Maximum wages, Jeremy Corbyn, and more

JINOY JOSE P | Updated on January 12, 2018


Did Corbyn actually say the UK needed a maximum wage cap?

Well, to be fair, he did. The UK Labour party leader said Brexit would see the UK become a “grossly unequal, bargain basement economy” and a “maximum wages” cap could help reduce the alarming levels of income inequality torturing the country and its economy.

Capping earnings? What’s he smoking these days?

You’re not the only one asking this question. There has been a huge hue and cry against Corbyn’s statement that an official spokesperson clarified that he ‘misspoke’. But a debate is raging whether a cap on maximum wages can address inequality.

How bad is the situation?

To be frank, it’s pretty bad. Not just in the UK, across the globe as well. In the UK, things are “grotesquely unequal” as a commentator puts it. Five top families are together worth as much as the 12 million poorest Britons. And some think it’s an idea (a tough one at that) whose time has come because every other measure aimed at tackling income inequality has failed miserably.

But no country in the world has such a cap.

Well, no western country has it, to be precise. But Cuba has a maximum wage law in effect for years now. In that country, one can’t earn more than $20 a month. But there the state provides for almost everything, from education, transport, healthcare to food and shelter.

But those are the communists!

Well, I get your sarcasm; but frankly, reports suggest the system works just fine there. Cuba has one of the world’s most egalitarian societies where public infrastructure has made amazing progress.

But the west, or even the east, can’t toy with a communist ideal!

In all fairness, communists are not the ones who said it first. George Orwell wanted a ‘maximum wage’ in 1941, when Britain was fighting the Nazis. In 1942, Franklin D Roosevelt in the US said those who earned more than $25,000 should pay a 100-per cent tax.

But those times were different. The world was at war, and the Great Depression had wrecked economies.

Fair. But times are not that different today either. If you have been following economists such as Thomas Piketty or Paul Krugman, you’d know we have one foot in what they call a “New Gilded Age”. Even a cursory look at basic indicators such as the Gini Coefficient (a set of parameters measuring income disparity) shows the level of inequality has peaked and is back to where it was on the eve of the Great Depression.

Krugman says in 1910 the richest 1 per cent controlled 60 per cent of the wealth in France; in Britain, 70 per cent. Things are kinda back to those levels.

But a maximum wage law will curtail entrepreneurship and stall incentives for profit-making.

That’s a worry, and that’s one of the reasons why when Egypt passed a maximum wage law in 2014, the country saw a massive exodus of top brains in banking. A similar move was voted down in Switzerland. But what Corbyn meant was no Cuban model but a system that checks obscene accumulation of wealth.

It’s complex!

Yeah. If you take India, where income inequality is peaking, according to IMF estimates, policy should focus more on creating an ecosystem where income distribution improves. We have one of the highest levels of inequality in Asia, and have seen very large increases in inequality since 1990. The net Gini index of inequality for India rose from 45.18 in 1990 to 51.36 in 2013. Even the minimum wages law is not working properly, so the rich can be assured that a maximum earnings cap is a long way off.

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Published on January 11, 2017

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