Minimum or Maximum Wage

I was reading or watching something the other day (I can’t find it now) that mentioned having a maximum wage, and I thought the idea was interesting.

Why would this be an issue?

Well, the widening gap between the richest 1% and the rest of humanity has been a growing problem:

The combined wealth of the richest 1 percent will overtake that of the other 99 percent of people next year unless the current trend of rising inequality is checked, Oxfam warned today ahead of the annual World Economic Forum meeting in Davos.

So basically, instead of having a minimum wage, you would have a maximum wage. Either this would mean that people weren’t allowed to make over a certain number depending on their profession or (and I like this option better) depending on how much the highest paid person of that company makes, the lowest worker would be guaranteed a certain amount.

So for example (and these are hypothetical numbers) the CEO of company A makes $500,000 per year. This might mean that the lowest paid position in that company is guaranteed to make 10% of that amount, which would work out to $50,000 per year.

As wages for the highest paid positions go up, so to does the wages of the lowest paid positions.

The arguments I’ve heard against this position (or ones I could imagine) are that by capping wages, you take away the incentive to achieve more. This would especially be true in the first scenario that features a hard cap on wages, but the second scenario of scaling wages would still allow for wage increases but would simply mean that those wage increases would be across the board.

You could also argue that it will take a lot of bureaucracy to figure out a fair percentage between the highest paid positions and the lowest, but I don’t think that’s a great argument because it could be done given enough political will.

The most convincing argument against a maximum wage or scaled wage system is that it will chase companies away. They won’t want to operate within a system that doesn’t allow them to take advantage of…errr…increase their pay without also raising the pay of their employees.

Personally, I can see why that might raise concerns.

So what are your thoughts? Do you think either of these two ideas have merit or do you believe the way things run now is working better than either of these ever could?

Hell, I’m no economist. I’m surprised I’m even typing this because money and math both bore the shit out of me.

How did I get here? Where’s my teddy?

Anyhow, looking forward to hearing your thoughts.

 

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68 Comments

  1. I think it’s a nice idea, but probably impractical to implement. Because there’s an obvious way for the top brass of a company to get around a maximum wage system: cheat. Cheat by finding ways to compensate themselves without it counting as “income” for the rule, cheat by paying themselves under the table or in overseas accounts. The people who are making 20 million a year didn’t get there by being OK with that last million of their income being distributed to the rest of the employees who really needed it. Greed is a powerful motivator. To make something like that work, we’d need to be ready spend a whole lot on enforcement.

  2. Definitely cap the high earners. So far most of us have seen very little value from over-paid executives. I mean what on earth can they possibly do, that’s actually useful, to earn all that loot? And then get huge bonuses on top. As far as ordinary mortals are concerned we have seen corporate executives steam roller their staff, shedding them at will. We have seen a world financial crisis that has visited years of austerity on those who can least afford to bear it, and whose fault it was not. And now we hear all the bad habits of finance execs are creeping back in, despite government protestations that they’ve introduced safeguards. It’s interesting, too, how company executives continue to see their work force (the wealth creators, their major resource) as a cost, but this view does not extend to the board room or the expense accounts. Sorry GC – if I took this as an open invitation to have a little rant. And I haven’t even started on the corporate tax dodgers who get fatter and fatter while community infra-structure falls apart. Phew! I’m stopping now.

    • Haha. Rant away. That’s what this blog is about. I rant and people rant back. 🙂

      I think that’s the issue. The wealth distribution is getting worse but how do you fix it? Do you just continue to do business as usual or try to find a solution?

      I also think the worse the problem becomes, the more attractive systems like communism look.

    • Tish,

      Saying that you see “very little value from over-paid executives” is an admission of your own blindness regarding what best serves the interests of everyone in our economy.

      As we saw with the Obama regime, he established economic stimulus policies that simply rewarded his donors and mega-rich supporters.

      And THE Donald, not even in office as of today, has begun a renaissance of the US economy.

      Trillions of dollars of capital is fighting to get its way back to the United States.

      That is going to create a huge number of high paying jobs for everyone, the rich and poor alike.

  3. First, the real purpose of the minimum wage is secure unending employment for greedy politicians.

    Consequently, there is no political purpose for a maximum wage.

    But let’s play along…

    In any minimum or maximum wage scheme it is the government that decides what is minimum and maximum.

    That means the values for minimum or maximum are determined by politics which is a variety of bias.

    Bias in politics means discrimination.

    Discrimination of this sort means government oppression.

    The result of government oppression always was and always will be, mass poverty.

    The free market is by far the most fair means of establishing prices for goods, services and labor.

      • GC,

        First I am not expressing a libertarian opinion of economics.

        I studied a little economics at grad school. The author of our text book, “Principles of Economics” was N. Gregory Mankiw, one of George W. Bush’s economic advisors.

        He’s a professor at Harvard and hardly libertarian.

        What I offer in my comments here (and everywhere in fact) is mainstream political and/or economic principles.

        What I explained about the basic and maximum wage is basic, mainstream economic theory.

        That is, the value of goods, services and labor set by the government is completely arbitrary and totally biased.

        That is why such meddling by the government ALWAYS causes economic problems, not solutions.

        Allowing the market to set the cost of labor is the most fair, unbiased and economically prosperous method.

