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, but rather to weak corporate governance where executives often have close ties to boards that set their salaries. The report suggests that strengthening shareholder influence can help keep executive pay in check. It also proposes tax strategies that penalize high wages relative to the wages of ordinary workers 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 the shareholders really the ones who should benefit from these reforms? Shareholders, who already receive a large portion of corporate profits through dividends, do not always make a significant productive contribution to the day-to-day operations of the corporation. Perhaps we should instead introduce tax penalties that target both excessive executive salaries and bonuses, but also stock dividends that drain resources from the business and the lowest paid workers. In this way, we can create a more sustainable financial distribution where resources stay in the company to a greater extent and are used to support its long-term development and the well-being of the employees, which ultimately benefits the whole society.

Widening gaps have produced slowing productivity growth

Since the 1970s, productivity growth in many Western countries, including Sweden, has not developed at the same rate as before, while the inequality, labor and automation increased. At the beginning of this period, income inequality was 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 USA and Great Britain, but also in the Nordic countries, albeit at a somewhat lower 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.

Studies show that while the top managers' salaries and bonuses have increased sharply, wages for workers and employees in the lower income strata have stagnated. This is what the citizens of Sweden have done 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.