The Big Puzzle: Who Makes What and Why

By Frank Trippett

Why on earth should Muhammad Ali get $5 million for one night's performance when college professors average only $24,400 a year? Or why should a Johnny Carson be paid a fortune ($3 million-plus a year) while only peanuts, comparatively, go to the workers who happen to keep the TV industry operating? Such questions from typical Americans are familiar. The tone is usually perplexed and often indignant. And no wonder: the pattern of personal income in the U.S. is riddled with wide and often bewildering disparities.

These become joltingly clear in any random sampling of typical wages and salaries across the country (see box next page). They are likely to turn up in any payroll. Persisting differences in wage scales can be catalogued by race, by sex, by age; striking gaps from region to region are commonplace. It is not hard to understand varying pay for different occupations, but within each trade and profession occur radical differences in earnings that baffle even scholarly experts. Moreover, beyond and above all such helter-skelter inequalities, the nation's overall distribution of income, it seems to many economists, is conspicuously out of whack.

Today's income distribution, though lopsided, is not substantially different from what it was at the turn of the century. Every class of Americans is generally better off, but the actual apportioning of the bigger pie has changed little. Today slightly smaller slices go to the bottom and top fifths of the population, while those in the middle get a slightly larger portion. This means, by the latest complete Census Bureau survey of the nation's 56.2 million families, that in 1975 the best-paid fifth (earning $20,487 and up) received 43.4% of all income, while the lowest fifth (earning less than $5,018) got 4.3% of the total.

Such is the Big Picture. The main criticism of it is a familiar old blues song: the system favors the well-off and rich while leaving the poor irremediably poor. Arthur Okun, a member of the TIME Board of Economists, considers the distribution of income and wealth, with its bias against the poor, "invidious and inhumane." Economist Robert Heilbroner of New York City's New School for Social Research protests for the same reason, but also thinks inequalities in the system are so sharp, glaring and pervasive that it is a "perennial puzzle" that a democratic society puts up with it.

It is not puzzling that Americans accept inequality as such. Capitalism, after all, requires a hierarchy of unequal rewards as an essential source of the incentives that keep Adam Smith's "invisible hand"--and the economic apparatus --working. Although the nation preaches the ideal of equal opportunity and increasingly tries to practice it, inequality of achievement and reward is embedded in the American scheme and seldom questioned by the public. Says Economics Professor Robert J. Lampman of the University of Wisconsin: "Americans don't really seek any particular degree of income equality." And the public, Lampman adds, is not so much interested in the Big Picture as in "particular differences."

The most spectacular of these, when viewed personally and from below, can inspire wonderment and envy. Who could not feel underpaid when contemplating the $1.662 million that Harry J. Gray made last year as chief executive of United Technologies? In the face of such sums, ordinary Americans may ward off envy by remembering that they are also rewarded with "psychic income" (community regard, the feeling of being useful). Yet given the news that Marlon Brando is getting $2.25 million for 12 days of playacting--well, which of the vast hand-to-mouth crowd will not wonder whether psychic income is really preferable to a tax problem?

Many Americans are displeased by what certain disparities seem to disclose about social values. To these, prevalent pay differentials, taken as an index of the social soul, seem to prove, for example, that the nation cherishes professional teachers far less than professional athletes. Or, more broadly, that society generally values members who do its most serious work not nearly as much as the actors, clowns and jocks whose task is merely to distract and amuse. But this handy method of social soul searching is not reliable. Far more directly, income differences reflect the operations of the marketplace.

The pattern actually takes its shape out of several marketplaces because, in reality, the nations' wages, salaries and other rewards are established not by one system but an arrangement of several. There are different systems for business and industry, for independent professions, for government, for show biz. Each system expresses different values and sets rewards by different standards.

Consider, say, the big gap between the pay of Jimmy Carter, the Chief Executive of the U.S. ($200,000 plus housing), and Thomas Aquinas Murphy, the chief executive of General Motors ($950,000 including bonus and stock options). Does it mean that society feels that what is good enough for the nation is not nearly good enough for GM? Hardly. The disparity can be tracked not to some hidden spectrum of social values but to two distinct systems of compensation. In business, pay levels are established by clear criteria toward the equally clear purpose of increasing production and profit; by and large, the system rewards most those most crucial to fulfilling that purpose. On the other hand, in government, which serves perennially disputed purposes--with results beyond measure--the salary scale reflects nothing more precise than the politicians' best guess at the maximum the public will tolerate.

