{"id":1756,"date":"2013-12-11T09:56:25","date_gmt":"2013-12-11T14:56:25","guid":{"rendered":"http:\/\/www.dougsbriefcase.com\/blog\/?p=1756"},"modified":"2013-12-11T09:56:25","modified_gmt":"2013-12-11T14:56:25","slug":"maximum-wage-solution-inequality","status":"publish","type":"post","link":"https:\/\/www.dougsbriefcase.com\/blog\/maximum-wage-solution-inequality\/","title":{"rendered":"Maximum Wage: Solution to Inequality?"},"content":{"rendered":"
\"The<\/a>

The Swiss cam\u00adpaign to lim\u00adit exec\u00adu\u00adtive pay fell short, but are there good solu\u00adtions to the prob\u00adlem of income inequality?<\/p><\/div>\n

We know that people\u2019s frus\u00adtra\u00adtions run deep\u00ader than these most recent polit\u00adi\u00adcal bat\u00adtles. \u2026 They expe\u00adri\u00adence in a very per\u00adson\u00adal way the relent\u00adless, decades-long trend. \u2026 And that is a dan\u00adger\u00adous and grow\u00ading inequal\u00adi\u00adty and lack of upward mobil\u00adi\u00adty that has jeop\u00adar\u00addized mid\u00addle-class America\u2019s basic bar\u00adgain \u2014 that if you work hard, you have a chance to get ahead. .I believe this is the defin\u00ading chal\u00adlenge of our time: mak\u00ading sure our econ\u00ado\u00admy works for every work\u00ading Amer\u00adi\u00adcan. It\u2019s why I ran for Pres\u00adi\u00addent. It was at the cen\u00adter of last year\u2019s cam\u00adpaign. It dri\u00adves every\u00adthing I do in this office.<\/em> \u2014 Pres\u00adi\u00addent Obam<\/a>a<\/p>\n

Eco\u00adnom\u00adic inequal\u00adi\u00adty is a polit\u00adi\u00adcal\u00adly potent issue.  Van\u00adder\u00adbilt Uni\u00adver\u00adsi\u00adty pro\u00adfes\u00adsor Lar\u00adry Bar\u00adtels<\/a> believes that it was a crit\u00adi\u00adcal one in the 2012 Pres\u00adi\u00adden\u00adtial race, adding 2 to 3 per\u00adcent\u00adage points to Pres\u00adi\u00addent Oba\u00adma\u2019s share of the vote and 1 per\u00adcent in bat\u00adtle\u00adground states.  The Pres\u00adi\u00adden\u00adt\u2019s advan\u00adtage on this issue, Bar\u00adtels says, was large\u00adly sym\u00adbol\u00adic, hav\u00ading more to do with the per\u00adcep\u00adtion that his oppo\u00adnen\u00adt\u2019s great wealth had detached him from the con\u00adcerns of ordi\u00adnary vot\u00aders. Peo\u00adple moti\u00advat\u00aded to vote for the Pres\u00adi\u00addent because of this issue did so more because of who they believed Mitt Rom\u00adney was than because of what the Pres\u00adi\u00addent pro\u00adposed to do.<\/p>\n

That\u2019s under\u00adstand\u00adable because his pro\u00adpos\u00adals, as recit\u00aded again in his Decem\u00adber 4 speech on inequal\u00adi\u00adty, don\u2019t amount to much.  The prob\u00adlem is more eas\u00adi\u00adly defined than resolved. It was bad when the Pres\u00adi\u00addent took office near\u00adly five years ago. It is worse today<\/a>.  It has grown despite high\u00ader tax\u00ades on the most pro\u00adduc\u00adtive indi\u00advid\u00adu\u00adals and small firms, mas\u00adsive expan\u00adsions of gov\u00adern\u00adment assis\u00adtance pro\u00adgrams, the cre\u00adation of a new enti\u00adtle\u00adment to health insur\u00adance, and a pre\u00advi\u00adous increase in the min\u00adi\u00admum wage<\/a>. Were the pro\u00adpos\u00adals out\u00adlined in the President\u2019s Decem\u00adber 4 speech enact\u00aded, the prob\u00adlem would almost cer\u00adtain\u00adly con\u00adtin\u00adue to worsen.<\/p>\n

