Friday, January 08, 2010

A double standard on pay

Writing in the Guardian, Richard Alcock points to a double standard in how the right thinks about pay. Rich people, they think, work harder in response to pay rises and tax cuts. But exactly the opposite applies to the poor - we should be paid less, in order to keep us working at all:

Here's the Nerdonomics answer: if your hourly wages are raised from £5 to £6, say neoclassical economists, you face two effects: the substitution effect and the income effect.

In the first case, a good angel on your shoulder, steeped in Phillips's work ethic, says: "You're being paid more per hour, so it's worth doing an extra couple of hours' work since that work will be better rewarded than under your old contract." That's the substitution effect based on the idea that the opportunity cost of leisure has increased by a pound per hour: you're losing £6 by not working, instead of £5, so you substitute into work.

But the little devil on your other shoulder says: "Yes, maybe, but you've always been happy enough with your old wage. Why not ease off the accelerator, cut your hours back to give yourself the same wage but with less work?" That's the income effect. You gain leisure and lose no money. You're feckless and idle and probably spend the extra couple of hours a week down the pub.

For those who believe that big salaries should just get bigger, the implication is that top people are driven largely by the first effect. The more money you give them, the more they want to work.

In contrast, the working classes have only little devils driving them. So dissolute and lazy are they that if you give them more money, they simply want to take more time off and go and spend it. Keep the wages low and they might keep working.

And when you put it like that, the root of this double standard becomes apparent: its just the old economic prejudice which casts a virtuous rich against a lazy poor, propaganda by the wealthy to justify why they have so much while others have nothing. But as Alcock points out, what's good for the goose is good for the gander - if the rich are so bloody virtuous and have such a great work ethic, then they too will work harder in response to pay cuts. I think its time we held the rich to their own logic, and raised taxes on them (this will have the bonus of making them pay for the recession they caused). And if they don't like it, then maybe they'll understand how the rest of us feel.