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Law and salaries

  1. Oct 15, 2013 #1
    hi,
    what do you think of a law limiting the salaries discrepancy in enterprises ? Let say the big boss cannot earn more than 12 times the lowest salary in his own enterprise.
    This seems against liberal capitalism but can we call this communistic ?
    Or utopistic for the poors.
     
  2. jcsd
  3. Oct 15, 2013 #2

    Ryan_m_b

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    Well that's neither utopian or communism and I don't think a law directly capping pay would be a useful thing. However if incentives were made for enterprises to form or be converted into co-operative models then the pay gap between workers can be democratically agreed or at least the salary model the company will use. IIRC this is how the John Lewis Partnership operates with democratically decided pay grades (with top pay around 10 times the wage of bottom) and it's a multi billion pound company.
     
  4. Oct 15, 2013 #3

    AlephZero

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    10 times? According to http://www.channel4.com/news/hutton-calls-for-fair-pay-cap-on-bosses-earnings
    But IMO the OP's proposal is meaningless, unless you can somehow define "salary" to include every possible benefit an employee can receive. That might be possible in a closed communist system, but probably not anywhere else.
     
  5. Oct 15, 2013 #4

    Ryan_m_b

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    Sorry that was a typo, I meant to put 100 times. Which is still wrong obviously.
     
  6. Oct 15, 2013 #5

    Cthugha

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    Well, Switzerland will vote on whether they should introduce such a 1:12 salary cap in November: http://www.reuters.com/article/2013/09/27/us-swiss-regulation-pay-idUSBRE98Q0Q020130927
     
  7. Oct 15, 2013 #6

    Office_Shredder

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    I think a cap like that will just make companies do weird restructuring. Imagine a company splitting into three companies, A B and C, with A owning B and B owning C, where everyone in A makes 6 million dollars a year or more, everyone in B 600 thousand to 6 million dollars, and everyone in C 60 thousand to 600 thousand dollars. Anyone who makes less than 60k gets fired and company A hires company D to do all the janitorial and maintenance work etc. that they need that is no longer covered.

    Given that some companies apparently find experienced or up and coming executives worth so much that they are willing to spend tens to a hundred million dollars a year in compensation on them, they will shell out millions in inefficiency to restructure the company to maintain that high compensation.
     
  8. Oct 15, 2013 #7

    AlephZero

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    That might not even be necessary in Switzerland, given the secrecy of its banking industry :smile:

    But joking aside, if a manufacturing company decides to sell $1m worth of its products to an executive at a special discount price of $1, and the executive then makes a contract with the company's marketing organization to sell them for him at the market price, at a special discount commission rate of $1, what exactly is the "salary" element of the $999,998 profit on the deal?
     
  9. Oct 15, 2013 #8
    All advanced economies already do this to ensure that earnings are taxed appropriately.
     
  10. Oct 15, 2013 #9
    This is one potential drawback of such a system. Another is the disincentive to take on lower paid staff which is hardly likely to help the cause of graduate and youth unemployment.
     
  11. Oct 16, 2013 #10

    FlexGunship

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    Pretty sure you just end up losing businesses in your country, that's all. Not because the business says "I'm not operating here, poo poo." But because the type of funds required to secure the leaders of an industry won't be available and that will ultimately lead to the company relocating or shutting down.

    It might work for small private companies.

    That's not to mention it's basically pay discrimination against unskilled workers. Someone who's only worth $10/hr will never get a chance to build skills or experience in a system like that. (EDIT: As it is, minimum wage laws have this effect to a small degree; my friend's younger brother is willing to accept less than minimum wage just to get experience but it's illegal.)
     
    Last edited: Oct 16, 2013
  12. Oct 16, 2013 #11

    Choppy

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    1. What gives you (or the nation or the queen) the right to tell me how much money I can make?
    2. What specific problem does this law propose to solve?
    3. Is there any evidence that it would actually solve that problem?
    4. What problems will it subsquently generate?
    5. Is there a better solution?
     
  13. Oct 25, 2013 #12
    1. This law is submitted to democratic voting. Supposing there are a lot of poors only few rich people will be angry.
    2. I don't know which problem it can actually solve except there are very rich and very poor people. But as the tale says, Robin Hood, the only way to get money from the rich is to steal it.
    3. Probably not, since you can split the entreprise in a high and low salary ones.
    5. there is another proposition :
    make a law so that everyone receive 2000$ per month as a basis, even if you don't work, all your life. This should replace all social money.
    In this solution the enterprise will reduce their salaries since everyone already has that money.
    But I think this solution is not viable since nobody will work anymore and it will create a ghost country ?
     
    Last edited: Oct 25, 2013
  14. Oct 25, 2013 #13
    Depends on the cap limit. The portion of skilled workforce above that paygrade will be pissed. The ones not quite as high will be disappointed as they can't get more money even if they do better. Kills ambition.
    How about the ancient idea about EARNING it?
    Where? And Who decides that what work can have the same value?
    No one will work, money will become redundant as there are no services to buy with it.