The one thing you can say about the President\u2019s ideas is that while they are inef\u00adfec\u00adtu\u00adal, they are not as bad as they could be. Some of the worst ideas call for the gov\u00adern\u00adment to use the blunt instru\u00adments of tax\u00ada\u00adtion and reg\u00adu\u00adla\u00adtion to seek to enforce a par\u00adtic\u00adu\u00adlar vision of fairness.<\/p>\n

One such idea is to impose a max\u00adi\u00admum wage, gen\u00ader\u00adal\u00adly set as a ratio of CEO<\/span> pay to that of employ\u00adees on the low\u00adest rung of the cor\u00adpo\u00adrate lad\u00adder. The Swiss deci\u00adsive\u00adly vot\u00aded down a 12:1 ratio in a ref\u00ader\u00aden\u00addum held late last month, reject\u00ading the propo\u00adsi\u00adtion 65\u201335<\/a>.  The propo\u00adsi\u00adtion failed to gar\u00adner a major\u00adi\u00adty in any of the country\u2019s cantons.<\/p>\n

The case for the gov\u00adern\u00adment impos\u00ading what is, in effect, a max\u00adi\u00admum wage is almost entire\u00adly emo\u00adtion\u00adal and impres\u00adsion\u00adis\u00adtic. Its advo\u00adcates note that exec\u00adu\u00adtive com\u00adpen\u00adsa\u00adtion is much high\u00ader today than it was in the 1980s and that it has out\u00adpaced growth in both aver\u00adage wages and stock prices. That\u2019s true, but it does not mean that CEO<\/span> pay is excessive.<\/p>\n

Argu\u00adments against the ref\u00ader\u00aden\u00addum also weren\u2019t ter\u00adri\u00adbly com\u00adpelling, rely\u00ading most\u00adly on the obser\u00adva\u00adtion that com\u00adpa\u00adnies could avoid the caps by out\u00adsourc\u00ading low\u00ader-pay\u00ading jobs or mov\u00ading cor\u00adpo\u00adrate head\u00adquar\u00adters out of Switzer\u00adland. While some com\u00adpa\u00adnies might do that, it does not fol\u00adlow that com\u00adpen\u00adsa\u00adtion lim\u00adits are illegitimate.<\/p>\n

The most impor\u00adtant ques\u00adtions are the most dif\u00adfi\u00adcult to answer: what is a CEO<\/span> worth and who should make that deter\u00admi\u00adna\u00adtion? The answer to the first ques\u00adtion is: it depends. How much was Steve Jobs worth to Apple or Hen\u00adry Ford to Ford Motor Com\u00adpa\u00adny? With\u00adout them, their respec\u00adtive com\u00adpa\u00adnies would nev\u00ader have exist\u00aded, jobs would nev\u00ader have been cre\u00adat\u00aded, share\u00adhold\u00aders would not have derived wealth, con\u00adsumers would not have enjoyed inno\u00adv\u00ada\u00adtive and afford\u00adable products.<\/p>\n

One could jus\u00adti\u00adfy almost any lev\u00adel of com\u00adpen\u00adsa\u00adtion for a Jobs or a Ford. It is much hard\u00ader to assess the val\u00adue of a CEO<\/span> who assumes the helm of an estab\u00adlished com\u00adpa\u00adny. Does he or she real\u00adly make it more pro\u00adduc\u00adtive and valu\u00adable?  If so, by how much?<\/p>\n

