Maximum wage
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A maximum wage, as the name suggests, is an enforced limit to how much income an individual can earn. It is a related concept that is opposite to the minimum wage, which is imposed by some governments presently. Both the minimum wage and the maximum wage are measures by which wealth may be redistributed within society.
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Implementation
The minimum wage concept, it is believed, can help limit the possibility of deflation of a currency or overall economy. Similarly, it is believed that a maximum wage could limit the possibility of inflation of a currency or economy. This is achieved by the creation of a relative economic bar; meaning that any given economy, relative to its working populace, cannot inflate past the point of the relative maximum wage or deflate past the point of the relative minimum wage. Therefore, the economy effectively hovers between points of inflation and deflation. It is argued that the working populace in an economy that has both a minimum and maximum wage is, therefore, bound to live in the middle of the two economic wage points. This, supporters argue, is advantageous due to the fact that most historians agree that strong economies are supported by a strong middle class.Template:Citation needed
The maximum wage concept can be implemented in several different ways: through a direct limit on earnings; indirectly by scaled taxation whereby the top earners in a society are taxed extremely high percentages of their income; or through relative company wages, in which the salary for the top earner in a company is restricted to being no more than a specific multiple of the salary received by that company's lowest earner. When implemented, a maximum wage, theoretically, would be able to help a government in redistribution of wealth to the lower classes. While many provide this as the main reason in support of implementing a maximum wage, there are several benefits supplied to the upper class as well. It is theorized that a maximum wage, if effective, could also reduce devaluation in currency. This effect would be achieved because, by limiting the amount any given member of the general populace can make, a maximum wage would also effectively limit the availability of currency.
A related concept is that of maximum total earnings. This suggests that when a person has accumulated sufficient wealth that they can effectively survive on the interest such wealth can earn, they must stop working and let someone else work. This concept is purely theoretical and no working example is known to exist.
Criticism of maximum wages
Critics of maximum wages, like Milton Friedman, argue that they reduce incentives toward innovation and reduce incentives for the highly skilled to pursue difficult jobs. They argue for example, that reducing the possible earning of medical doctors reduces the incentive to become a doctor. Potentially highly skilled doctors find that they can make the same earnings (now under a maximum wage) at a more simple and less stressful job. This, however, assumes that the maximum wage is at a universal level for all jobs. If instead the maximum wage was variated per profession (e.g. doctors max=£100,000 Lawyers max=£80,000) then the concept can still work within a market economy. Those now attracted to the medical profession can be said to be less skilled than otherwise could be under a non restricted wage system.
Friedman and many microeconomists point out that wages are a reflection of the laborers' time and skill, as well as an incentive to work. Without this incentive, they argue that people will not work in difficult or high skilled employment such as being doctors, lawyers, entertainers.
Furthermore, Friedman and other micro economists argue that inflation is not caused by wages but by the printing of money by governments. In addition, they point out that currency is a commodity, like butter or cars, whose value is subjected to supply and demand.
Finally, these microeconomists state that given the diverse preferences of the multitude of individuals within any given society it is impossible to determine by a central authority what is sufficient wealth. They believe that having no restrictions upon wealth provides a great incentive to build wealth rather than remain impoverished.
History
This system has been imposed by some social democratic governments such as that in power in Sweden in the 1960s. Some campaigners in Sweden later had a "tax rebellion" and demanded the government reduce the top marginal taxes.
In his 2000 run for the Green Party presidential nomination, Jello Biafra advocated implementation of a maximum wage in the United States. As president, Biafra would have used the maximum wage to increase taxes for the wealthy and eliminate taxes for those in the lower and middle class. However, Ralph Nader won the party's nomination instead, and did not win the election.
In Elizabethan England, statutes laid down the principle of compulsory labor and fixed maximum wage scales, for example "The Statute of Artificers of 1563" authorized justices of the peace to fix wages according "to the plenty or scarcity of the time." In addition, the American colonies in the 1600's put a ceiling on wages and a floor on hours of employment. This was done to counteract the scarcity of labor and the increase in prevailing wages. <ref>U.S. Department of Labor history on wage laws in England and the American Colonies</ref>
See also
- Gini coefficient
- Socialism
- Capitalism
- Welfare economics
- Income inequality metrics
- Social welfare
- Economics
- Minimum wage