Wage gaps in business not productive

The report ”Reining in CEO Compensation and Curbing the Rise of Inequality” by Dean Baker, Josh Bivens, and Jessica Schieder shows how the increase in executive pay since the 1970s has widened income gaps in the United States. High salaries for company leaders lead to other senior managers also being paid more, while salaries for employees in the middle and bottom of the pay scale remain stagnant.

High salaries at the top not efficient

These high executive salaries are not linked to increased productivity or improved financial performance. Rather, they are due to weak corporate governance. Executives often have close ties to boards that set their salaries. The report suggests strengthening shareholder influence. This could help keep executive pay in check. It also suggests tax strategies that penalize high salaries relative to ordinary workers’ wages and increase transparency in how wages are distributed.

Hierarchies lower problem-solving skills

The anatomy of inequality by Per Molander believes that those who have too little money, even if only temporarily, make worse decisions. This probably also applies to the low paid in a company. The Neurological Research Review”Your brain at work” by David Rock shows that it has poorer problem-solving abilities that are at the bottom of a more unequal hierarchy.

Political parties among the shareholders

The report proposes an increased voting right for shareholders. This is good, especially if parties can be created among the shareholders in the companies, so that e.g. social democratic shareholders can more easily make their voices heard.

More stock dividend unproductive

But are shareholders really the ones who should benefit from these reforms? Shareholders already receive a large part of the companies' profits through dividends. But they do not always make a significant productive contribution to the day-to-day operations of the company. Perhaps we should instead introduce tax penalties that target not only excessive executive salaries and bonuses. They should also discourage share dividends that draw resources away from the business and the lowest-paid employees. In this way, we can create a more sustainable economic distribution where resources stay in the company to a greater extent. Then the resources can be used for the long-term development of the business and the well-being of the employees. Ultimately, this benefits the whole of society.

Widening gaps have produced slowing productivity growth

Since the 1970s, productivity growth in many Western countries, including Sweden, has not been at the same pace as before, while at the same time the inequality, labor and automation increased. At the beginning of this period, income differences were relatively small and productivity rose rapidly. But after the 1980s, the trend began to change. Income gaps increased significantly, especially in countries such as the United States and the United Kingdom. This also happened in the Nordic countries, although at a somewhat slower rate. Over time, inequality has mainly due to differences in capital and the gap between those collecting wages or social security happened in Sweden. Sweden has also especially under the last government lowered taxes especially for the richest. When the richest get more, they save more. Saving requires a return. This return logically eats away at the real economy as most of the stock dividends go to the rich few who own the most.

CEO salaries are skyrocketing – while ordinary wage earners are lagging behind

Studies show that while the top managers' salaries and bonuses have increased sharply, wages for workers and employees in the lower income brackets have stagnated. A new report from Oxfam and ITUC shows that global CEO compensation increased by almost 50% between 2019 and 2025 – while regular salaries increased by only 0,9%. In Sweden, real wages even decreased by 5% between 2019 and 2023, while CEOs increased their income by 46%. A dollar billionaire now earns more in an hour than a worker makes in an entire year.

The report warns of a growing crisis of democracy in the labor market. Companies are making record profits and avoiding responsibility, while workers are struggling with rising living costs. In many countries, real wages are stagnating, despite official growth.

Oxfam and ITUC are calling for fair taxation, stronger welfare and an end to extreme executive pay. This is not about radical politics – it is about restoring basic justice. As Oxfam writes: “When disparities are this great, politics must step in and redistribute.”

 

Deliberate neoliberal policies for increasing wage gaps

This is what the citizens of Sweden have brought to conscious policy since 2006. That strategy is called the "work line". This has negatively affected overall purchasing power, as a high concentration of income at the top means less money circulates in the economy through consumption. At the same time, the increasing inequality has also been linked to a worse development of productivity and for the companies. It has become clear that as economic gaps widen, long-term investments in both labor and innovation are adversely affected.

To deal with these challenges, tax policy measures targeting both top executives' compensation and large share dividends may be important. It is about creating incentives to redistribute resources to it broad workforce and those who collect social insurance and contribution, which can promote more sustainable economic development. At the same time, it is important to question the idea of ​​giving more to the shareholders, who already today take a significant part of the companies' profits without always contributing to increased productivity or long-term growth.