Is It Time to Introduce a Maximum Wage?

By Georgia Kelsey

Recent critical economic analysis continuously presents a barrage of literature surrounding the minutiae of a minimum wage. In the age of crippling austerity, a growing gap between rich and poor and a shameful rate of impoverished people, discussions about minimum wages are certainly not unfounded or unwelcome. The national minimum wage has become the mainstay of workers’ rights; contemplations of reconciling morality and business in order to find the bare minimum that a person should be paid for their time and labour. But perhaps the time has come to shift the focus. Maybe instead of focusing on the poorest in society, we should be readjusting our focus onto the richest. Perhaps what would be more conducive to securing a livable wage for all is capping the amount of wealth one individual can accrue.

A maximum wage is sometimes referred to as a ‘wage ceiling’, that is, the most that a person can earn in a given period of time. The idea of a maximum wage can actually be traced as far back as Ancient Greece. Notably, Aristotle posited that nobody in Greece should be earning more than five times of what the poorest Greeks were making. The idea was then revisited and implemented into English law through the passing of the Statute of Artificers in 1563. Now, in the 21st century, we see the idea arising again. During the peak of his Labour leadership, Jeremy Corbyn called for a cap to be implemented on the highest earners in order to address inequality. Indeed, it has also been a consideration internationally. 2012 saw Jean- Luc Mélenchon raise the idea of an income cap during his presidential election campaign in France, while 2014 saw President Abdel Fattah Al-Sissi of Egypt introduce a maximum wage of 35 times the minimum wage for any government employee. Meanwhile, the island nation of Cuba has long had active maximum wage laws to ensure salary equality between its citizens.

The cleavage between the super-rich and the rest of society is increasingly evident. In the UK, the poorest fifth of society earn only 8% of total disposable income, whereas the top fifth of society has 40% of the total. Similarly, the ONS have calculated that the richest 10% of households hold 44% of all wealth, by contrast, the poorest 50% own just 9%. This degree of inequality is inherent to the free market. While some earn yearly salaries into the millions or even billions, others struggle to afford basic needs making it clear that wage inequality is becoming more pronounced over time. This is exemplified by estimations from the Chartered Institute of Personnel and Development. They find that the average FTSE 100 chief executive is now paid approximately 126 times more than the average UK worker, compared with 58 times in 1999.

Such inequality has a troubling effect on society. Families from wealthy backgrounds experience an unearned privilege in each sector of life. In regard to education, children who have lived in persistent poverty during their first seven years have cognitive development scores on average 20 per cent below those of children who have never experienced poverty. Similarly, in 2015, 33 per cent of children receiving free school meals obtained five or more good GCSEs, compared with 61 per cent of other children. This then has a ripple effect; without ‘good’ qualifications it is more difficult to get a better paid job, leading to job insecurity and the continuance of the poverty cycle. In relation to health, those living in the most deprived 10% of areas will die nine years younger than those in the richest 10% of areas. Equally, children living in overcrowded or inadequate housing are more likely to contract meningitis, experience respiratory difficulties and suffer mental health problems like anxiety and depression. Wealth inequality also poses a number of social challenges. Children from low-income families often miss out on events that most of us would take for granted. They miss school trips, find it harder to socialise with friends, and rarely experience holidays away from home.

The coronavirus pandemic has further exacerbated this economic crisis. UK GDP has fallen, the unemployment rate has increased and government debt has reached its highest point in post-war history. This has meant that companies have had to reluctantly restructure, and entire industries are facing disruption. A maximum wage could be a catalyst to resolving such a problematic disparity and could prove to be a simple but effective solution following the coronavirus crisis. A maximum wage does not automatically conclude a redistribution of wealth. However, the redistribution of the salaries of top earners would subsidise wage increases for low-and-middle income earners. In a report from Autonomy, it was calculated that if a salary cap of £187,000 per year was introduced, the minimum wage could be increased to £10.50. In industries that have been particularly hard-hit by Covid measures, such as arts, entertainment and recreation, the report found that a wage of £11 per hour could be provided to every worker if 0.64% of earners (2,000 people), had their pay capped at £251,760.

Critics argue that a maximum wage would result in a shortfall of tax revenue, as the top 1% of earners account for more than a third of income taxes levied. However, this shortfall could be recuperated by reducing welfare spending as those working would be able to live on sustainable wages, even if they remained comparatively lower. There is also the consideration that the highest earners hoard their wealth and avoid tax by exploiting offshore banking loopholes. If wealth was more evenly distributed, the prospect of money being stored away could be reduced and we could instead see reinvestment back into the UK economy. A maximum wage is a legitimate option for producing a fairer economy and presents an innovative way to tackle increasing poverty, particularly in light of the Covid-19 pandemic. Let’s move beyond the myth that people on the highest salaries somehow work harder than those on lower incomes. Let’s move past the acceptance of wealth-hoarding whilst others are forced into poverty and towards a community that values all workers. Because after all, the essential workers that have kept us going during the pandemic are far from the highest earners. Naysayers may call it radical and extreme, but I quote Luke Hildyard, Director of the High Pay Centre, in response:

“Tolerating the vast gaps between those at the top and everybody else in this country is a far more extremist policy than putting a cap on annual earnings of £200,000 – enough to enable a lifestyle of absolute luxury compared to the vast majority of the population, and a perfectly sufficient reward for doing a difficult or demanding job.”

Westwater, Hannah. 2021. “UK poverty: the facts, figures and effects”. Big Issue. https://www.bigissue.com/latest/uk-poverty-the-facts-figures-and-effects/

“SHOULD THERE BE A MAXIMUM WAGE?”. The Rift. 2019. https://therift.eu/index.php/2019/05/27/should-there-be-a-maximum-wage/

Webber, Ashleigh. 2020. “‘Maximum wage ’would fund pay rise for low earners”.https://www.personneltoday.com/hr/maximum-wage-would-fund-pay-rise-for-low-earners-and- save-industries/

Busby, Mattha. 2020. ” Cap excessive pay to tackle UK jobs crisis and inequality, urges thinktank”. The Guardian. https://www.theguardian.com/inequality/2020/oct/08/cap-excessive- pay-to-tackle-uk-jobs-crisis-and-inequality-urges-thinktank

Kikuchi, Kikachi and Luke Hildyard and Rachel Kay and Will Stronge. 2020. ”Paying for Covid: capping excessive salaries to save industries”. https://autonomy.work/portfolio/payratios/

Child Poverty Action Group. 2021. https://cpag.org.uk/child-poverty/effects-poverty

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