The Idea Of A Maximum Wage Is As Close To Drivel As We’ll Hear Outside A Greta Thunberg Speech.

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I was asked to give my opinion on the idea of a maximum wage. Here is that opinion:

“The idea of a maximum wage is as close to drivel as we’ll hear outside a Greta Thunberg speech. It’s not your or my money which is being paid to the individual. How can it be our moral right – or duty – to determine how much is being paid? For example, the company belongs to the shareholders, their interests are and should be paramount. The money inside the company is the property of the shareholders. How much they wish to pay the CEO to manage that business is up to them.

Sure, we can try to wriggle out of this point, say that the owners are a dispersed interest who get hoodwinked by the cabal of professional managers. But private equity, which does not suffer from that principal/agent problem, pays more than public companies.

It’s not our money being paid, we don’t get to decide.

Beyond the basic morals there are certain technical difficulties with maximum wages. The people who really make money tend not to make it from wages. The sports or pop star, anyone self employed, by definition doesn’t get wages, their incomes are a mix of capital (human capital but capital all the same) and labour income. To insist upon a maximum wage is to limit only the incomes of the proletariat, those without access to the capital side of the income generation equation. It leaves entirely free the fortunes made purely from capital. A system in which wage income – that of the proletariat and much of the bourgeoisie – is capped and the wealth accumulation of the capitalist, rentier, is not doesn’t really accord with any notion of good sense.

Maybe we don’t mean a maximum wage but a maximum income. A 100% tax upon income above whatever level. Sorry folks, the Laffer Curve really does exist, there’s a tax rate at which people stop going to work any more. Our best bet, from Diamond and Saez, is around 54%. Charging a tax rate of near double the Laffer Curve peak isn’t the way to make a prosperous society. Rather, it impoverishes the future.

OK, the people who go into politics, the bureaucracy, they’ve noted that the incomes of people who do something useful for a living have soared above theirs. But the jealousy of the ruling classes really isn’t a good enough reason to have something as horribly stupid as a maximum wage.”

If you’d like to know what the other bloke thinks then that is here.

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Matt Ryan
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Matt Ryan

Why has the multiple of what top bosses earn compared to the average increased so much – is it a case that the top bosses were undervalued in years gone by?

Tim has previously pointed out that all the money in the Premier League flows to the players – why would the same not happen in business?

thammond
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thammond

To answer the last question first, it does in businesses that look like sport – consulting, banking and lawyers. But most businesses do not – Apple sells so many iPhones for all sorts of reasons that getting rid of the CEO would not change. As to the former, there are lots of reasons. Companies are larger, more complex, more demanding, more international and face more competition than previously. Success requires more skill and that is rarer. There are more opportunities now for top people and the rewards of start-ups, private equity etc can be very large, so public companies have… Read more »

Matt Ryan
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Matt Ryan

The obvious question then is if we have companies that are “more successful” why doesn’t that trickle down through the whole company?

Doesn’t everyone who works in the company contribute to the success?

Wouldn’t their pay increase in the same way? There will be pools of people/skills at all levels that companies have to compete for therefore you would assume there would be rises at all levels.

timworstall
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timworstall

Larger companies do generally pay higher wages…..

Matt Ryan
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Matt Ryan

So Tim, in one of these larger companies, if the bosses wages have gone up 1000% over the last 20 years, have the workers wages followed?