t is stated so often that it's become an indisputable fact — CEOs make about 300 times more than the average worker, and that ratio has been increasing for decades.
Hillary Clinton, for example, recently claimed, "There's something wrong when CEOs make 300 times more than the typical worker."
President Obama said, "Where a previous CEO of a company might have made 50 times the average wage of the worker, they might now make a thousand times or two thousand times."
News outlets routinely promote studies showing how outsized this ratio has become.
There's just one problem with this figure. It's not accurate. Not by a long shot.
As economist Mark Perry explains on his Carpe Diem blog , the commonly cited ratio that the AFL-CIO produced is the result of a several sleights of hand.
According to the latest report, for example, CEOs are paid an average $13.5 million, while the average worker makes $36,134 — a ratio of 373 to 1.
But the CEO number is based on data from only the 350 or so biggest companies, even though there are nearly 22,000 CEOs, according to the Bureau of Labor Statistics. In other words, it's just looking at the pay for the top 2% of chief executives.
The average pay for this broader group of CEOs is a much more reasonable $216,100, Perry notes, which works out to a 6-to-1 pay ratio.
Perry also found that the average wage that the AFL-CIO used in its report is artificially low.
In any case, a better way to measure this pay disparity would be to compare what a CEO makes to what workers earn at the same company.
It's understandable why the AFL-CIO doesn't do this, since the resulting ratio for the top 100 companies comes out to just 84 to 1.
What's not understandable is why the mainstream press keeps repeating the massively inflated 300-to-1 number without noting the statistical legerdemain that produced it.
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