Last year the IMF released a paper called “Causes and Consequences of Income Inequality: A Global Perspective.”
“We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth – that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.”
Peter Martin recently wrote an article showing “The top 1 per cent of Australian earners amassed an extraordinary 9 per cent of Australian income in 2013, the highest proportion since the 1950s. The top 0.1 per cent – a mere 18,750 people – took in 2.7 per cent, also the highest take since the 1950s.”
Melbourne Institute professorial research fellow Roger Wilkins said “Look at the people in the BRW Rich 200 list. A fair proportion of them are in property and mining. These are not entrepreneurial areas. These are areas where what matters most is the ability to deal with government and get monopoly rights over mining and property developments.”
“To the extent that the growing income of high earners is driven by developments like that, things like the College of Surgeons controlling entry into their profession so it can charge high prices, to the extent it is driven by that, and to some extent it is, it is unambiguously bad. It’s not fuelling broader economic growth or income growth.”
In Israel, they just passed a new law that sets an upper limit for the top financial sector executive’s gross salary at 35 times the gross income of the lowest-paid worker in the institution, or 44 times the lowest-paid net. With minimum wage currently at NIS 4,650 ($1,215) per month gross, the new law effectively limits executive pay to NIS 1.95 million, or some $510,000, per year before taxes. Any pay above that figure is no longer counted as a tax-deductible corporate expense, and will thus be double-taxed through both corporate and employee income taxes.
Describing the growing wage gap as an “ethical and moral failure,” the finance minister insisted that its “economic, ethical and moral ramifications are felt across the width and breadth of the Israeli economy.”
Pegging the upper tax-deductible limit of executives’ salaries to a multiple of the lowest-paid employee’s monthly wage – all Israeli banks employ subcontracted workers who make minimum wage – would create a direct incentive to increase the pay at the bottom of the corporate ladder.
As this law only applies to financial sector executives, some have described it as discriminatory.
“What will happen here, without a doubt, is that good people who work in the banks and in the insurance companies will move to other sectors. We don’t work in a vacuum.”
Some opposition lawmakers agreed with the complaint about discrimination, and are seeking to expand the rule to other industries.
Sounds like a good idea to me.
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