If you’re unhappy with the realities of our current economic system, it’s time to start contemplating alternatives.
One question for consideration is, “Should there be a maximum wage?”
That doesn’t necessarily mean putting a cap on earnings. Rather, it means setting maximum pay ratios within companies and across sectors to put an end to circumstances where chief executives get paid more than 250 times what the cleaning staff earn. I imagine most people might reject this idea outright, because we’ve been trained as a society to think that people earn what they get and there should be no questions asked. But really, who deserves a decent wage more than those whose job it is to clean up after the CEO’s mess? Do you think he/she deserves $10 million while the cleaning staff gets $8 per hour? Is that ethical?
I would suggest it is not. There certainly has to be a better way where people who are willing to put in a good, hard day’s work make a living wage — especially when the people they work for are raking in more money than they could ever reasonably need.
Thus, I present to you the following debate about a maximum wage that would complement the minimum wage. I’m not ready to say it is THE solution, but it’s certainly worth some thought.
We need a maximum wage to complement the minimum wage. That is, we need maximum pay ratios within companies and across sectors to put an end to chief executives getting paid more than 250 times what cleaning staff earn. Why? The top three reasons are:
- Greater equality: rising wage disparities are one of the key drivers of inequality. By putting a plug on both ends of the pay scale we help ensure decent living standards for all and avoid the negative consequences (eg higher crime, poorer public health) of living in a highly unequal society.
- The need to tame executive pay: extremely high levels of pay among executives have encouraged risk-taking behaviour (leading to the banking crisis) and have been found to hinder, not aid, the overall productivity of a company.
- Tackle over-consumption and debt: as social beings we constantly rate ourselves relative to others. Keeping up with the Joneses in an era of high inequality has led people to take on higher levels of debt and to over-consume at a level they and the planet cannot sustain.
Beyond the costs to society, academic evidence shows that once people earn an annual wage above $80,000 their wellbeing grows by very little. Thus a maximum wage would help both business and society without damaging the wellbeing of the well-off.
The neoliberal view of inequality – rejoicing in it as evidence of meritocracy – and the view articulated by proponents of The Spirit Level1 – that inequality is the main cause of modern social ills – are both inaccurate and unhelpfully dogmatic.
Runaway gaps between earners can have a negative impact upon social cohesion, behaviour, health and wellbeing. But inequality isn’t simply an evil to be addressed. Whilst it may well be wrong that the Chief Executive of a corporation earns 250 times the wage of their most lowly employee, it is manifestly fair that their most lowly employee should earn substantively more than someone who chooses not to go to work and to rely on welfare instead. Inequality is not always a social evil; sometimes it is a social good, spurring individuals to work, aspire and succeed.
Wage caps are a sledgehammer solution, therefore, to a nuanced issue. We do not want to limit the wealth that may be produced and enjoyed by entrepreneurs, but we do want to encourage business leaders to help reduce the earnings gap.
This is best pursued through social pressure on companies to state and stick to pay-ratios. Transparency in reporting and pressure through state procurement (as has worked well over the Living Wage in London) can get results without resort to simplistic, dogmatic and blunt legislative tools.
The debate continues here.