Link between minimum and maximum wages
From: Bruijn, Han de
Sent: woensdag 25 februari 2009 13:57
To: 'rbatra@smu.edu'
Subject: Link between minimum and maximum wages
Dear Dr. Batra,
Let me first introduce myself quickly. My name is Han de Bruijn. I'm working
at the Delft University of Technology, mainly making reports from databases.
I'm a theoretical physicist by education, but I have become an administrator
by sheer career.
The following is from your book "The Great Depression of 1990", page 213:
> [ .. ] there should be a link between the minimum wage and the maximum wage.
> Specificially, the maximum salary in any industry should be no more than TEN
> TIMES the minimum wage.
Before giving my own arguments, let's quote from a few other sources. Forgive
me if these seem sometimes rather far fetched and believe me: I'm not joking.
In the sequel, it is supposed that you have access to the Internet. (You have
a homepage, so I suppose it should be no problem). This homepage is mine:
Quoting from the book by Jan Marijnissen, "Tegenstemmen", ISBN 90 254 0860 5:,
page 199: "dat het hoogste salaris idealiter niet meer zou moeten bedragen dan,
bijvoorbeeld, drie keer het laagste inkomen". Translated: "the highest salary,
ideally, should be no more than, for example, THREE TIMES the lowest income".
Jan Marijnissen has been the leader of the Socialist Party in the Netherlands
for quite some time and I've been a member of the SP myself:
A famous Dutch economist is the Nobel prize winner Jan Tinbergen:
Quote: Tinbergen became known for his 'Tinbergen Norm', which states that if
the difference between the lowest and highest income in a company exceeds a rate
of 1:5, that will not help the company and may indeed be counterproductive.
Quoted from the Bible
Matthew 25:14-30:
Again, it will be like a man going on a journey, who called his servants and
entrusted his property to them. To one he gave five talents of money, to
another two talents, and to another one talent, each according to his ability.
A detail in the parable which isn't emphasized much is the fact that the most
talented person is only FIVE TIMES more talented than the least talented person.
It is the same ratio as proposed by Jan Tinbergen.
Quoting from an even more weird reference, which is the book by Stefan Denaerde,
"Operation Survival Earth" Science Fiction ("Buitenaardse Beschaving" in Dutch)
Chapter 3:
All right, I understand the relationship between the trusts and the public, but,
now, how much does such a president earn as compared to the lowest paid worker?
The question is not easily answered. The goal of the universal economic system
is naturally the leveling of income, but that is not possible in the early stages
of social stability. A material reward must be offered to stimulate a greater
personal effort. A similar reward must also be offered to stimulate young people
to complete the long studies necessary to reach high technological development,
or to induce people to work harder or to accept more responsibility. You must
begin by determining a social minimum that everyone always receives and you must
attempt to establish security for everyone, young and old. Women also have a right
to their own income; the social minimum must be free of any discrimination.
You must also determine that the maximum and the combined income for a man and wife
can never exceed FOUR TIMES the determined minimum.
Summarizing.
- Your book : 10 times
- Marijnissen: 3 times
- Tinbergen : 5 times
- Bible : 5 times
- Utopic book: 4 times
So far so good. I'm fascinated by this problem. The fundamental question is, though:
instead of these "wild guesses", does there exist an OBJECTIVE measure for the link
between minimum and maximum wages ? This is the topic of a thread in the newsgroup
named 'sci.econ', namely
Bonuses and compensation reform
I'll give a (somewhat biased) summary of the debate so far. This is how I jumped in:
I've seen many such proposals for a "decent upper limit". For example in
the book by Ravi Batra "The Great Depression of 1990" an upper limit of
10 (ten) times the lowest income is proposed. But what we really need is
something better than a wild guess, which could be 10 or 16 but why not,
say, a factor 100 or more. Upper limits should be linked to what people
really can and can not _do_, in a productive sense. Productivity should
be _measured_ in the first place. And objective standards for comparison
of productivity should be developed. Only after this "proper rewarding"
can be defined: a _scientific_ foundation for Justice.
Let me show that such measurements of "productivity" are not impossible.
When considering e.g. sports, you can compare your own achievements with
those of a champion. And it turns out to be quite interesting to do so !
It is seen that my own speed, when walking from train station to office,
is 5 km / hour, while the speed of a champion running the same distance
is 27 km / hour. Giving an upper to lower limit ratio of 5 or 6.
It is seen that my own speed, when swimming a distance of 1000 meters,
is 1,2 km / hour (Han de Bruijn). A world record, established by Inge
de Bruijn (not a relative !) at the same distance, is 6,7 km / hour.
Thus giving again an upper to lower limit ratio of 5 or 6.
It is seen that my own speed, when driving my bike over a distance of
60 kilometers, is 10 km / hour. Champions do it 4 or 5 times better, but
not more.
Can we conclude that your "decent upper limit" should not be a factor 16
but rather a factor 5 or 6 ?
Follow up:
I'm not talking _at all_ about "forces of the free market". I'm making
up a - somewhat artificial - comparison with sports, a laboratory case
so to speak. In order to establish what "justice" would be look like,
eventually.
