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Comment by sgslo | Hacker News Reader

It seems as though there are two competing issues tied to pay inequality:

1) Increasing inequality of social power between the mega rich and the common person

2) A feeling of unfairness as business leaders take home the lions share of profits

#1 is a true issue, but, let's be honest here, the average CEO's level pay isn't contributing to increasing inequality. That McDonald's CEO had a yearly take home pay of 21.7m. That's unbelievable peanuts compared to the wealth of the mega-rich. It is the multi-billionaires flexing their political muscles and exerting influence that leads to the nasty consequences of pay inequality.

As to #2, I understand the unfairness, but fail to understand the social consequences of it. In other words - what harm to society is being done by a manager getting paid more than a line employee? You mentioned offshoring jobs, but that is a separate issue, not tied to pay inequality.

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" A feeling of unfairness as business leaders take home the lions share of profits"

The social consequences of unfairness are huge. Once people feel they work in an unfair society they become cynical and lose motivation. I would argue a sense of fairness is the number one ingredient for a successful society.

Not just a social consequence, it affects the business too but it's hard to measure, because you'd need the productivity numbers from an alternate reality. It's similar to problems caused around having less testing. There's nothing to compare to.

The problem with wealth inequality is that it's the same distorting forces of a monopoly. A small cadre use their wealth an influence to shape politics to serve their interests. Markets chase after small lucrative pools of customers. (For example, luxury condos get built, but affordable housing does not.) Education gets warped as the wealthy concentrate in small neighborhoods and thus improving those schools, while the rest fall farther and farther behind. The macroeconomy becomes more unstable as it's driven by the fads whims of the few. This instability and political disenfranchisement then leads to political instabilities and eventually sudden political upheavals where entire political, social, and economic systems are overthrown for sake of reform, but at the same time just leads to more extreme instability.

Until ironically, the wealthy simply leave (because who wants to stay in an a dangerous unstable place, when you can afford to leave), and let place that they set on fire burn to the ground, click their tongues and say, "Who knew this would happen?"

To think of it another way, no one puts all bets on a single investment. You diversify. That's what spreading the wealth does. It diversifies opportunity.

"he wealthy simply leave (because they can afford to), and let place that they set on fire burn to the ground,"

There was a movie while ago where the rich people lived in space in beautiful habitats, had technology that could heal anybody while the rest had to labor on Earth under terrible conditions. Don't remember the name but maybe the move isn't that fictitious.

https://en.m.wikipedia.org/wiki/Elysium_(film)

Elysium is the film.

Great movie. I liked the way the regular citizens (the non leadership) of Elysium were portrayed as largely oblivious or lacking in any care to the sufferings on Earth.

That's probably how I as middle class would look from the view of a poor person in the third world :-).

Doesn't have to be in space. A visceral visual version of it is easy to see in Brazil

https://globalperipheries.wordpress.com/2011/06/30/the-favel...

But a version of this is present in America too. With areas without drinkable water, and areas w/o even a working sanitation system.

https://www.newsweek.com/2015/12/25/mars-colonies-rich-peopl...

Honestly, I think that's Elon's long game. The ultimate gated community.

Of course, he could just copy Petey Thiel and the rest of wretch and move to New Zealand.

https://www.theguardian.com/technology/2017/jan/29/silicon-v...

>(For example, luxury condos get built, but affordable housing does not.)

One think to think about, in a lot of areas where only luxury condos are being built, there tend to be pretty limited numbers of condos being built. If you are a developer and you know you will only be allowed to build 50 units, you are going to build the most expensive units you can so you can maximize your gross profit even if the marginal profit rate isn't as good. If you were allowed to build 1000 units, you might choose to build affordable housing that has a better marginal profit since the larger number of units allows you to have a higher gross profit.

True, but who is setting the 50 unit limit? It's the people that already live there and don't want the riff-raff moving in and driving down their property values.

At the same time, if you own an lot full of RVs and mobile mobile homes in a rich suburb, you might end up running the numbers and deciding to throw all those people out, and put up some luxury condos, because you can make a lot more money per square foot.

> what harm to society is being done by a manager getting paid more than a line employee?

