Final answer:
The rise in CEO-to-worker pay ratio is due to the winner-take-all labor market, corporate governance practices, and economic policies that favor the wealthy, alongside stagnant wages for average workers due to diminished union influence and a stagnant minimum wage.
Step-by-step explanation:
The substantial increase in the CEO-to-worker pay ratio over the years can be attributed to a variety of factors and trends. One significant factor is the winner-take-all labor market theory, which suggests that the growth in executive compensation is not solely based on educational differences but also on global demand for 'stars' in executive positions, pushing salaries far above productivity differences. The ratio of CEO to average worker pay has increased substantially, with CEOs earning an average of 419 times more pay than blue-collar workers currently, compared to a ratio of 42 times in 1980.
Other contributing factors to this disparity include economic policies that favor wealth accumulation at the top, such as tax cuts and deregulation. Additionally, corporate profits have risen significantly, and as a result, CEO compensation has soared as well. Corporate governance issues, with boards often comprised of other high-paid executives, have led to pay practices that disproportionately reward CEOs. Furthermore, the financial crisis and subsequent bailouts allowed top executives to retain or even increase their compensation while wages for the average worker remained stagnant or even decreased. These elements, combined with the diminished influence of unions and a stagnant minimum wage, explain the widening income gap.