Why we need a maximum wage

In tackling income inequality, we should start at the top

Inequality
(Image credit: (Thinkstock))

The debate about rising economic inequality that's been building since the financial crisis of 2008 has approached a boiling point in recent weeks thanks to the publication in English of French economist Thomas Piketty's Capital in the Twenty-First Century. The book has already received a rave review by Paul Krugman in The New York Review of Books (headlined "Why We're in a New Gilded Age"), and has been the focus of a cover story in The Nation as well as both an op-ed column and news article in The New York Times. (The book, which uses a rich trove of data to track long-term trends in inequality and to warn about its recent rise, is currently out of stock at Amazon. Not bad for a 700-page tome filled with dense economic analysis and history.)

Also contributing to the conversation is a recent study by academics at Princeton and Northwestern that purports to show that the U.S. is evolving into an oligarchy in which wealthy elites exercise far more power over the political process than ordinary citizens.

Nearly everyone writing on the subject agrees that inequality is increasing, and growing numbers of Americans are troubled by the trend. The question is what can be done about it.

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Most progressives — including Krugman and Piketty himself — advocate higher taxes on wealth and inheritance to restrain the growth of inequality. Then there are income taxes that target the super-salaries that have become so common in the world of finance and among corporate executives. (In my favorite example, Henrique de Castro collected a $60 million severance package from Yahoo when he was fired as the company's chief operating officer after slightly more than a year on the job. That was on top of his annual salary of roughly $40 million, bringing his total compensation for 15 months of work into the vicinity of $109 million.)

Increases in wealth, inheritance, and incomes taxes certainly might do some good.

But not as much as imposing a maximum wage.

No, this isn't some Marxist fantasy. It's a clear-eyed response to the fact that in 2012 the ratio of CEO compensation to that of a typical worker in the United States was an astonishing 273-to-1. That's a gap made possible by a rise in CEO compensation of 875 percent since 1978 — an era when the typical worker's salary has increased by a mere 5.4 percent. (The lopsided ratio, of course, is an average. The pay discrepancy is much greater in some companies. JC Penney, for example, paid its former CEO Ron Johnson 1,795 times the average wage and benefits of a U.S. department store worker.)

Democratic citizenship depends on a certain commonality of shared experience and power across regions and races and classes. That's always going to be a challenge in a continent-wide nation of 310 million people with complicated immigration patterns and a sordid history of racial injustice. But it becomes close to impossible when the super-rich use their incomparable wealth, power, and influence to insulate themselves from meritocratic checks of the market as well as government oversight and regulation, ensuring that they acquire ever-greater wealth, power, and influence over time.

The idea of taking a modest stand in favor of democracy and against America's emerging oligarchic class by capping wages doesn't come out of nowhere. An op-ed in The New York Times proposed a maximum wage back in 1996. Talk-show host Bill Maher floated the idea on his show a couple of months ago.

When it comes to practical proposals, last November 66 percent of Swiss voters rejected an initiative that would have capped the compensation of a company's top executives at 12 times the wage of its lowest paid workers.

A cap that draconian would fare far worse in the United States, and rightly so.

But that doesn't mean something less severe and more thoughtfully crafted couldn't catch on here. CNN columnist John D. Sutter has smartly suggested a maximum wage set at 100 times the federal minimum wage of $7.25 an hour (or $15,080 a year based on a 40-hour work week). That works out to a maximum of roughly $1.5 million a year.

Or if that's too harsh, how about making it 200 times the minimum, raising the maximum to $3 million a year. Hell, we could even peg the maximum to 1,000 times the minimum wage — $15 million a year — and still allow CEOs to be filthy rich while reining in the most obscene excesses at the very top. (Forbes reports that top-earning CEO John Hammergren of California medical supply company McKesson earned total compensation in 2011 of $131.2 million.)

An added benefit of tying maximum pay to the minimum wage is that it would give the super-rich an incentive to back (or at least to stop opposing) a minimum wage hike. Now there's a way to inspire democratic fellow-feeling across classes!

Of course it's hard to imagine Washington's political class moving to impose anything like a maximum wage at a time when it can't even manage to pass a (solidly popular) increase in the minimum wage. (This inertia is yet another indication of why bold reform is so desperately needed.)

But even if it's unlikely that Congress and the president would impose a maximum wage, a strong popular movement in support of it could still do considerable good simply by persuading the super-rich to preemptively cut back a bit on their greed and propensity for shameless self-dealing.

That wouldn't be much. But it would be something. And at this point, those of us not earning millions of dollars a year will take whatever we can get.

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Damon Linker

Damon Linker is a senior correspondent at TheWeek.com. He is also a former contributing editor at The New Republic and the author of The Theocons and The Religious Test.