Economists love to talk about incentives. In this case, such limits would motivate CEOs to augment the pay of their janitors, secretaries, and cashiers for a simple reason: Their own raises would depend on it.
Published in the May 2013 issue of the New Internationalist.
Should our societies have a “maximum wage”? Would the world be better off if the United States had one?
Currently, Americans are debating raising the national minimum wage from $7.25 per hour to $10 per hour over the next two years. While conservatives will oppose it, such a boost shouldn’t be contentious.
Back in 1967, the U.S. minimum wage was $1.40 per hour. That’s not as measly as it sounds. Your grandparents’ tales about when ten pennies could actually buy something are not mere nostalgia. In fact, the 1967 wage had twenty percent more purchasing power than the current minimum.
Economic productivity is an even bigger part of the story. Our labor is producing more value today, but working people aren’t seeing any of the gains. Had the U.S. minimum wage kept pace with productivity increases since 1960, it would now be $22 per hour.
Who has walked away with the proceeds from all that productivity? It’s a fair question, but it leads back to discussion of a maximum wage. And that’s where things get controversial.
A January report from Oxfam noted, “The richest one percent has increased its income by 60 percent in the last 20 years.” It further argued that the 2012 net income of the world’s top 100 billionaires—a haul of $240 billion—would be four times the amount needed to eliminate extreme poverty internationally.
While regions such as Latin America have made strides in reducing the gap between the rich and poor in the past decade, the United States has led the way in manufacturing excess at the expense of equity.
To remedy this, U.S. transit workers union leader Larry Hanley recently proposed a “maximum wage” law that would limit an employer’s income to being no more than 100 times the salary of his or her lowest-paid employee. If an entry-level worker gets $30,000 per year, the CEO would make no more than $3 million.
Other countries provide precedents for such a policy. “In Spain, the manufacturing and retail enterprises that belong to the Mondragon cooperative network limit top pay to three to nine times worker compensation,” explains author and policy analyst Sam Pizzigati, perhaps the most outspoken U.S. proponent of a maximum wage. Since 2011, Egypt and France have each pursued fixed pay ratios for leaders of state-owned enterprises. Even Switzerland, a country not known for being inhospitable to bankers, has passed restrictions on pay for bank executives and banned “golden parachute” severance packages.
Some advocates contend that a maximum wage should apply only to businesses receiving taxpayer support—in the form of bailouts, government contracts, tax abatements, or other public subsidies. Since American industry has been notoriously hungry for corporate welfare, this would cover a very large portion of the U.S. economy.
Free marketeers will no doubt blast the idea of a maximum wage as the type of insane socialistic tyranny that chains everyone into the same, lowly state of mediocrity. Yet a ceiling based on a ratio between the executives at the top of a business and the grunts at the bottom doesn’t set a hard cap on earnings. It merely puts to the test one of their most cherished claims: that the profits of a successful enterprise trickle down to benefit everyone.
Economists love to talk about incentives. In this case, such limits would motivate CEOs to augment the pay of their janitors, secretaries, and cashiers for a simple reason: Their own raises would depend on it.
Besides, a 100-to-1 discrepancy is hardly government-enforced equality.
It would be a considerable departure from the status quo, however. A typical American CEO now makes 380 times what the average worker in the country earns (never mind the lowest-paid).
That’s not an example the world needs. And it’s something that will take more than just a small boost in the minimum to fix.
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Photo credit: Jericho / Wikimedia Commons.
