On COLAs and inequality

Last edited Thu Feb 28, 2013, 05:04 PM - Edit history (1)

I am not sure when this started, but it seems to me that our society is now stuck on COLAs, and that the way we do them just increases inequality.

This came to me from being on a board charged with deciding how much of a raise the workers would get. Imagine two sets of workers - basic and management. There are, in this example, nine basic workers, each making $20,000 a year, and one manager, making $100,000 a year.

Now imagine that the board decides to give them 2% raises. That means that the basic workers now get $20,400 and the manager now gets $102,000.

In some ways this looks like the Bush tax cuts all over again as the company gives out $5,600 in extra pay. 36% of that money goes to the richest 10% and only 64% of it goes to the bottom 90%. One guy gets $2,000 and the other 9 only get $400 each.

Now, imagine what happens after doing this for ten years. After ten years of 2% increases, the basic worker's pay becomes $24,380 while the manager's pay becomes $121,899. In one sense they are the same as they were ten years ago, with the manager making 5 times as much as a basic worker, but in another sense, the pay gap has widened. The manager once made $80,000 more than the basic worker, but now makes $97,519 more.

It seems to me that the company becomes more unequal.

It becomes even more so, if you consider a couple other realities. One, is that the employees share of health care costs is likely to go up, by say $30 a month. That $30 a month eats up most of the COLA of the basic worker, but only takes 18% of the manager's COLA. The same thing applies with food and gasoline. The COLA is often based on the inflation rate, but things like gasoline and food prices are increasing faster than inflation. Gas prices have gone up about 23% in the last three months alone.

Management probably keeps up with those costs, but it takes more of the basic workers COLA. If they both drive 1,000 miles per month and get 30 mpg then a 70 cent increase in the price of gas will cost them $280 a year, or 70% of the basic worker's COLA and only 14% of the manager's COLA.

Now, ideally, I would like to divide that $5,600 equally among all the workers, but that seemed too big a step, so I suggested a half step. Make the COLA 1% plus 13 cents an hour. In that way the pay of the basic worker would goto $20,480 and the manager's salary would goto $101,280. (edit: the same $5,600 would be divided a little more equally).

Further, doing that for ten years would mean that the basic worker would end up making $25,295 (almost $1,000 more) and that management would be making $113,665 (over $8,000 less) over the whole ten years the basic workers would make $5,000 more in total salary and management would make $43,000 less.

Of course, the rest of the board would not hear of it. They thought management just had to get bigger raises than the other workers. Plus, who attends all of the board meetings, to inform the board about company operations? - the managers of each division, of course.

In fact, it is the main manager who puts together the meeting agenda., and this guy seems to be hinting that he feels he should get a raise and might just put that on the agenda some time.

It seems to me that this standard way of doing business is yet another way that society becomes more unequal. And so is having management representation at board meetings, of course.