Equal pay – Summary
August 26th, 2009 | Published in Economics idea | 2 Comments
I have just reviewed my posts on the 10 different problems I identified in my August 6th post. It seems to me that the problems fall into three categories.
First, there is the problem of incentives. This is a fundamental problem. If people work hard only because they expect to earn more, then equal pay is a bad idea. My belief is that people need to feel that they are fairly compensated for the work they do. What feels fair depends on social norms and history. I am going to have to think more about what motivates people.
Second, there are problems of enforcing rules about pay. The type of enforcement required would be quite similar to current tax and commercial law. Generally, the success of enforcement hinges on the level of acceptance of a system. If people liked an equal pay system, they would be much more likely to comply with whatever rules and regulations are needed to maintain it.
Third, to move to a society with equal pay for all would require a major redesign of many institutions. Education systems would need to be redesigned. Tax systems would need to be adjusted. Immigration and emigration policy would need to be reviewed. Large scale changes to important institutions is risky.
While I don’t believe that any of these problems are insurmountable, together they make a transition to an economy where everyone is paid the same wage risky. If a country chose to move to a system where wages were much flatter than they are today, it would probably take decades to implement and work out the problems.
August 31st, 2009 at 3:19 pm (#)
Stephen,
All in all, the discussion on equal pay was interesting, but I found I wasn’t very inspired from it. I think the reason is that I’m not motivated to pay everyone equally so surmounting obstacles to doing so doesn’t excite me.
You started out by saying that you wanted equal pay because you support an egalitarian approach, then you addressed challenges or reasons that it might not work.
I’m trying to think of how you could do this backwards. What if you started off with no controls over salary at all, then addressed the problems that would come? One measure that we currently have is a minimum wage. Are there other measures that would make a less-controlled system more palatable to you?
This could be tricky because it depends on your objective – if the end-goal is egalitarian salaries, there is no way to mitigate an uncontrolled system.
Eric
August 31st, 2009 at 3:31 pm (#)
Eric.
I agree that minimum wage laws are a step in the direction I want to go. The other end could be capped by a highly progressive tax system. If tax rates climbed to 90 per cent for high income earners, much of the inequality I’m worried about would be eliminated.
What we’re talking about here is means. The question is how high should the minimum wage be? How high should the tax rates go? If the minimum wage rate is high and the tax on high income earners is raised substantially, the types of problems I discussed in the past several posts rear their ugly heads.