Tuesday, April 11, 2006

The case for a national maximum wage

The average chief executive of a major US company made $6.05m last year, according to an annual survey conducted by Mercer Human Resource Consulting for The Wall Street Journal.

The figure - which includes salaries, bonuses, long-term incentive plans and share options - represents a rise of 15.8%, getting on for five times the 3.2% average rise in earnings for US employees as a whole.

I only mention this one because it's in the news right now. Similar surveys get conducted regularly in Britain, and predictably enough, regularly come to similar findings.

Top executives don't just make more than the prime minister. They make more than the entire cabinet put together. Yet there is no objective evidence performance is enhanced as a result. This is wholesale looting, without any commercial justification.

So how's this for a modest proposal? How about a cap on maximum wages at, say, ten times the average wage?

After all, intellectually speaking, there is not a great deal of difference between a minimum wage and a maximum wage. Both are a constraint on markets, both are a constraint on employers, and both attempt to place some kind of morally-derived boundary on the dynamics of the market for individual reward.

If there's a case for the floor, there's surely a case for a ceiling.


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