Com\u00adpa\u00adny per\u00adfor\u00admance is baked into the pay of most exec\u00adu\u00adtives, much of whose com\u00adpen\u00adsa\u00adtion comes in the form of stock options. If the com\u00adpa\u00adny does well, exec\u00adu\u00adtive com\u00adpen\u00adsa\u00adtion ris\u00ades. If poor\u00adly, it falls. This chart, pre\u00adpared by the Eco\u00adnom\u00adic Pol\u00adi\u00adcy Insti\u00adtute<\/a>,<\/span> traces both the rise in the ratio of CEO<\/span>-to-work\u00ader pay in the US<\/span> and its decline after 2000, espe\u00adcial\u00adly after the 2008 finan\u00adcial meltdown.<\/p>\n

\"EPI<\/a><\/p>\n

Some will look at this chart and see CEO<\/span> pay as \u201cexces\u00adsive\u201d; oth\u00aders will say that it shows how the mar\u00adket cor\u00adrects itself over time, with the ratio drop\u00adping by almost half in the course of a decade. It is entire\u00adly pos\u00adsi\u00adble that it is work\u00ading its way toward an appro\u00adpri\u00adate level.<\/p>\n

Which returns us to the crit\u00adi\u00adcal ques\u00adtion of who should decide the \u201cright\u201d amount of CEO<\/span> pay. Some argue that the gov\u00adern\u00adment should sim\u00adply set a lim\u00adit, gen\u00ader\u00adal\u00adly expressed as a ratio of exec\u00adu\u00adtive pay to some\u00adone else\u2019s com\u00adpen\u00adsa\u00adtion \u2013 whether the pay of an aver\u00adage work\u00ader, the low\u00adest-paid work\u00ader, or the fed\u00ader\u00adal min\u00adi\u00admum wage. This pre\u00adsup\u00adpos\u00ades that the gov\u00adern\u00adment knows the pre\u00adcise (or at least the max\u00adi\u00admum) val\u00adue of a CEO<\/span> for every com\u00adpa\u00adny \u2014 regard\u00adless of indus\u00adtry, how it fares rel\u00ada\u00adtive to com\u00adpeti\u00adtors, and whether or not it is profitable.<\/p>\n

Such pre\u00adci\u00adsion wouldn\u2019t work well in fields where val\u00adue is more eas\u00adi\u00adly deter\u00admined. Should George Clooney\u2019s com\u00adpen\u00adsa\u00adtion, for exam\u00adple, be lim\u00adit\u00aded to 12 times the pay of a pro\u00adduc\u00adtion assis\u00adtant? LeBron James\u2019s salary be teth\u00adered to that of one of the team\u2019s ball boys? Judge Judy\u2019s to her make\u00adup artist?<\/p>\n

One could counter that cal\u00adcu\u00adlat\u00ading the worth of ath\u00adletes and celebri\u00adties is more straight\u00adfor\u00adward than cal\u00adcu\u00adlat\u00ading that of a CEO<\/span>. Many would argue Judge Judy is over\u00adpaid, giv\u00aden her annu\u00adal salary of $47 mil\u00adlion<\/a>. Then again, her pro\u00adgram gen\u00ader\u00adates $200 mil\u00adlion in annu\u00adal rev\u00adenue, but only costs $10 mil\u00adlion a year to pro\u00adduce. One could argue that she is underpaid.<\/p>\n

Agents for Clooney and LeBron have respec\u00adtive\u00adly per\u00adsuad\u00aded Hol\u00adly\u00adwood investors and the own\u00aders of the Mia\u00admi Heat that they are worth an awful lot of mon\u00adey (though, at least in LeBron\u2019s case, less than Judge Judy).<\/p>\n

