Home > Economics, Politics > An interesting idea to combat wage inequality

An interesting idea to combat wage inequality

I recently came upon an article by Daniel Indiviglio published in The Atlantic that put forth an interesting idea for combatting wage inequality. It immediately caught my attention as it stands out from most ideas for improving wage equality. Generally, ideas put forth to limit these disparities involve taxation and redistribution, or government mandated minimum wages. Occasionally there are even calls for some form of oversight or controls on the highest wages, as was the case with Wall Street bonuses following the economic meltdown. What almost all the generally proposed solutions have in common is that they all require the government to infringe on individual’s rights to their property. While the vast majority of people, myself included, have no problem infringing on these rights to some extent, a solution that does not require increased taxation or limiting individual’s rights to accept certain wages would be preferred.

So what exactly is this proposed idea? In one word, information. More specifically, publicizing information on wages and benefits for all jobs, and even potentially for individuals. The basic logic behind this is that individuals require information in order to act. Because compensation tends to be kept quiet, it is difficulty to negotiate for better compensation or to know if changing careers might be a better option. By providing people with information equivalent to what their employers already know, they can see if their wage is too small relative to what others make, and then either negotiate for increased wages or find another job.

While little empirical research has been done into this, there are still many reasons to think that it might have some effect. The few job markets that do tend to have widely available compensation information have very high wages and a tendency for employers to go out of their way to ensure that their compensation remains competitive. These two job markets, Wall Street bankers and CEO’s, both have strong and continually improving wages.

It would be silly not to recognize that there is a large difference between the job markets for CEO’s and those for minimum wage level jobs, and it is highly unlikely that this information alone would dramatically reduce the discrepancy between these two groups, but better information would likely put some pressure on companies that hire workers around minimum wage to compete on wages as anyone looking for a job can see if McDonalds is paying a little more than Wendy’s. From my personal experience at entry level jobs, people tend not to look for new jobs until they find out what sort of wages they could make in similar jobs. If that information was widely available a company would have trouble keeping compensation below any other similar company.

While doing some research into this I discovered that Finland actually does something similar to this. Income tax information is made public for the majority of people. Finland also has relatively little inequality although this is simply one data point and does not strongly suggest causation.

Categories: Economics, Politics
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