Maximum Wage Cap: right or wrong?

Mr. Corbyn’s proposition to introduce a maximum wage cap deserves more attention than has attracted so far in the media. The article by Prof. Vittorio Bufacchi (Pay caps are neither economically crazy nor morally wrong, The Irish Times, 12-Jan-2017) is a good step in this direction. Allow me to add some considerations on this topic.

The question of establishing a limit for highest earners based on a ratio between their salary and their employees is not a new one; Mr. Corbyn suggests that this ratio should be 20:1, i.e. a boss should not have a salary which is 20 times or more his employee salary.

In 2013, in the USA, a similar proposition was put forward by Larry Hauley of the Amalgamated Transport Workers, only in that case the ratio was 100:1. This different ratio is understandable also in view of the news that Walmart’s CEO had a salary 752 times higher than the wage of his employees.

Spain and Switzerland have also been the home of similar propositions. So this is not such a weird or new idea. In Ireland the level of wage inequality, maybe the highest in Europe, can be expressed in this way: 35% of all the money goes to the top 10% earners, and the 1% is taking 10% of all income. Now this should let you figure out the huge gap between your middle class salary and that of your boss.

This situation certainly raises two types of reactions: one economical (does it benefit to the economy to limit or allow such a high wage?). The other is the following: is it just that a boss earns up to hundreds times the wage of his employee? There is no room in this article to try to answer to those two important questions. It is possible, nevertheless, to express some observations as food for thought.

If we consider the ceiling for top wages as based on a ratio, we are creating a direct dependence between the two, a functional relationship: if a CEO increases their salary, they must increase also the employee’s wage in order to keep the ratio.

On the other hand, the huge gap between the top of a business and those at the bottom puts in a defensive corner the claim that the profit of a successful enterprise “trickles down to benefit everyone”.

Furthermore, what would be the moral justification for such a discrepancy of salary? It is purely based on power and profit. Those at the top of the pyramid have the power to set their wage, those at the bottom can only accept the wage that has been offered to them.

In closing this letter, let me say that, in my point of view, extreme “free-marketers” and extreme State control are both condemned to fail: where the State’s control on the economy is overpowering, personal and economic freedom are killed and finally the State itself crumbles down. On the other hand, absolute “laissez-faire”, by destroying welfare and any form of guidance for the society, will destroy civil liberties as well. Due to the complexity of our modern society, there cannot be progress by eliminating one of the elements of the scale made by liberty and welfare. A power that aims at the destruction of the one or the other will destroy the social and economical complexity upon which ultimately the same power is founded.