Maximum Wage Ratio

[Apex]

Here is an article I saw on CNN recently(Opinion: U.S. should copy Switzerland and consider a 'maximum wage' - CNN.com). This last November Switzerland voted on measure that would cap executive pay at 12 times what the lowest-paid employee of their company earns. It was called the "1:12 Initiative". A surprising 35% of the voters supported it. So while it did not pass, it still had quite a strong backing considering.

Here in the US it is no secret that the wage gap between the the middle and upper class is absolutely massive, and only getting wider. (For example: https://www.youtube.com/watch?v=QPKKQnijnsM&feature=player_embedded)
Could such a measure that the Swiss voted on possibly help real in the massive inequality here in the states? It is not an absolute cap on a persons maximum wage. So massive CEO incomes could still be possible (and easily achievable) but CEO's would need to balance their incomes with that of their lowest-paid employee. And it would not need to be a ratio quite as severe as 1:12. Something like 1:200 would still allow CEO's to easily earn millions while also increasing the pay of the lower and middle class workers.

 

[MoonWater]

Here is an article I saw on CNN recently(Opinion: U.S. should copy Switzerland and consider a 'maximum wage' - CNN.com). This last November Switzerland voted on measure that would cap executive pay at 12 times what the lowest-paid employee of their company earns. It was called the "1:12 Initiative". A surprising 35% of the voters supported it. So while it did not pass, it still had quite a strong backing considering.

Here in the US it is no secret that the wage gap between the the middle and upper class is absolutely massive, and only getting wider. (For example: https://www.youtube.com/watch?v=QPKKQnijnsM&feature=player_embedded)
Could such a measure that the Swiss voted on possibly help real in the massive inequality here in the states? It is not an absolute cap on a persons maximum wage. So massive CEO incomes could still be possible (and easily achievable) but CEO's would need to balance their incomes with that of their lowest-paid employee. And it would not need to be a ratio quite as severe as 1:12. Something like 1:200 would still allow CEO's to easily earn millions while also increasing the pay of the lower and middle class workers.

I would be very much in favor of that. Though there would have to be contingencies in how to deal with part-time employees. If not implemented carefully then I could easily see a lot of workers hours cut just so the CEO's don't have to raise their wages. But at the same time if "lowest payed employee" included all part-time employees that could also cause problems. maybe it should be only those who work more than 10 hours a week are considered or perhaps there could be a different ratio for full-time and part-time employees?

 

[Apex]

I would be very much in favor of that. Though there would have to be contingencies in how to deal with part-time employees. If not implemented carefully then I could easily see a lot of workers hours cut just so the CEO's don't have to raise their wages. But at the same time if "lowest payed employee" included all part-time employees that could also cause problems. maybe it should be only those who work more than 10 hours a week are considered or perhaps there could be a different ratio for full-time and part-time employees?

Yes, the details could be a bit tricky to work out, but I do not think they would be insurmountable.

 

[MoonWater]

Yes, the details could be a bit tricky to work out, but I do not think they would be insurmountable.

neither do I. and it would prevent CEO's from cutting worker pay just so they can give themselves a raise as well as encourage them to think more carefully about the consequences of cutting worker pay or raising their own

 

[Revoltingest]

Hmmm.....in the midst of a long long recession triggered by decades of government meddling in
the economy & ever increasing regulation, we should have them step up their control over us.
Nah.

 

[Apex]

Hmmm.....in the midst of a long long recession triggered by decades of government meddling in
the economy & ever increasing regulation, we should have them step up their control over us.
Nah.

Control in and of itself is not necessarily bad. It is what kind of control, i.e does it take away our freedoms?

And this is a control measure levied upon businesses (mainly big ones) not individuals.

 

[Vinayaka]

Just how much does an individual person need?

 

[dyanaprajna2011]

I think the OP makes a very good point, but Revoltingest does as well. While I think that it would be a good idea to have some max cap on wages between the classes, giving the government even more control doesn't sound like a good idea. Unfortunately, there's no real way to enforce something like this without government regulations, because I highly doubt that companies and CEO's are just going to take on something like this out of their own will. So, what's the solution? I don't think there's really a right or wrong here, just too much to work out, especially philosophically.

 

[MysticSang'ha]

Given the wage gap in its consistent increases over the last generation, and that it is ultimately unsustainable, my thoughts on the OP:

Positives: if companies reduce the ratio of CEO/employee pay by increasing wages for employees, more money will be spent into the local economy giving more opportunities to invest, purchase real estate, etc.

Negatives: capping ratios might mean CEOs have more opportunity to find loopholes to adjust the direction of cash flow, which could essentially take more money out of the economy and into off shore accounts earning interest all by its lonesome. Plus, more government intervention and control...the war on drugs, prohibition...does not translate to more growth. It essentially could lead to some of the more unsavory means of acquiring money for a select few royalty.

I believe in the freedom of entrepreneurs to find ways of increasing value in their employees while paying them more in order to increase value in the whole company. I pay my staff some of the highest wages in the area, but they also DO a lot more than other staff in our industry, so they bring more to the table.

IOW I'm more of a fan of raising value rather than capping opportunity. The OP brings up an interesting point to consider, however, about the unsustainability of the current system.

 

[Revoltingest]

Control in and of itself is not necessarily bad. It is what kind of control, i.e does it take away our freedoms?
And this is a control measure levied upon businesses (mainly big ones) not individuals.

