In nef’s report A Bit Rich, published at end-of-year bonus time last Christmas, we were clear that there is no quick fix for resolving complex issues of pay and worth in our society. But an important start is in having a widening debate about it. It’s a subject which cuts across economic productivity, social fabric, individual wellbeing, and morality. In fact, it’s a subject that flags the truth that we do have a choice about the system we live in. After all there’s nothing natural in the fact that a chief executive’s earnings are now 128 times as much as the average worker, up from 47 times ten years ago.
In A Bit Rich we put numbers to people’s intuition that what someone earns doesn’t necessarily reflect how valuable the product of their work is to society. We made transparent and reasonable assumptions about the positive and negative impacts of different occupations. We found, for example, that through the recent financial crisis (and they happen regularly) a banker in his/her career will be destroying at least £7 through the ensuing general economic recession, for every £1 they contribute to society including through the taxes they pay. It’s exactly the reverse for a child care worker who will create £7 of value for society for every £1 they earn, just by enabling parents to go to work and earn the average wage.
People are right to say that pay is important because of the incentives it generates. Quite. If a banker is destroying more value than they create, then we really shouldn’t reward and incentivise them to keep doing it.
The other thing we did in A Bit Rich was to explode some popular myths, many of which were raised as serious issues for concern in the three Radio 4 programmes I listened to. Perhaps the most common one is that if certain people couldn’t earn vast salaries they would up and leave the country. Evidence from more equal countries doesn’t support this belief. And what of the link between executive pay and company profitability? Well, sadly executive pay often has only a weak link to profitability. In 2008, the UK’s top companies lost almost a third of their value, but their chief executives saw a leap in their basic salaries of 10%.
It’s not just for reasons of envy or aspiration that all this matters so much. It matters because economic efficiency is compromised. And there is burgeoning evidence about the negative impacts of inequality on society. But who is going to decide what the appropriate differential between top and bottom earners should be? At the moment the executive elite does. But we can and should all have a say. We need to keep talking about it.
http://www.neweconomics.org/blog/2010/09/21/more-talk-about-pay-and-value