Since you're being downvoted without any responses, I'll try to add my take. To me, it's not that a manager is getting paid more. It's that he's getting paid 312x more when the average worker in America struggling to afford healthcare, an education for their kids, and probably has to take in two salaries just to make ends meet. That's when income inequality is a problem -- when it's so unequal that one side gets everything, and the other is left to a battle royale.

Then it appears the issue is stagnant wages, not inequality in pay. Let's say that all pay of big bosses gets capped at 200k across the nation tomorrow. Does that solve any issues with healthcare, education, etc? It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers. I don't think cutting pay of one party is going to magically increase pay of another party.

I think it's representative of a disregard for the workers, rather than the absolute value amount

Nobody is suggesting there's anything magical here.

We're seeing increasing profits, increasing wages for high level management, and static wages for most employees.

The second isn't an intrinsic issue itself, but we don't have just the second, we have all three, and _that_ is the problem. If profits and wages were both stagnant, then we would be having a different problem, but that isn't the world we live in. We live in the world where profits are going up, and all of it is going to people other than the workers.

This implies a significant arbitrage opportunity for competitors. If workers really are producing the lion-share of the value, then smaller competitors should be able to gain market share by taking the best workers, paying them slightly more than the incumbent companies, and still reap significant profits.

"It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers."

Yeah, it does. Money given to bosses and shareholders is money not available to pay workers.

As an example, McDonald's has a net income of of $4.686 billion. The CEO gets paid 21.7 million of that, or 0.4%. That's net income, not revenue, which was $24.6 billion. Let's be honest, the money is there to pay workers more money, and the CEO's pay does not redirect any meaningful amount of that available cash away from employees.

To be clear, my issue is not that workers shouldn't be paid more, it is that justification for higher worker pay shouldn't be "my boss gets paid more than me."

I think it absolutely should be. They're benefitting from the company doing better (in fact, in many cases, they're benefitting despite the company doing shitty), why should the actual workers doing the actual work not benefit as well?

The cause of the issue of stagnant wages is inequality in pay.

"We took all the increased profits, so there's none left for you."

> It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers.

This assumption comes from evidence in our not-so-distant past. In the 1940s-60s, income was taxed at a much higher rate in the higher brackets (50-80%+ depending on the time); this served a similar function of the executive pay cap in your hypothetical. After the highest earners in a company reached the top brackets, it didn't make much sense for the company to further increase their pay (much of it would be lost to taxes so the ROI wasn't great).

So now you have all this leftover profit that, in 2018, would have went to CEO pay or bonuses. What is there to do with it? Invest in the company of course: give the best performing line-level employees raises, start internal training programs, kickstart moonshot R&D ideas, and so on.

(Unions also helped in ensuring that the rank and file got pay increases commensurate with management's raises)

Don't get me wrong, the highest earners were still very wealthy (and had plenty of yachts/summer homes/other symbols we associate with the 0.1%) and it was common to give them raises every year, but the higher marginal rates really did help in "forcing" profits downward.

Actually, Executive pay is one of the primary drivers of income inequality growth. This is further driven by the shift from cash compensation for executives to cash and stock.

I'm old enough to recall the business/philosophical discussions about CEO compensation to favor stock so that the long term interests of the CEO were aligned with the long term interests of the company. When I see profits of the company being piled into buybacks, I think that whole movement failed.

Companies should be returning dividends to owners. Buybacks are a workaround for bizarre tax laws that favor speculation (profit from dumping) over investment (profit from holding).

Companies were also supposed to be efficient engines of production which also returned value to society through some element of reducing costs to customers too. Informally, it was supposed to result in a whole-society win-win. That is also failing.

Edit: I should be a bit more specific. I think in some stages of development, it has and still is succeeding very well (developing nations). In other areas like developed nations, there is a regression to inequality that is occurring that is figuratively and literally headed to destabilizing the world.

I think the problem with that is, in the US at least, once a company starts issuing a dividend, it is expected to keep issuing that dividend, no matter what. And not only to keep issuing the dividend, but to increase it over time, too. Companies are expected to cut almost anything else, even taking on debt or laying off workers, before thinking of cutting the dividend.

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