    A question- Is this something from homework assignment or for an essay of an Economics class? That's the only reason I can think of for such a hypothesis which seems largely redundant without any other supporting changes in policy.
     
  15. Oct 25, 2013 #14
    No it's reality, there are votation about that in my country, so I wanted to get opinion via the net too.
    I suppose this law will never pass, since even 6 weeks of holidays was refused by the population, which seems very courageous for me (note that I don't work and receive 8$/day, I live in a system where money and work are separated, we have to work but for nothing, like 3$/hour).
     
    Last edited: Oct 25, 2013
  16. Oct 25, 2013 #15

    Evo

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    I think your problem is that you aren't familiar with Western free countries. I'm sure $2,000 sounds like a lot of money to you. Just where do you envision this money coming from if everyone gets it?
     
  17. Oct 25, 2013 #16

    FlexGunship

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    There was a book about this... a pretty famous one, I believe... http://en.wikipedia.org/wiki/Atlas_Shrugged

    You can't vote to give value. Some people can create it.

    You can only trade value for value.

    Value taken against the will of it's creator, at the point of a gun, is theft.
     
  18. Oct 25, 2013 #17
    well some people still have the possibility to wish to have more money and they pay taxes. But the amount is not high it is 25 billion per year.
    I think money bias the motivation you work for money not because your interesting in what you do. Personnally im medically described as i cant 'work' (earn my life) for a long period, now already ten years.
    I dont think it has to with west or north it is the healthcare system. And they need people to test medicines too.
    It is clear that in that system there is no future, no motivation any more and only jobs like cleaning dishes for a lot of people. They say they cant pay us more else the money we receive is diminishes which is total nonsense.
     
    Last edited: Oct 25, 2013
  19. Oct 25, 2013 #18

    Evo

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    You seem to be discussing issues in your country. Do you wish to share which country you live in so people have some idea of what you are talking about?
     
    Last edited: Oct 25, 2013
  20. Oct 25, 2013 #19

    FlexGunship

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    I don't understand this part. I agree, though, no one should be diagnosed as "unable to work." Work is not just manual labor. Every person has some value they can contribute; in the case of the handicapped, there are social programs.

    Fortunately for you, there will always be industrious people who seek to reshape their society through hard work and innovation. How could it happen that you can live in a house and yet not be able to build one yourself? Someone built one for you in exchange for some value that you received in trade earlier.

    For me, I trade my engineering skills (and time) for value (money). I then take that value to a baker and trade him some for his skills (and time) in the form of bread. I can't make bread, but I'm able to acquire it through the exchange of value. The only thing that keeps me alive is that someone, somewhere needs what I can create... it has intrinsic value.

    Actually, this makes perfect sense. If the total value of an economy is $1,000,000 and you print $2,000,000 worth of currency, then it takes $2 of currency to acquire $1 of value. If everyone just got more money, the money itself would be devalued since there's no actual increase in value.

    Otherwise, you would have nonsense things like someone having only SOME of the money, but being able to buy ALL of the things. What good is the rest of the money? It's worthless. (Just a thought experiment.)

     
  21. Oct 25, 2013 #20

    Office_Shredder

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    I'm guessing the 2000 dollar a month proposal has something to do with
    http://www.reuters.com/article/2013/10/04/us-swiss-pay-idUSBRE9930O620131004

    If you give everyone a fixed quantity of money, then the people who had less money to start with will be worth relatively more, so it's not an insane way of balancing income inequality - people who are poorer will see their purchasing power increase.

    The concept is known as basic income

    http://en.wikipedia.org/wiki/Basic_income#Examples_of_implementation

    and has been attempted in small scale experiments (e.g. on a town-wide scale), generally with positive effect. Some resource rich regions pay an amount of the proceeds of the resource to every citizen which is effectively the same concept (for example, in Alaska every citizen gets paid cash money about 1000 dollars a year in oil revenue).


    Why would this be desirable? To use the US as an example, If you cut food stamps and medicare/medicaid and social security and just paid everyone 10 thousand dollars a year straight up you would have eliminated much of the need for those social programs and saved money on the administration of them as well as eliminate the prospect of committing fraud. You would need to administer this transfer of a couple trillion dollars in an efficient manner though, so it's unclear if any actual savings are brought there, and you need to raise taxes obviously as well (though by less than you might think - if we pay 10,000 dollars to 200,000,000 adults that would be 2 trillion dollars in spending - if we eliminated medicare/medicaid and social security, we would cut about 1.6 trillion dollars, so we would need to raise another 400 billion dollars a year in taxes, which is significant but not outrageous in scale). Keep in mind that when you raise taxes you're raising taxes on people who are being paid 10,000 dollars extra a year - mostly the tax raise would just be to make it so that people who are being paid a good amount already get taxed an extra 10,000 dollars to cancel out the extra 10k they are getting (so effectively fewer adults would really be getting paid 10,000 dollars a year)
     
    Last edited: Oct 25, 2013
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