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I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequa

by hliyan 9y ago

I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequality. Rather than setting absolute tax brackets, what if we define tax brackets by this ratio? That way, it will be in the interest of the highest income earners to raise the median income.

skybrian 9y ago
It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies? The data would be a bit more useful if they reported the job title of the median worker.
- hliyan 9y ago
  I was thinking more about this applying to all adult citizens of a country and not any particular corporation...
- Lionsion 9y ago
  > It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies? Easy gaming like that is easy to anticipate and account for. You just have to define "workers for the company" in a way that includes contractors and controlled entities, etc.
cpeterso 9y ago
Ben & Jerry's originally capped the pay ratio of their highest salaried executive and lowest-earning-worker to 5:1 ($150,000/year and $12/hour in 1995), but over the years they raised the ratio to 7:1, 17:1, and then stopped sharing a ratio after Unilever acquired them in 2000. http://abcnews.go.com/Business/companies-follow-ben-jerrys-lead-wages/story?id=19920634 http://abcnews.go.com/Business/companies-follow-ben-jerrys-l...
- ra1n85 9y ago
  Fascinating. A hard ratio seems fair minded, but seemed to have failed here because I think there was a misunderstanding around compensation. Compensation is a product of many variables including value created for the company and supply/demand for skillset/talent. As a business climbs the value chain or seeks to hire and compensate those that create greater amounts of value, and it maintains a compensation ratio, it must seek to increase the value produced by the lowest earners (or lose business to competition).
baby 9y ago
Never heard of that but it sounds like a good idea intuitively! I’ve always thought median was meaningless, and an average without the standard deviation was as well.
saiya-jin 9y ago
Probably closest you can come to this in real world is Switzerland (maybe some nordic countries too). Very strong middle class (although there is no minimum wage codified in law), salaries disparities ie in IT vs normal people is much much smaller (meaning even a guy filling shelves in supermarket gets decent wage, if you get 3x his wage you are probably in top 1% earners). There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it). It has far-reaching consequences where whole population has high standards of living which transpills into high overall happiness, low criminality, and there is no predatory mentality to screw other people over just for one's own benefit (that I can see massively in eastern europe where I come from, and many other developing countries all around the world). Really, Suisse could be model in many things for rest of the world, if only their mentality would be more 'transferable'.
- icebraining 9y ago
  There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it). There was a referendum to implement that cap (and at only 12x!) but it was rejected by voters.
- adventured 9y ago
  > if only their mentality would be more 'transferable' There's a reason why there is only one Scandinavia and it's so tiny population wise. It's strictly cultural, ingrained over hundreds or thousands of years, and can't be replicated across a massive population base. That it's cultural is also the reason why Scandinavians have historically done even better in the US than they do in Scandinavia (a system with superior economic potential, combined with a culture that produces superior outcomes). The closest a large nation has gotten to what Scandinavia accomplished, is probably Japan. However Japan has never sustained a standard of living at the median anywhere near what Denmark or Sweden reached (the Japanese are also over-worked to accomplish their lower economic output, which is a bit of a cheat if you're contrasting it with the economic output of Scandinavia). When it comes to Switzerland, you can't replicate what they've done because there isn't enough banking to go around. That isn't a dig on Switzerland, it's the same reason most countries could never replicate Norway (oil). Switzerland has a dozen banks that together are worth around $200-$250 billion, with just a population of eight million people. That'd be like if the top dozen banks in the US were worth $8 trillion. The total Swiss banking system has something like $7 to $10 trillion in assets under management; which would be like the US banking system having ~$350 trillion under management, a laughable sum.
dx034 9y ago
That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent.
- fergie 9y ago
  In most jurisdictions a limit a limited company has to have a board and a CEO. You can outsource middle management- this is what McKinsey, Bain, BSG etc essentially do, but you can't legally outsource the guys at the very top.
  - icebraining 9y ago
    So what? They would just be the department heads of the previously monolith company (e.g. instead of having a sales department with a VP of sales and a few top managers, you just have a Sales Company subsidiary with a CEO and a few board members).
  - dx034 9y ago
    You already have that at large companies, the CEO is also head of a lot of subsidiaries. You can then compensate at that company as it best fits and channel the main compensation through another company.
- Lionsion 9y ago
  > That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent. You could probably define company, for the purposes of such a law, that excluded those kinds of structural shenanigans. Basically, define it in terms of its qualities rather than in terms of legal instruments. I'd also guess that the IRS has already authored those definitions, or it at least a good distance of the way there.
nordsieck 9y ago
1. The current explosion in employee perks (free medical, gym, lunch, etc.) is almost certainly driven my the tax system. Your suggestion would take it to the next level (along the lines of college athletes). 2. People can move. Labor is more geographically sticky than capital, but it is not infinitely so. I doubt you'd ever succeed in getting Singapore to stop being the capitalist's paradise through foreign policy.
aje403 9y ago
It’s (basically) called utilitarianism I’m sure I’ll get downvoted for saying this, but lazy people will take advantage of the system and it will fall apart
fwdpropaganda 9y ago
> I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequality. That metric is very sensitive to outliers. If you have even one individual with enormous income, that ratio will be enormous. Now you might say "that's precisely the point", but I would argue that having how we design a society hinge on what one individual earns, is not statistically sound. A more appropriate metric along the same line of thought would be something like top 10-percent excluding outliers divided by median income, where "excluding outliers" could be calculated in an admitedly somewhat arbitrary, but common way like e.g. https://en.wikipedia.org/wiki/Interquartile_range#Outliers https://en.wikipedia.org/wiki/Interquartile_range#Outliers. Or just use something that already exists instead of re-inventing the wheel https://en.wikipedia.org/wiki/Gini_index https://en.wikipedia.org/wiki/Gini_index

by hliyan 9y ago

skybrian 9y ago

It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies? The data would be a bit more useful if they reported the job title of the median worker.