Businesses are made up of individuals, so this does take away some of the liberty to negotiate compensation Politicians will find the pandering opportunity enticing, voters will lap it up (imagining big pay increases, & then they will discover the unintended consequences of executives being unwilling to lower their wages, so they'll replace lower wage workers with outsourcing & automation. Always remember that politicians' intentions will differ from results.

 

[tytlyf]

Businesses (CEO's) small and large need to realize that their salary is created by the employees at all levels. If a CEO has a disproportionate income compared to his workers, then it's on the owner for morality reasons. I'm not in favor of a maximum cap on income, as it was pointed out before, the maximum wage of an owner should be a moral boundary.

 

[Apex]

Negatives: capping ratios might mean CEOs have more opportunity to find loopholes to adjust the direction of cash flow, which could essentially take more money out of the economy and into off shore accounts earning interest all by its lonesome.

But is not everything already subject to this?

 

[Apex]

Businesses are made up of individuals, so this does take away some of the liberty to negotiate compensation Politicians will find the pandering opportunity enticing, voters will lap it up (imagining big pay increases, & then they will discover the unintended consequences of executives being unwilling to lower their wages, so they'll replace lower wage workers with outsourcing & automation. Always remember that politicians' intentions will differ from results.

The ability to negotiate compensation will still be there in full. There will simply be one more variable added to is (lowest paid employee salary).

And is the outsourcing and automation not already happening?

 

[Revoltingest]

The ability to negotiate compensation will still be there in full. There will simply be one more variable added to is (lowest paid employee salary).
And is the outsourcing and automation not already happening?

Yes, & this would exacerbate the problem. If the cheapest worker now earns $10/hr, but under the wage ratio law would earn $50, this is far greater incentive to eliminate the job. Changing the incentives will change behavior.

 

[Apex]

Yes, & this would exacerbate the problem.

But this problem could (and should) be addressed using something else. The status quo certainly is not working.

If the cheapest worker now earns $10/hr, but under the wage ratio law would earn $50, this is far greater incentive to eliminate the job. Changing the incentives will change behavior.

They wouldn't necessarily earn $50 an hour. They could still pay only minimum wage. The CEO's wage would just need to be adjusted accordingly.

 

[Revoltingest]

But this problem could (and should) be addressed using something else. The status quo certainly is not working.
They wouldn't necessarily earn $50 an hour. They could still pay only minimum wage. The CEO's wage would just need to be adjusted accordingly.

You envision that the CEO would adjust his wage downward, but this is not the only possible outcome.
He might instead just get rid of the low wage earners in order to preserve his salary. Would that
worsen the problem?
It reminds me of the great idea politicians sold the country a few decades ago. Impose a high luxury
tax on yachts. It would be great because it would raise revenue, right? But then yacht sales plummeted
& there were massive worker layoffs. Unintended consequences....think about'm before passing new laws.

 

[Apex]

You envision that the CEO would adjust his wage downward, but this is not the only possible outcome.
He might instead just get rid of the low wage earners in order to preserve his salary. Would that
worsen the problem?

Uh, how would they just get rid of low wage earners? For that scenario to work the CEO would have to be the only person in the entire company...

 

[Revoltingest]

Uh, how would they just get rid of low wage earners? For that scenario to work the CEO would have to be the only person in the entire company...

By asking this question, do you imply that they can't get rid of the low wage workers?
Suppose you make widgets for a cost of $10/widget, & that labor is $5 of that cost.
If the wage ratio law bumps that cost up to $15, $25, or $50/widget, then perhaps
Acme Widget Assembly would make them for $11/widget. Outsourced!
If your volume is high enuf, you might replace them with robots.
(And no, the scenario I posited doesn't require that the CEO be the only employee.)
Are you certain that your wage ratio law won't increase unemployment for low skill workers?

 

[Apex]

By asking this question, do you imply that they can't get rid of the low wage workers?
Suppose you make widgets for a cost of $10/widget, & that labor is $5 of that cost.
If the wage ratio law bumps that cost up to $15, $25, or $50/widget, then perhaps
Acme Widget Assembly would make them for $11/widget. Outsourced!
If your volume is high enuf, you might replace them with robots.
(And no, the scenario I posited doesn't require that the CEO be the only employee.)

There is already enough incentive to outsource and replace workers with robots. It doesn't change the fact that something needs to be done about the wage gap.

Are you certain that your wage ratio law won't increase unemployment for low skill workers?

Doubt it. But do you have any ideas on how to fix the wage gap?

 

[Revoltingest]

There is already enough incentive to outsource and replace workers with robots. It doesn't change the fact that something needs to be done about the wage gap.

Consider that many companies are in a semi-equilibrium. They do some manufacturing & assembly in house, have some automation, & do some outsourcing. Now, you change the incentive by telling the highest wage earners that either they must cut their compensation, or they must give the boot to the lower wage earners. Were I them, I'd look at more outsourcing & automation. I could fire cleaning staff & hire a janitorial firm, fire guards & hire a security firm, & this way the low wager earners would work somewhere else.

Doubt it. But do you have any ideas on how to fix the wage gap?

I have no workable solution. And I expect an even worse problem...low skill workers
who aren't even employable because they cost more than they can produce.