Americans Have No Idea How Bad Inequality-Slate2014 | Politics | Public Sphere

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  I MONEYBOXCOMMENTARY ABOUT BUSINESS AND FINANCE. SEPT. 26 2014 12:49 PM  Americans Have No Idea How Bad InequalityReally Is And if they did, they wouldn’t want European-style solutions. By Jordan Weissmann Protesters affiliated with Occupy Wall Street demonstrate at Zuccotti Park on the secondanniversary of the movement on Sept. 17, 2013, in New York City. Photo by Spencer Platt/Getty Images f Michael Norton’s research is to be believed, Americans don’t have the faintestclue how severe economic inequality has become—and if they only knew, they’dbe appalled.   Jordan Weissmann is  Slate 's senior business and economics correspondent. Consider the Harvard Business School professor’s new study  examining publicopinion about executive compensation, co-authored with the ChulalongkornUniversity in Bangkok’s Sorapop Kiatpongsan. In the 1960s , the typical corporatechieftain in the U.S. earned 20 times as much as the average employee. Today,depending on whose estimate you choose, he makes anywhere from 272  to 354  timesas much. According to the AFL-CIO , the average CEO takes home more than $12million, while the average worker makes about $34,000.In their study, Norton and Kiatpongsan asked about 55,000 people around the globe,including 1,581 participants in the U.S., how much money they thought corporateCEOs made compared with unskilled factory workers. Then they asked how muchmore pay they thought CEOs  should  make. The median American guessed thatexecutives out-earned factory workers roughly 30-to-1—exponentially lower than thehighest actual estimate of 354-to-1. They believed the ideal ratio would be about 7-to-1. Advertisement “In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are evenfurther from reality than those underestimates,” the authors write.Americans didn’t answer the survey much differently from participants in other countries. Australians believed that roughly 8-to-1 would be a good ratio; the Frenchsettled on about 7-to-1; and the Germans settled on around 6-to-1. In every country,the CEO pay-gap ratio was far greater than people assumed. And though they didn’tconcur on precisely what would be fair, both conservatives and liberals around theworld also concurred that the pay gap should be smaller. People agreed across incomeand education levels, as well as across age groups.  JORDAN WEISSMANN  Country  ▼  Actual ratio of CEO toworker pay What subjects thoughtwas the ratioWhat subjects said wouldbe the ideal ratio  Australia93408.3 Austria36125CzechRepublic1109.44.2Denmark483.72France10424.26.7Germany14716.76.3Israel7673.6Japan67106Norway584.32.3Poland2813.35Portugal53145Spain1276.73Sweden894.42.2Switzerland14812.35UnitedKingdom8413.55.3UnitedStates35429.66.7 How much should CEOs earn compared with the averagelow-skill worker? Researchers Sorapop Kiatpongsan and Michael I. Norton asked 55,000 people around the world how muchthey thought CEOs in made compared with the average low-skill factory worker, and how much they shouldmake. Here are the estimated, ideal, and actual ratios. All ratios are to 1, so 93:1, 40:1, etc. Created with DatawrapperSource: Sorapop Kiatpongsan and Michael I. Norton, Get the data This is the second high-profile paper in which Norton has argued that Americans havea strikingly European notion of economic fairness. In 2011, he published a study  withDuke University professor Dan Ariely that asked Americans how they believed wealthshould be split up through society. It included two experiments. In the first,participants were shown three unlabeled pie charts meant to depict possible wealthdistributions: one that was totally equal; one based on Sweden’s income  distribution,which is highly egalitarian; and one based on the U.S. wealth  distribution, which iswildly skewed toward the rich. (They used Swedish income data as a model, rather   than wealth, to strike a “clearer contrast” with the United States.) *  Then, the subjectswere told to pick where they would like to live, assuming they would be randomlyassigned to a spot on the economic ladder. With their imaginary fate up to chance, 92percent of Americans opted for Sweden’s pie chart over the United States.In the second experiment, Ariely and Norton asked participants to guess how wealthwas distributed in the United States, and then to write how it would be divvied up inan ideal world (this, it seems, served as the template for Norton’s most recent study).Americans had little idea how concentrated wealth truly was. Subjects estimated thatthe top 20 percent of U.S. households owned about 59 percent of the country’s networth, whereas in the real world, they owned about 84 percent of it. In their ownprivate utopia, subjects said that the top quintile would claim just 32 percent of thewealth. The Actual Wealth Distribution of the U.S., What Americans Think the Wealth Distribution Is, andWhat They’d Like It to Be As in Norton’s more recent study, responses varied a bit by age, income, and politicalparty, but there was overall agreement that America would be better off with a smaller wealth gap. Estimated and Ideal Wealth Distribution by Income and Political Affiliation
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