THE PAY GAP - Are we all in this together?

The British People believe this

Work by the Institute of Public Policy and Research  (IPPR), has shown that nearly two thirds of Britons would support some form of action to reduce the gap between high and low earners. In the corporate and banking sector, large bonuses have been paid to a small number of individuals whilst the rest are left behind in terms of any pecuniary incentives that they receive. Good performance should be rewarded but bad performance should not -- perhaps work teams should be collectively rewarded for good performance -- this would cause far less antagonism and jealousy. The benefits of success should be more fairly distributed and should not be concentrated in the hands of the few. Unfortunately the position in the UK flies against this, between 1975 and 2008 the top 1% of UK earners increased their share of the UK wage bill from 5% to 8%.This rise in top pay has been concentrated in publicly listed companies.

Arguments are always made that pay levels are driven by market forces,but the market itself may be distorted, as in the UK favouring salaries in the financial sector over all other sectors. Can such a distorted  position continue into the future? Especially when the market seems to be out of sink with what the general public thinks. The IPPR  work quoted people saying that the chief executive of a large public company should not earn  more than 350 thousand pounds per annum when infact many of them are earning nearer one million pounds. Will Hutton has argued for a ratio of circa 26:1 in terms of the earnings of a chief executive vis a vis a regular shopfloor worker. With average earnings of around 25k per annum this would give an annual salary of 650k for the chief executive.

Earnings differentials between employees are important in that they should reflect differences in skill,knowledge, training,occupation and work output.In classical economic theory, labour would be paid in accordance with its marginal productivity. In the real world this is not always the case. One factor we need to remember is that labour markets are very different to commodity markets in that employment involves a continuing human relationship between the employer and the employee.

In terms of earnings of individuals, there must come a point where an extra increase in salary does not matter that much to the individual -- who would ever need more than one million pounds a year?