reform of CEO compensation.
Executive and typical-worker pay is part of the bigger picture of a widening income gap in the US and elsewhere around the world, resulting from market failure and allegations of corruption among the elite.
In 1978, CEO compensation in the US was 35 times that of typical workers.
After 1979, the pay of CEOs skyrocketed, and by 2000 it was a massive 299 times that of a typical worker, according to a study conducted by Lawrence Mishel and Josh Bivens, two economists at a US think-tank, the Economic Policy Institute.
The study also pointed to the income of the top 1 per cent of households getting the lion’s share of income in the US, with the bottom 90 per cent not receiving a fair share.
According to their findings, the top 1 per cent secured 59.9 per cent of the income gains from 1979-2007, while the top 0.1 per cent seized an even more disproportionate share, at 36 per cent. In comparison, only 8.6 per cent of income gains had gone to the bottom 90 per cent of households.
Other economists who study the topic have found the same pattern of widening income disparity between CEOs and typical workers.
For example, according to a study by Emmanuel Saez and Thomas Piketty, the average top 100 CEOs’ pay in the US was roughly 40 times the average workers’ pay at the start of the 1970s. By 2000, it had reached 1,000 times that for the average worker.
US economists have argued that the country sets a bad example for other nations, many of which have emulated the US capitalist system.
Yet even if Obama gets re-elected, many economists are pessimistic about the prospects of serious reform of CEO pay due to the powerful lobby of those who have a vested interest in the financial sector.