The system embracing professionals (independent doctors, lawyers, dentists, engineers) is something else again. Their earnings, though broadly determined by the general marketplace, are also subject to the influences of an intimate psychological marketplace, one in which intangibles of repute and character are bought and sold along with knowledge and service. Some professionals also manipulate their market by limiting their own numbers -- in the way that physicians do through their control of professional education and licensing.

No system seems as bizarre as that of show biz. Sums paid the big stars appear surreal when compared with other salaries. But the trouble is, such comparisons are specious. For in reimbursing a star, whether of stage, screen or playing field, the entertainment industry is not really paying an employee so much as making a capital appropriation. It is not by chance that in show biz a popular figure is called a hot "property." The star actually is the product to be sold. That the price of such properties has soared is not surprising in a personality-craving society in which the big stars fulfill a public symbolic role once reserved to royalty. The cost of offering the star to the public can be fairly compared only with sums spent by a manufacturer for the development of new merchandise for sale.

Each system is marked by its own peculiar inequalities. Those associated with race, sex and age can be counted simply as signs of persisting discrimination. Most regional differences are hangovers from historical divergencies in region al economies. Some disparities, however, simply defy rationalization. M.I.T. Economist Lester Thurow in his book Generating Inequality points to extreme variations in income among auto mechanics of roughly equal training and age -- along with similarly extreme variations in the earnings of comparable physicians. Why such differences? Nobody has figured it out.

The biggest executive salaries, say compensation experts, tend to go to business leaders who, in addition to being crucial to the turning of profit, also demonstrate the capacity to take risks (this even though students of corporate gamesman ship say that those at the top often survive by not risking too much along the climb). Certainly the biggest blue-collar pay goes to workers who have most effectively improved their competitive position by organization -- and recently blue collars have won ascendancy over poorly organized white collars in average salary. In all systems, the factor of supply and demand is at work as an influence if not an iron law -- even in show biz. The great majority of performers earn meager sums, primarily because of the excessive supply of aspirants. For them, as Economics Professor Clair Vickery of the University of California's Institute of Industrial Relations in Berkeley puts it, a performing job is like "buying a ticket in a lottery." It mainly feeds the dream of that legendary Big Break that could bring them the juicy tax problems of a star.

In the end, a certain dream underlies the whole scheme of compensation. Its helter-skelter character, after all, is an expression of one overriding national value: the libertarian ideal. It is the intentional absence of central control that produces the unevenness of the final result. The very elasticity that Americans seem to value most produces the disparities that most annoy them: it is at the root of the social and economic mobility that is the very essence of the American scheme.

There will continue to be amazement at glaring in equalities, and of course there should be indignation over the plight of the millions of Americans who are either unemployed or existing in poverty. But even if the situation of these worst-off is ameliorated, as it should be, it is likely that the whole system of who makes what and why in America will always seem a puzzle.

A Random Sample of Pay

Herewith a random sampling of salaries or other earnings received during 1976 (not including bonuses and other special compensation):

Trial lawyer; Washington, D.C. $500,000

Chairman, Dow Chemical Co. $453,000

Basketball star; New York City $325,000

Publisher, Boston Globe $ 147,200

Senior vice president, Anheuser-Busch, Inc. $115,000

Disc jockey; Detroit $100,000

Flight captain, Boeing 747 $80,000

Anesthesiologist; New York City $70,000

Charter fishing-boat skipper; Miami $60,000

U.S. Senator $57,500

President, United Auto Workers $43,550

Civilian astronaut $33,800

Long-haul truck driver $30,000

History professor, University of Virginia $30,000

Violinist, Boston Symphony Orchestra $24,800

Junior high school teacher; Evanston, Ill. $19,500

Garbage collector; New York City $16,350

Assembly-line worker. General Motors $14,860

Assistant professor, Yale University $14,750

Bus driver; Atlanta $13,500

Brick mason; Charlottesville, Va. $12,000

Minister, United Church of Christ; Chicago $10,500

Textile weaver; Roanoke Rapids, N.C. $9,980

Sewing-machine operator; New York City $6,720

Bartender; Seattle $2,500

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