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Riya Anne Polcastro headshot

Greedflation Caused by CEOs Seeking Employee Pay Cuts

Let's call surging prices what it really is — greedflation, as many of America's companies are raising prices at the expense of both workers and consumers.
Greedflation

The asinine theory that workers with too much money to burn are to blame for rising prices has finally been exposed for the fallacy that it is. Greedflation – as the AFL-CIO referred to the phenomenon in its recent report — is actually at fault as CEOs raise prices to boost profit margins and line their own pockets at workers’ and consumers’ expense.

Instead of forcing a recession that will lower wages further, the international labor organization suggests that government intervention should focus on bringing real wages up and elevated costs down. Rather than allowing runaway profits and CEO pay to continue unchecked while falling real wages become further entrenched, this plan — along with regulating C-Suite compensation and implementing price controls — represents a more realistic approach to taking on greedflation."

With consumers being pummeled by the highest price surges since 1981, corporations have been quick to point the finger at workers and their demands for better recompense — claiming higher labor costs are the cause. The Federal Reserve agrees, with the bank’s Chair, Jerome Powell, going so far as to promise to knock down wages by manipulating the interest rate. Former Treasury secretary Larry Summers is gunning for an even bigger burden on workers. He’s quoted in Bloomberg as saying, “We need five years of unemployment above 5 percent to contain inflation — in other words, we need two years of 7.5 percent unemployment or five years of 6 percent unemployment or one year of 10 percent unemployment.”

And yet for all the talk of swelling pay, it isn’t the average worker’s income that has grown. Nominal wages may have climbed 4.7 percent in 2021 but with rising costs that translated into a 2.4 percent reduction in real wages, according to the AFL-CIO report. Meanwhile, corporate S&P 500 profits are up 17.6 percent and CEO pay rose 18.2 percent. That’s on top of the 19 percent increase that came in the midst of the 2020 layoffs. Clearly, it isn’t the demands of a newly emboldened labor force that is driving the price index, but rather CEOs and other C-Suite-level executives who have been raking in record-level compensation packages and investing in massive stock buybacks.

The average annual CEO compensation package was $18.3 million in 2021 — that’s 324 times what regular employees earned. But that’s only the average. Plenty of corporations operate on more extreme ratios. At 6,474 to one, last year Amazon paid its CEO almost $213 million while its average worker earned a mere $32,855. That didn’t stop the company from blaming price increases on worker pay. Likewise, McDonald’s has put the onus for its price hikes on labor costs despite using $4.7 billion of its $7.55 billion net income in 2021 on stock buybacks. The claim is even more ridiculous in light of the fact that McDonald’s wages went down by over $220 on average — it was $9,124 in 2020, $8,897 the following year. Still, the chain’s CEO took home 2,251 times that with a salary and benefits package worth over $20 million.

The Fed’s plan to drive down wages is in direct contradiction to the cause of rising costs and will only serve to make the problem of runaway profits worse. Technicalities aside, inflation implies a cause beyond inflation for inflation’s sake — a breakdown in supply, a rise in production costs, something! But raising prices indefinitely, just because it can be done? That isn’t inflation, it’s greedflation.

Attacking greedflation by depressing workers’ wages, raising unemployment and forcing a recession will only normalize it. What Powell, and even more so Summers, suggest is that workers be manipulated into desperate situations so that they will accept less and less. Lowering business costs in this manner does not guarantee that prices will go down. Indeed, as current trends in CEO compensation demonstrate, many corporations are more than willing to bleed consumers and workers dry in order to maximize their profit margins. 

It’s no surprise then that Powell has failed to implement rules from the Dodd-Frank Act in his agency. As a former executive in private equity, there is no question where his loyalty lies. Yet between oil company profiteering, the seemingly never-ending increase in the cost of everyday goods, exploding housing costs and the accompanying threat of homelessness, many American workers are watching their standards of living evaporate before their eyes even as profits soar and CEOs enrich themselves. In order to stop this decline in the average standard of living, C-suite level compensation must be reformed, real wages must be increased to a livable rate and action must be taken to control prices. 

Image credit: Frederick Warren via Unsplash

Riya Anne Polcastro headshot

Riya Anne Polcastro is an author, photographer and adventurer based out of Baja California Sur, México. She enjoys writing just about anything, from gritty fiction to business and environmental issues. She is especially interested in how sustainability can be harnessed to encourage economic and environmental equity between the Global South and North. One day she hopes to travel the world with nothing but a backpack and her trusty laptop.

Read more stories by Riya Anne Polcastro