Tuesday, April 10, 2012

Pay and Elite Justifying Myth

Has anyone noticed that whenever progressive taxes are mentioned the moral right to that income is justified as being the amount produced but whenever low incomes are mentioned the value of each worker's production is considered irrelevant and instead the prevailing wage determined by the labor market justifies it?

This creates a frame where the rich are irreplaceable while those that aren't are simply commodities. But is there any good reason why we should look at things this way? The wage of those that aren't rich is considered just because it is where the wage demand of the marginal laborer lies. But why should this be any different for a CEO? Why is it just to pay him based on production rather than the marginal wage for the nearest equivalent individual to replace that CEO? Is there any truly good reason to believe the CEO is truly worth what they are paid relative to the next equivalent individual or do we simply have a cultural bias that causes us to look at employee's differently based on status. Elite workers get paid on production, whatever their value relative to the marginal individual that could replace them, the rest accept a wage determined by the market.


  1. CEOs argue that they are like elite NFL quarterbacks, who possess very rare skills that are vital to the success of the franchise, and that they should be paid according to this scarcity. Laborers, conversely, are equivalent to easier-to-find players, with market value as the prime determiner of compensation. I think your main contention should be that execs can claim that they are "top talent" that might leave at any moment for richer pastures, without challenge. Your concept of "as good as the next CEO" is a concept fundamentally not acknowledged in justifying executive pay, because the CEO reports (to his advantage) that the market is so scarce, it may as well not exist. A CEO would say that the Patriots are not paying Tom Brady based on his value compared to "the next Tom Brady"; my problem is that they never are asked to prove that their skills are rare or even useful.

  2. I'd agree with all that. What I was trying to get at, clumsily, is how the language and perception seems to shift so readily. I see people complaining in blogs and newspaper articles all the time about how employers can't find workers willing to work at the wage they want to pay. Yet when the compensation of various high paid groups get involved the focus is always on how much they produce, there is not even a thought given to competitive labor markets or them needing to accept a given compensation package. Apparently, the market is supposed to clear at where the wealthy want it to for poorer workers but poorer workers aren't supposed to be questioning the compensation packages the wealthy and powerful approve for themselves since they are paid on production rather than needing to accept a wage.

    It's the perception and language I find most troubling, but I agree that it should also be questioned more that an individual CEO might be just as replaceable as most other skilled workers. The reason I'm so concerned with perception is that much of this language also seems to be tied to those that insist that the market compensates fairly, yet people at opposite ends of the market income scale seem to be operating with entirely different justifications for how they are paid, which seems suspect to me.