My submission to the High Pay Commission

If the concern is that pay at the top is too high then the obvious solution is simply to have a maximum pay rate.

This won\’t affect lower paid workers in any manner: companies are already, clearly and obviously, paying sufficient to attract the staff they desire. A brief glance at the unemployment rate shows that. The losers would be those at the top who no longer get that exorbitant top peoples\’ pay.

The side effects would be interesting as well. For where would the money saved on that top pay go? Not to customers of course: companies price on demand, not their cost base. Not to the lower paid workers as above. Clearly, that saved money would go to profits and thus to shareholders.

Which is really most interesting, don\’t you think? Any attempt, for a maximum wage is only a method of illustrating this point: any form of reducing top peoples\’ pay will have the same effects, to reduce what people can earn from their labour must inevitably increase the returns to capital. A result to be devoutly desired of course but perhaps not what you guys might desire.

There is a certain amusement at Compass, of all people, setting up a Commission working on how to make the world safe for capitalists.

They might as well shut up shop now, eh?

6 thoughts on “My submission to the High Pay Commission”

  1. companies price on demand?

    what would you predict follows from a cost-saving innovation? that price stay the same because companies price on demand or that prices fall to erase excess profits because companies engage in competition? If companies face legislated reductions in costs, how does the situation differ?

  2. luis, do you have an example of legislated reductions in costs? For example,recently, BSkyB had to reduce the wholesale prices for mtheir football channels…that did not seem to affect the price that BT Vision offered…which was still below the wholesale cost input from BSkyB.

    In normal cases, isn’t it a prisoner’s dilemma…if all companies in the industry achieve a cost saving, which one is going to be the first to reduce prices? And, not all buying decisions are based solely on price, otherwise we would all use the the cheapest toothpaste and Colgate, Macleans etc would not exist any longer.

  3. Diogenes , that is rather what happened when advertising of tobacco was banned but then tobacco is a product somewhat unlike any other except perhaps drink. I `m not sure if this is really workable or even intended to be in general business , people would simply become self employed ,I assume, and take profits in some form or other.

    On the other hand there is every good reason for an ongoing pay commission in the public Sector where high pay is driven by union power and is nothing more than a drain on services. The teaching profession for example could be vastly less releasing huge resources to schools

  4. What Luis Enrique said.

    Companies in reasonably competitive markets do price on costs – not their own costs but competitors’ costs. A common cost reduction should lead to lower prices as a first-order effect.

    In just the same way, taxes and other common cost-raising policies raise prices as a first order effect, only lowering profits as a second-order.

    Come on Tim, you know all this.

  5. My problem with a cap on income is rather different. It assumes that someone somewhere actually knows the correct price for something (in this case an individual’s expertise and time) without knowing what that individual actually does. This is clearly impossible, hence instead of having many employment contracts wrongly priced, as at present, we will have all employment contracts wrongly priced, resulting in a general misallocation of resource.
    Of course it is very likely that any regulations introduced to enforce a cap will be circumvented, but they are guaranteed to cost money to both government and firms in order to implement them. I don’t believe we have money to waste at the moment.
    Finally, a high salary is clearly higher than one’s own. Do we cap income just above the modal level, as that is the level most people would perceive as fair.

  6. I suspect that a block on higher salaries would in part feed through to lower prices, but actually would have little effect because the actual amounts involved would be small compared to the overall wage bill.

    The other major effect I can forese is an exodus of HQs from the UK to less forbidding places such as Brussels, Paris, Frankfurt, Bombay, Shanghai, and probably relocations of industries involving highly skilled people to above cities, and that the costs of the remaining businesses would rise as access to competent management, consultancy etc would be reduced. Prices would overall therefore probably rise, and people would be less able to pay them so it would be a double whammy.

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