Columns

Should We Introduce A Maximum Wage?

Simon Connell argues that we should; Joelle Nyhof disagrees.
 
 
 
Connell: 
The current ability to pay high wages has two significant effects: 
The first is increased wealth inequality – a bigger gap between rich and poor. Research has shown a clear link between wealth inequality and social cohesion. Countries with high wealth inequality tend to have high crime rates, including high homicide rates. Simply put, a big gap between rich and poor leads to anger and frustration. Such a gap leads people to question the laws of a society that allows such a disparity to occur – and sometimes to go beyond questioning, and to break those laws. 
The second significant effect of high wages is inefficient use of resources – a lot of money is tied up in paying high earners. High wages are currently paid because employers compete for employees via higher wages, and also because a culture of expectation of high wages which has arisen. There are plenty of cases following the recent global financial crisis of executives paid high wages greatly in excess of any value society received from that person’s work. Furthermore, the higher someone’s wage, the less use they can make out of any extra money you pay them. 
Companies could put money spent paying high wages to better use by investing it or by spreading it among lower-paid employees. Currently, they can’t do so because of competition and the aforementioned culture of excessive wages. This scenario cries out for government intervention! 
Implementing a maximum wage will remove these two ill consequences of high wages, and transform society. The money society used to waste paying high salaries will be put to better use. Wealth inequality will decrease, not simply because the wage cap will reduce the gap, but because money has been freed up to pay other employees. Employers will still compete for skilled employees, using other factors other than money; for example, work-life balance and flexible hours. As a result, skilled employees won’t all leave the country. High earners won’t even be that much worse off, because a decrease in income would affect them less. Overall, society would be better off.
 
Nyhof:
While I agree that anger and frustration is a large motivation behind criminal activities iscreating a maximum wage will not help solve this issue. Criminal activities are often carried out by the unemployed or socially inept who feel that ‘the man’ is out to make things difficult for them on a personal level. Creating a wage cap will not suddenly create jobs for these people, nor will it instil a sense of justice and morals into the individuals who choose to take matters into their own hands. All it will do is create a sense of resentment among the hard-working people who are being forced to take a hit to their pockets. 
The second issue raised is an inefficient use of resources. It is suggested that the ‘excess’ currently being paid to the executive members of a company could be better used to boost the income of lower-paid employees. While this is a very nice idea in theory, in actuality companies are bound to their shareholders by the ball and chain of economics, and any increase in profit will go quickly into their pockets or else investments will stop and the company will fold. There is no way to ensure that this money will find its way into the pocket of the little man within companies globally, and this scheme must be global to be effective. If companies within select countries or regions are forced to abide by a wage cap, then highly sought-after individuals will simply move to areas where they can be highly paid for their work – money is the greatest motivator and no amount of flexible work hours will compensate for this time-proven fact.
In addition to these two points, creating a maximum wage will only harm society. If an individual has already reached the maximum wage, there is no incentive for them to gain further education, for highly-skilled workers to take on demanding jobs, and no need to continue to be innovative within their field as there are no tangible rewards for the time and effort expended. Maximum wage has no benefit to society – it only disincentives and demoralises.
 
Debatable is a column written by the Otago University Debating Society. They meet every Tuesday at 7pm in Commerce 2.20.