Can a maximum wage help bridge the income inequality gap?
There’s been an increase in discussion on minimum wage which is a positive step for movements such as Fight For 15. However at the other end of the spectrum sits maximum wage, an idea rarely brought to the table. One reason is that there is little research into implementing such a policy, though proposals have been brought forward in unions (advocating for a 1:100 pay ratio) and in Switzerland (1:12) among a few other countries and individual companies.
One model to look at is the NBA where salaries are capped and the ratio currently stands at about 1:20. This has shifted the incentives from making the most financially to other factors like teammates and chances at a championship. It’s also been shown to help mid-range players; since teams are restricted from spending too much on one player, other players see their offers increase.
Others believe that increasing income taxes would serve as a de facto maximum wage. Researchers have looked back at the post-WWII era when taxes were 90 percent for high wage earners and compared it with post-Reagan numbers. They found that productivity was higher and that the distribution of gains was more equitable pre-Reagan. Rectifying income inequality may also actually help the overall economy which is still recovering. A report by Standard & Poor’s Ratings Services found that the income gap is stunting economic growth. Beth Ann Bovino, the chief U.S. economist on the report said, “What disturbs me about this recovery —which has been the weakest in 50 years—is how feeble it has been, and we’ve been asking what are the reasons behind it. One of the reasons that could explain this pace of very slow growth is higher income inequality.” The report points out that the affluent are more likely to save money rather than funnel it back into the economy and that they have the ability to use their financial power for political gains.
Another idea that is gaining favor, especially in the tech industry is an open salary system. One company that has utilized this is Buffer, a social-sharing site which has developed a salaries formula and even published their employees’ salaries (at the highest is the CEO who brings in $158,800 and at the lowest is a team member who makes $70,000). Proponents of such an arrangement say it instills a sense of transparency and trust.