  4. Well since many have a disdain for the top 1% here is something to think about. If you make $32,400 / yr, you are in the Top 1% of the World. And since we all would like to see World Equality, let’s cap our income at $32,400 so that we can help to bring the 99% up to our level. Any takers ?

    http://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp

    I wasn’t totally serious about my challenge. I just wanted everyone to think about a bigger picture. While I agree with many of the statements made here, not all corporations or corporate ceo’s are crooks or tax cheats. Just most of them. LOL kidding !

    • The comparison of wages between countries is a bit problematic as the cost of living can vary between countries. So a wage in a first world country is not directly comparable to that n a third world country.

      We often hear about people living on a dollar a day in the poorer countries. That is not a good comparison as it would be absolutely impossible to live on $1 a day in an advanced country, but clearly it is not impossible in the lesser developed countries. So it does not tell the people in the advanced world what the standard living is.

      I heard yesterday that the richest 8 people in the world had wealth equivalent to around 50%of the world population. My immediate reaction is that this will lead to a revolution of some sort, it cannot be sustained.

    • I agree with Peter about comparing countries, and I agree that I don’t think all CEO’s are crooks etc. However, the wage distribution is a clear problem – at least as far as I can see looking at the statistics. It’s a growing problem and I think the worse it gets, the more it will breed political instability.

      So how does a country fix this problem?

      Not sure but I found this idea to be at least interesting. 🙂

  5. This is a very intriguing idea and concept worth studying closely. When reading this I immediately drew comparisons with professional sports leagues all over the world — the intent and purpose of “salary caps”, or in all the FIFA futebol/soccer leagues/teams and their Financial Fair-Play regulations — and why it has been working. And of course, for any hyper-T’d male sports fans out there, the comparison can be easily understood for your OWN favorite sport and team. Here’s why…

    The whole idea behind salary caps, Financial Fair-Play, etc, is to give parity and stability to the ENTIRE sport… for the benefit of all concerned. After all, who wants to keep watching the same team(s), in whatever sport, win championship after championship after championship, ad nauseum, because that team/franchise always gets all the best players, all the best coaches, and ALL the best cheerleaders. (just kidding on the cheerleaders part — I think. 😛 )

    It is honestly very good business-economic sense to maintain a healthy, BALANCED league/economy, not just for “good competition” but for the sake of all fans too, or in this case, the general public… who ALSO contribute significantly to that “healthiness.”

  6. Salaries are just out of control. People earn far more than they could ever spend so why do they want it, ego? It was thought that publishing executive salaries would reduce them, but it had the perverse effect of increasing them, as the salary became an ego issue.

    I think a maximum salary makes sense, it should apply to sports and entertainment also, such as movie stars (the one area where Hollywood is right wing).

    I agree with Professor Taboo’s comment above regarding salary caps in sports, makes for a more even competition. Just compare it to Soccer where there is no salary cap and only a few teams have a realistic chance of winning (Leicester City being the exception that proved the rule).

  7. I imagine a salary cap would be just as effective as any progressive tax system. The fat cats cleverly disguise their actual earnings, organise salary packages that involve undisclosed corporate cars, perks and accommodation while they scream that the government is not promoting investment in their share portfolio of which the profits are being moved into off shore accounts and negatively geared properties.

    At the end of the day, we just need to build more churches and make sure the wider community are willing to “suffer” while they await their ultimate pay day. If we continue the alarming trend of Atheism, we’re just going to generate excess demand for an equitable distribution of income as people come to believe that rewards are better in the form of cold hard cash, while you are living.

  8. Great post GC. This is a bit of the topic but I think the first step and the easiest step is that all countries should be ensuring all corporates pay their fair amount of tax. In fact, a worldwide agreement that large business should be taxed the equivalent around the world at let’s say 30% of their nett earnings in whatever currency or country they decide to base themselves in.

    The less developed countries citizens may still be on low wages and still an income advantage to the corporates, however if the taxes due were paid to the government maybe these people will have flushing toilets instead of a hole in the ground and the disease that comes with that.

    I realise the downsides of this and it will never close the gap between the rich and poor, however it may be an easier road to regulate, but of course, this would always depend on the integrity of the government as with everything else.

  9. I agree that a *relatively* more equitable distribution of wealth is desirable (compared to now), but I don’t think this Harrison Bergeron sort of approach would be desirable, equitable, or effective.

    Increased effort and gross earnings should continue to yield increased reward, even if it’s not a linear (directly proportional) relationship. Otherwise many people’s motivation to go beyond the minimum will shrink.

  10. It’s interesting, but I think the problem is that it’s disproportionate. For instance, if the CEO in your example earns 500,000 and the maximum wage demands the lowest wage to be say, 10%, then 10 of the lowest employees would be earning as much as the CEO. So 10 janitors would be earning as much as the CEO of a multi national company. I don’t think it’s just, since their contribution is different. From my perspective, capitalism is about how irreplaceable you are. CEOs are quite essential and irreplaceable so they earn more. Why are they irreplaceable? Because they contribute something unique. The lowest employees would probably have minimal skills. Since there is a huge abundance of people who have the bare minimum skills, there’s a lot of competition and their wages will decrease. By making a certain % necessary, these jobs will simply be replaced by machines.

  11. But should the janitors receive the same? Is their contribution to the company 1/10th of that of the CEO?
    From an objective point, I think many employees, such as in McDonald’s, will simply be replaced by machines, leading to unemployment.
    From a moral point, I believe that forcing people to pay others a certain amount is wrong. One should be paid according to the value of the work performed. Demand and supply determine the value. So the way to earn more is to to things more in demand and less readily available. Curtailment of economic liberty doesn’t appear moral to me, though I’d be happy to hear your views.

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