Wednesday, May 14, 2014

Turning Concepts into Policy

I've pontificated before about the growing income and wealth inequality. At times I have offered approaches to address it including the raising the minimum wage, establishing and enforcing a living wage and establishing a maximum wage ratio. The latter have primarily been adopted by companies or organizations Ben and Jerry's

in it's heyday when Ben and Jerry were the actual owners had an 8:1 ratio and Judy Wick's used a 6:1 ratio  for the White Dog Cafe




or the Greater London Assembly agreed to a 20:1 ratio. Until yesterday I had yet to see any attempt by government to legislate a policy to institute any ratio limit. Well, perhaps the damn has broken, as Rhode Island is debating Senate Bill 2796 that would institute a policy for  “Selection of vendors and services based on economic security and pay equality.”

      Section 37-2-81 empowers and directs the head of the department of administration to establish rules and regulations that give priority in contract and/or subcontract awards to business enterprises whose best-paid executive receives compensation and/or salary equal to thirty-two times or less than the compensation and/or salary paid to its lowest-paid full-time employee.

Lest you think that there isn't a problem, Bloomberg News last year reported one corporation that had a 1,795:1 ratio and an average within the S&P 500 of 204:1 a 20% increase since 2009. The Dodd-Frank law passed nearly four years ago required corporations to disclose the ratio, but the SEC has yet to promulgate rules, in part because the heavy hitters are lobbying against it.



WagemarkThe newly formed Wagemark Foundation (UK) is attempting to accelerate adoption and reporting of wage ratios as a response to income inequality. Any company or institution with a wage ratio of 8:1 or lower is eligible to be certified.

Their website offers a nice brief history of of the wage ratio idea from Plato to now.

Swiss voters in November defeated a proposal to institute a national 12:1 ratio, the rationale behind that particular ratio is that no one should make more in a month than someone makes in a year.

Ten years ago when I  brought up this possibility, no one I discussed it with had ever heard of such a thing. Obviously the recent news suggests that the idea is being considered much more broadly as a result of the obscene inequality that grows around us both domestically and globally. Even higher education (at least in the UK) is looking at it.

If you want to look at a comparison of increasing the minimum wage versus instituting wage ratios see this interesting analysis. It may not be the best answer or the only answer to the problem such disparities create, but at least now it's becoming easier to discuss what a fitting maximum ratio should be and how we might decide it.