As we live in a very unequal system, this actually understands the difference as the average wage is much higher than the median. To understand why, consider 9 homeless people in a room. They have an average income of zero, as is the median (i.e. the income of the fifth person). Add a multi-millionaire and the average income of the ten people is in the millions while the median remains unchanged.
The pay gap has more than doubled since 2000. Back then, the bosses pay was 39 times the average worker's earnings. Two years later it was 54 times as much as. Looking even further back, in 1979 it was slightly less than 10 times as much as the average worker on the shop floor.
Since 2000, their total earnings have more than doubled compared with a 28.6% rise for the average full-time worker (in nominal rather than real terms). In the last year alone, the total pay package of a FTSE 100 chief surged by 43% from �2.01m to �2.98m in 2006 (basic salaries for CEOs of FTSE 350 companies rose 9.1%). This compared with the average wage deal of just 3% for the rest of us. Needless to say, there were no sermons on "inflation busting" pay rises by the politicians in office about the bosses pay rises (like profits, rent and interest, rising bosses pay never, ever causes inflation).
So why has this happened? It is not due to performance, as capitalist economists assert. Executive enrichment has little, if anything, to do with improved performance by companies. According to research from the University of Manchester, between 1983 and 2002 the sales of the top 100 quoted companies on the stock exchange rose by an annual 2.7% as did pre-tax profits. The market valuation of the company rose by 18.2% while the pay of the chief executive rose by 26.2%. ("Financialisation and Strategy: Narrative and Numbers" by Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams).
To understand why way inequality has risen, we need to look at something mainstream economics ignores: power. The real reason for the explosion of top-level pay is due to their position in the company hierarchy and the weakening of working class organisation in the workplace. In other words, they give themselves big pay rises because they can and because workers are unable to fight to retain more of the wealth they produce. By monopolising power, the bosses can monopolise more of the wealth their wage slavers toil to produce.
There is an irony here. Usually defenders of capitalism contrast the joys of "individualism" with the evils of "collectivism" in which the individual is sub-merged into the group and is made to work for its benefit. Yet when it comes to capitalist industry, they stress the abilities of the people at the top of the company, the boss or the entrepreneur, and treat as unpeople those who do the actual work (and ignore the very real subordination of those lower down the hierarchy). The boss is considered the driving force and the organisations and people they govern are ignored, leading to the impression that the accomplishments of a firm are the personal triumphs of the capitalists, as though their subordinates are merely tools not unlike the machines on which they labour.
So if, as Chomsky correctly stresses, the capitalist firm is organised in a fascist way, this defence of profits and bosses pay is its ideology, its "Führerprinzip" (the German for "leader principle"). This ideology sees each organisation as a hierarchy of leaders, where every leader (Führer, in German) has absolute responsibility in his own area, demands absolute obedience from those below him and answers only to his superiors.
The ironic thing about this argument is that if it were true, then the economy would grind to a halt (ironically, much the same can be said of Engels's diatribe against anarchism "On Authority"). It exposes a distinct contradiction within capitalism. While the advocates of capitalism assert that the entrepreneur/boss is the only real producer of wealth in society, the fact is that the workforce industry is required to implement the decisions made by the bosses. Without this unacknowledged input, the boss would be impotent yet they monopolise the fruits of this input and reward themselves handsomely for so doing.
There is another irony. Fifty years ago, two neo-classical economics, Kelvin Lancaster and Richard Lipsey, showed in their paper "The General Theory of the Second Best" that movements towards "perfect competition" can have negative effects. This had one obvious implication, namely that neoclassical economics itself has shown that trade unions were essential to stop workers being exploited under capitalism. This is because the neoclassical model requires there to be a multitude of small firms and no unions. In the real world, most markets are dominated by a few big firms. Getting rid of unions in such a less than competitive market would result in the wage being less than the price for which the marginal worker's output can be sold, i.e. workers are exploited by capital in neoclassical terms (it does not consider interest, rent and profit as exploitation).
In other words, neoclassical economics has itself disproved its own case against trade unions. Not that you would know that from neoclassical economists, of course. In spite of knowing that, in their own terms, breaking union power while retaining big business would result in the exploitation of labour, neoclassical economists lead the attack on "union power" in the 1970s and 1980s. The subsequent explosion in inequality as wealth flooded upwards provided empirical confirmation of this analysis. The rising gap in pay is an aspect of this general process.
Strangely, though, most neoclassical economists are still as anti-union as ever -- in spite of the logic of their own ideology and such trivial things like the empirical evidence. That the anti-union message is just what the bosses want to hear can just be marked up as yet another one of those strange co-incidences which the value-free science of economics is so prone to. Suffice to say, if the history of economics is any guide, then the economics profession will question neoclassical equilibrium theory when conclusions like this become better known in the general population.
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Initially written for anarkismo.net