The cal\u00adcu\u00adla\u00adtion of a CEO<\/span>\u2019s worth is much more com\u00adpli\u00adcat\u00aded and sub\u00adtle, which sug\u00adgests to me, at least, that it is absurd to sub\u00adject it to an arbi\u00adtrary lim\u00adit. Some are undoubt\u00aded\u00adly over\u00adpaid and it is cer\u00adtain\u00adly pos\u00adsi\u00adble that all of them are. But the peo\u00adple who are in the best posi\u00adtion to make that judg\u00adment are those most famil\u00adiar with a company\u2019s per\u00adfor\u00admance: its board.<\/p>\n

That\u2019s not a ter\u00adri\u00adbly sat\u00adis\u00adfy\u00ading result for peo\u00adple look\u00ading to vent their resent\u00adments against those who have pros\u00adpered in a slug\u00adgish econ\u00ado\u00admy. These resent\u00adments run deep and are polit\u00adi\u00adcal\u00adly potent, which is why the Pres\u00adi\u00addent fre\u00adquent\u00adly returns to the inequal\u00adi\u00adty theme. The prob\u00adlem is that he hasn\u2019t for\u00admu\u00adlat\u00aded cogent pro\u00adpos\u00adals to reme\u00addi\u00adate it.<\/p>\n

He is not alone. Repub\u00adli\u00adcans have gen\u00ader\u00adal\u00adly declined to con\u00adfront the issue head-on, while those on the Left, both here and abroad, have embraced a series of sim\u00adplis\u00adtic and ham-hand\u00aded pro\u00adpos\u00adals that lash out against wealthy peo\u00adple with\u00adout iden\u00adti\u00adfy\u00ading, much less address\u00ading, the caus\u00ades of grow\u00ading inequal\u00adi\u00adty. Gov\u00adern\u00adment should tax their income more heav\u00adi\u00adly, lim\u00adit their pay, con\u00adfis\u00adcate por\u00adtions of their wealth<\/a>,<\/span> sav\u00adings<\/a> and invest\u00adments<\/a>.<\/p>\n

These pro\u00adpos\u00adals won\u2019t grow the econ\u00ado\u00admy or raise liv\u00ading stan\u00addards, reduce pover\u00adty or increase eco\u00adnom\u00adic mobil\u00adi\u00adty. They are all cud\u00adgel and club, hav\u00ading the char\u00adac\u00adter and val\u00adue of emo\u00adtion\u00adal out\u00adbursts, vent\u00ading frus\u00adtra\u00adtion and reliev\u00ading resent\u00adments, mak\u00ading a point with\u00adout mak\u00ading a difference.<\/p>\n

That isn\u2019t meant to dis\u00admiss or min\u00adi\u00admize the prob\u00adlem of inequal\u00adi\u00adty. It is only to say that it is a prob\u00adlem that demands bet\u00adter analy\u00adsis and more robust and nuanced solu\u00adtions than have so far emerged.<\/p>\n","protected":false},"excerpt":{"rendered":"

We know that people\u2019s frus\u00adtra\u00adtions run deep\u00ader than these most recent polit\u00adi\u00adcal bat\u00adtles. \u2026 They expe\u00adri\u00adence in a very per\u00adson\u00adal way the relent\u00adless, decades-long trend. \u2026 And that is a dan\u00adger\u00adous and grow\u00ading inequal\u00adi\u00adty and lack of upward mobil\u00adi\u00adty that \u2026 Con\u00adtin\u00adue read\u00ading \u2192<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":1764,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","wp_typography_post_enhancements_disabled":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"nfd_image_url":"","nfd_onboarding_generated":"","footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[18,739,690],"tags":[742,750,749,741,746,745,425,748,747,743,534,1191,1188,1190,744,740],"class_list":["post-1756","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-inequality-2","category-taxes-2","tag-ceo-pay","tag-economic-inequality","tag-economic-policy-institute","tag-executive-pay","tag-george-clooney","tag-henry-ford","tag-inequality","tag-judge-judy","tag-lebron-james","tag-maximum-wage","tag-minimum-wage","tag-nsa","tag-obamacare","tag-president-obama","tag-steve-jobs","tag-swiss-referendum"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t