Follow up:
Yet in physics we have laboratories. The purpose of a laboratory is to
isolate a phenomenon from its "real" surroundings and study it as on
itself. For example you can study what gravitation is like, by dropping
a feather in an vacuum tube, and dropping a piece of lead, and conclude
that both have the same acceleration of gravity, which is 9.81 m/s^2 .
The "realistic" approach would be that the feather, due to the presence
of air, is falling with an uniform speed. (And so does the lead, in the
long run) We both know that the latter "knowledge", though "realistic",
is in fact Aristotelian, out-dated, useless.
You cannot compare the activities of an accountant with the activities
of an electrician. But what you CAN do is isolate them from their daily
work and guide them to a place where they CAN compare their activities.
A place is kind of neutral with respect to an evil and unjust economy.
It's called amateur sports. It is here that accountant and electrician
wear the same suit and do the same thing. It is in THIS laboratory that
people can compare what they are worth with the SAME measure. My claim
is that results in the sports laboratory are nevertheless relevant for
the REAL economy.
Follow up:
> And there is nothing like that in economics.
Of course there is. Human activities are human activities, in economics
or in amateur sports, they are just human activities. What I'm trying to
do is consider them in _isolation_. That's what a laboratory is for.
> Or the activitys of the cleaner and the CEO, so
> you cant come up with a ratio for their wages.
True. Therefore I send them both to the sports field and let them both
do things that _can_ be compared.
> But its completely irrelevant to the ratio of their
> wages how they perform at say 100 yards sprint.
The 100 yards sprint is only an indication of how people perform with
respect to each other if they are allowed to do the same thing. Problem
with economic "reality" is that the cleaner is simply not allowed to to
the work of a CEO. For whatever "good" reasons.
> And what do you do when the cleaner does twice as well in the 100 yard
> sprint as the CEO, but the CEO leaves the cleaner for dead in a marathon ?
My theory is about averages, not about incidents. On the average, a good
marathon runner should be satisfied if he ends in double the time of the
champion. But time ratios between skilled people never exceed more than
a factor 5 or 6 (even closer: 2 or 3, given sufficient training). A most
effective way to enlarge the ratio, admittedly, is to deprive people of
a decent education (which is called training in sports).
> And that is where you are just plain wrong. Just because the accountant
> does better that 100 yard sprint than the electrician does, says sweet
> fuck all about how well each of them does their respective jobs.
Give the accountant an education in electricity, give the electrician an
education in accountancy, let them switch their jobs and take a look at
their respective performances. Bet that they both will perform twice as
worse, sure, but not much worse.
Rest snipped. It's difficult not to take notice of the rudeness of some of
my fellow debaters. Follow up:
There are three important issues in any economy:
1. Freedom 2. Justice 3. Efficiency
Let's start in the middle, perhaps most difficult part: 2. Justice.
So the level of abstraction employed here is "justice only". Consider
an isolated case (called "laboratory") where this can be observed, for
example sports. The following are some building blocks of our theory.
1. All humans in the sports laboratory do the SAME thing (for example
running or swimming or driving a bike)
2. Activities are considered ONLY if they can be quantified. Quantities
involved will be considered as an objective measure for productivity
(in the sports laboratory. Speed is an example of such a quantity.)
3. It is assumed that activities which can not easily be quantified in
the above manner nevertheless obey the same laws (resulting in e.g.
5 / 6 as the universal ratio between upper limit and lower limit of
the quantification of an arbitrary human activity)
4. It is assumed that _just_ rewarding is directly proportional to the
quantity which is representative for the human activity considered.
5. It is thus concluded, from a sufficient number of laboratory cases,
that just rewarding should not differ by more than a factor 5 or 6
between the highest and the lowest wage.
Follow up:
> Pure fantasy. You dont even get the same ratio between a competant
> amateur and the world record across a variety of amateur sports.
The ratio between a competent amateur and the world record holder is
typically a factor 2 . The lesson from this is that, given sufficient
training and / or education for _everyone_, the most competent one is
not even more than 2 or 3 times better than the average one. As soon
as the average level of competence is increasing among humans, wages
must be balanced accordingly. (Admittedly, we still have a long way
to go before arriving at this ..)
Follow up:
Okay. Now take another sport, like weight lifting for example. The only
requirement being that you must have something to _measure_ objectively.
In _this_ case - surprise, surprise - that something to measure will be
WEIGHT. Are you still with us ?
http://en.wikipedia.org/wiki/Weightlifting , especially:
http://en.wikipedia.org/wiki/Snatch_(weightlifting)
Now let a CEO, myself and a champion do some weight lifting. What will
be the _objective_ results then ?
The current record holder is Hossein Reza Zadeh of the Islamic
Republic of Iran who has snatched 213 kilograms
Divide this by a factor 6. Are you able, even without any training, to
"snatch" a weight of 35 kilograms ? Are you a man ? Think so, huh ..
Anyway, the bottom line is, whether you like it or not:
NO HUMAN BEING IS FIVE OR SIX TIMES BETTER THAN THE AVERAGE HUMAN BEING.
Period.
The true bottom line is, of course, that I'm very curious what _you_ think
about all this.
With kind regards,
Han de Bruijn