An article posted on IB Times is useful in understanding Inequality, Supply of Labur, Government intervention- Wealth distribution policy for A-Levels Economics students.
Here is the snapshot of the article:
Workers may have a say in what their bosses are paid under corporate reforms that Theresa May is pressing ahead with this week.
The prime minister will unveil a green paper on Tuesday (29 November) which also proposes forcing companies to reveal the difference in pay between their chief executives and average workers.
They are part of measures intended to increase the accountability of executives and improve corporate governance. Over the past 18 years, the average pay of chief executives of FTSE 100 companies has risen from £1m to £4.3m.
A report co-written by Andy Haldane, chief economist at the Bank of England, warned against an "unjustified level" of scrutiny of executive pay which, if published, could create "misleading comparisons and perverse incentives", The Times reported.
But in light of recent corporate scandals over executive pay and worker treatment at companies including BHS and Sports Direct , other City figures were broadly supportive of the proposals.
The head of corporate governance at the Institute of Directors, Oliver Parry, said pay ratio figures would have to be put into context, for instance, taking into account the size of the company.
Click here to read the full article
This is an example of Government intervention to increase transparency on workers' pay. The aim is to make businesses accountable for the pay gap. Often businesses justify holding back wage increase due to difficult economic conditions however if workers can see that their bosses are getting a pay rise and that too above inflation then they can fight for the rise through trade unions. This policy could also backfire for the Government where we see trade unions going on strikes and costing the businesses as well as the economy in lost productivity.
The Government's intentions are good here because it wants responsible businesses, they do not want to cap the wages for Executives but this policy gives them the leverage to certain control it since businesses will be open to scrutiny.
Empowering workers with information on the pay gap enables them to fight for a higher pay, which automatically takes care of the income inequality problem and ensures wealth is distributed more evenly.
We may see supply of labour being impacted whereby top executives may depart from the UK and head to the US where the laws are much relaxed. However the fear of losing talent should not restrict us from doing the right thing. Nordic countries have a much smaller CEO and workers wage gap and they appear to be operating just fine.
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