Why a maximum income is a great idea, but will never happen

Should the Australia have a universal maximum wage? Would it help develop the society and not hinder economic growth? I think so.

At the moment, the Gini coefficient of Australia is around 35% (0 is perfect income equality) and while some might consider this low(the USA is at 41.1%) there is certainly room for improvement. This in equality causes real problems too, and can lead to lower standards of living for many people. There are meany theories out there on how to lower income inequality in Australia and other parts of the world. The most popular approach is to tax the rich and redistribute their income and while this is certainly easy to say, it has certain problems in the doing aspect.

Another idea is to simply limit the income of CEOs and Executives to the wage of his or her least well payed worker. For example, lets say a CEO can’t earn more than 20 the least well payed employee the CEO of Hungry Jacks would not be able to earn more than $700,000 a year. Still a sizable living, but far off the millions he earns today.

This would have a two fold effect. Not only would it insentience big businesses to pay their employees well, it would also limit the massive accumulation of wealth by Australia’s best off.

The practical way to enforce the policy is to require companies to publish their pay ratios, between what the boss is getting and what the worst off employee receives. The publication of these ratios will put pressure on firms to explain and justify the pay gap. This way it would be impossible for a company to hide the pay discrepancies.

Now of course it is time for an argument. There are those who will say that without exuberant pay, these people won’t be motivated to work or that paying them massive salaries somehow grows the economy and provides investment for new businesses. $700,000+ is simply not enough for these hard working entrepreneurs, they will say, if they don’t get this money, the economy will surly shrivel up from lack of investment. The lazy poor people wont be able to get any money at all because they will all be out of a job.

Now I’m not here to argue economics 101 with these kinds of people but they do highlight the plight of ever enforcing such a policy. The rich simply have to much to lose if such a policy is ever enforced. The lobbying power they they can wield world be far to great to contend with. This is the reason why it will never be enforced. Lets go back to the CEO of Hungry Jacks, Atul Sharma. He only has $1.7 billion to name. Lets say he would make $1 billion in the rest of his life, but only $300,000,000 with this law. That means he can spend 6 hundred million on lawyers, donations and lobbying and still make a profit. Times this by all the millionaires in Australia and you can see why a law like this is doomed…

 

 

 

 

Advertisements

5 Comments

  1. While an excellent idea on a socialist and equality level, it is the huge profits available to CEO’s, and more importantly the bonuses available to them, that encourage them to grow their businesses as their shareholders will likely only approve large bonuses if the company continues to grow. If a CEO’s income will remain static regardless of their job performance, time in the roll or business acumen the motivation to excel and grow the company will be reduced. This is a problem because if the company does not remain profitable the employees will not enjoy wage increases or job security. Another consideration is the fact that a large proportion of taxation revenue comes from the wealthiest 1% of people, and as such if these revenues were to decrease as a result of the maximum wage overall taxation would have to be increased, straining the already unstable budgets of thousands of Australians

    Liked by 1 person

  2. I tend to agree that this idea, in general, would not result in a more efficient labour market. If you put a price ceiling on a CEO’s salary (limiting their wages) this wage price might well be below the equilibrium, meaning that there would be a surplus of companies demanding CEOs at lower prices, but not enough CEOs willing to supply their services. They may start to look elsewhere for opportunities, forcing experienced and talented managers overseas. Generally, a more free market with less regulation will lead to a better outcome for more people. Are we willing to put up with inequality for the sake of capitalism?

    Liked by 1 person

  3. I think it’s very unlikely that large corporations will be willing to committ to such levels of transparency. It may be difficult to regulate this.

    Like

  4. Surely if this maximum income law were to be passed then people earning beyond that maximum would find a way to continue earning that money illegal. I don’t think this idea would work.

    Like

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s