Time to Consider a Maximum Wage?

As mentioned here and elsewhere, a silver lining of Hurricane Katrina is that it is forcing us as a nation to confront issues related to race and class. Socially-conscious economists have been wrestling with the growing global disparity between rich and poor. Even in a prosperous country such as the US, the richest 1% of the population control more wealth than all of the bottom 90%. Anyone who doesn't think that affluence in America is spiraling out of control need only watch MTV's new reality show My Super Sweet 16, in which obnoxious, spoiled rich teenagers plan (i.e. throw tantrums over) their Sweet 16 parties. Contrast this with the scenes we've watched from New Orleans over the past couple of weeks, and both the show and the behavior it showcases are particularly appalling.

In capitalist societies, there's nothing wrong with being wealthy. But how can we better support hard workers struggling to earn a living wage?

In an article in the July/August issue of The Futurist, Sam Pizzigati explores several options for raising the standard of living for the world's poorest citizens. In the US, at least, outright wealth redistribution, punitive taxes and salary caps would neither be popular nor realistic. However, Pizzigati notes two other options that warrant consideration.

One, the so-called "maximum wage," has already been instituted by some corporations. The principle behind the maximum wage is that the highest-paid person in an organization (typically the CEO or other top executive) cannot earn more than X times the salary of the organization's lowest-paid employee. If an organization's lowest salary grade is $8 per hour, and its maximum wage is 10 times that, its top earner could only make $80 per hour, or approximately $166,000 per year (a respectable paycheck by most standards, but a pittance compared with some of today's executive salaries). Therefore, it's in senior leadership's self-interest to ensure that the bottom salary tier remains as high as possible. When the lowliest janitor or mail clerk gets a raise, everyone in the organization benefits. Some economists have suggested that if a maximum wage were not mandated by law, government could still encourage it by requiring any company it did business with to employ a maximum wage. Critics of the maximum wage note that it typically does not take into account benefits or stock options, which executives have greater access to than their subordinates. Also, companies could simply contract out low-wage jobs to get around the rule, and peg a middle- or even upper-tier professional pay grade as its "lowest" salary. Even so, Pizzigati notes that maximum wage proposals are beginning to gain support in Europe, where outrage over pay inequity is a growing political issue.

The other idea Pizzigati discusses is more utopian in scope and would involve more fundamental change. Edward Bellamy's classic 1888 "futurist" novel Looking Backward, which imagines a socially aware America in the year 2000, featured a pay structure in which all work pays the same wage. The difference was in the number of hours required to work. The less desirable the job, the fewer hours one was required to work per week. Someone working in a comfortable office job, for instance, might be required to burn the proverbial midnight oil seven days a week, while someone else cleaning sewers or collecting garbage might only have to work a few hours a week... and both would receive the same pay. Workers would bid on the jobs they wanted, weighing the comfort level of the job against the number of hours needed to work it (could Bellamy have foreseen eBay?). Such a system would reward tough manual labor, but would punish (or at least negate) education or intellectual ability -- hallmarks of today's information age. Also, Bellamy wrote at a time when physical labor was the norm in the workplace. But even if the idea is unworkable, it does raise interesting questions about the (often misplaced) value we place on certain jobs.

Such approaches may seem far-fetched and even anti-capitalist, but they and other solutions must be considered in light of social and political instability that is beginning to result from income inequality in some countries. In Brazil, which has the world's greatest wealth gap, the affluent hide within fortified homes and offices, and commute by helicopter rather than risk going out in the crime-ridden street. In short, a society where the "haves" and "have nots" are far apart is a ticking time bomb -- think Russia before 1917 or China before 1949. Many parts of the world are headed in this direction. Will America ultimately face such a calamity? Or will we be proactive and implement solutions in time?

UPDATE: One region in which the income gap is reaching a crisis level is China, where government researchers fear social unrest over labor and wage disputes. The wealthiest 20% of China's population earn half the total income, while the poorest 20% earn not quite 5%, and nearly 30 million Chinese live in absolute poverty. The government has so far done little beyond cutting taxes for the middle class, but one must wonder whether the stage is being set for an anti-capitalist backlash.