hliyan 9y ago
I was thinking more about this applying to all adult citizens of a country and not any particular corporation...
Lionsion 9y ago
> It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies? Easy gaming like that is easy to anticipate and account for. You just have to define "workers for the company" in a way that includes contractors and controlled entities, etc.

cpeterso 9y ago

Ben & Jerry's originally capped the pay ratio of their highest salaried executive and lowest-earning-worker to 5:1 ($150,000/year and $12/hour in 1995), but over the years they raised the ratio to 7:1, 17:1, and then stopped sharing a ratio after Unilever acquired them in 2000. http://abcnews.go.com/Business/companies-follow-ben-jerrys-lead-wages/story?id=19920634 http://abcnews.go.com/Business/companies-follow-ben-jerrys-l...

ra1n85 9y ago
Fascinating. A hard ratio seems fair minded, but seemed to have failed here because I think there was a misunderstanding around compensation. Compensation is a product of many variables including value created for the company and supply/demand for skillset/talent. As a business climbs the value chain or seeks to hire and compensate those that create greater amounts of value, and it maintains a compensation ratio, it must seek to increase the value produced by the lowest earners (or lose business to competition).

baby 9y ago

Never heard of that but it sounds like a good idea intuitively! I’ve always thought median was meaningless, and an average without the standard deviation was as well.

saiya-jin 9y ago

Probably closest you can come to this in real world is Switzerland (maybe some nordic countries too). Very strong middle class (although there is no minimum wage codified in law), salaries disparities ie in IT vs normal people is much much smaller (meaning even a guy filling shelves in supermarket gets decent wage, if you get 3x his wage you are probably in top 1% earners). There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it). It has far-reaching consequences where whole population has high standards of living which transpills into high overall happiness, low criminality, and there is no predatory mentality to screw other people over just for one's own benefit (that I can see massively in eastern europe where I come from, and many other developing countries all around the world). Really, Suisse could be model in many things for rest of the world, if only their mentality would be more 'transferable'.

icebraining 9y ago
There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it). There was a referendum to implement that cap (and at only 12x!) but it was rejected by voters.
adventured 9y ago
> if only their mentality would be more 'transferable' There's a reason why there is only one Scandinavia and it's so tiny population wise. It's strictly cultural, ingrained over hundreds or thousands of years, and can't be replicated across a massive population base. That it's cultural is also the reason why Scandinavians have historically done even better in the US than they do in Scandinavia (a system with superior economic potential, combined with a culture that produces superior outcomes). The closest a large nation has gotten to what Scandinavia accomplished, is probably Japan. However Japan has never sustained a standard of living at the median anywhere near what Denmark or Sweden reached (the Japanese are also over-worked to accomplish their lower economic output, which is a bit of a cheat if you're contrasting it with the economic output of Scandinavia). When it comes to Switzerland, you can't replicate what they've done because there isn't enough banking to go around. That isn't a dig on Switzerland, it's the same reason most countries could never replicate Norway (oil). Switzerland has a dozen banks that together are worth around $200-$250 billion, with just a population of eight million people. That'd be like if the top dozen banks in the US were worth $8 trillion. The total Swiss banking system has something like $7 to $10 trillion in assets under management; which would be like the US banking system having ~$350 trillion under management, a laughable sum.

dx034 9y ago

That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent.

fergie 9y ago
In most jurisdictions a limit a limited company has to have a board and a CEO. You can outsource middle management- this is what McKinsey, Bain, BSG etc essentially do, but you can't legally outsource the guys at the very top.
- icebraining 9y ago
  So what? They would just be the department heads of the previously monolith company (e.g. instead of having a sales department with a VP of sales and a few top managers, you just have a Sales Company subsidiary with a CEO and a few board members).
- dx034 9y ago
  You already have that at large companies, the CEO is also head of a lot of subsidiaries. You can then compensate at that company as it best fits and channel the main compensation through another company.
Lionsion 9y ago
> That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent. You could probably define company, for the purposes of such a law, that excluded those kinds of structural shenanigans. Basically, define it in terms of its qualities rather than in terms of legal instruments. I'd also guess that the IRS has already authored those definitions, or it at least a good distance of the way there.

nordsieck 9y ago

1. The current explosion in employee perks (free medical, gym, lunch, etc.) is almost certainly driven my the tax system. Your suggestion would take it to the next level (along the lines of college athletes). 2. People can move. Labor is more geographically sticky than capital, but it is not infinitely so. I doubt you'd ever succeed in getting Singapore to stop being the capitalist's paradise through foreign policy.

aje403 9y ago

It’s (basically) called utilitarianism I’m sure I’ll get downvoted for saying this, but lazy people will take advantage of the system and it will fall apart

fwdpropaganda 9y ago

> I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequality. That metric is very sensitive to outliers. If you have even one individual with enormous income, that ratio will be enormous. Now you might say "that's precisely the point", but I would argue that having how we design a society hinge on what one individual earns, is not statistically sound. A more appropriate metric along the same line of thought would be something like top 10-percent excluding outliers divided by median income, where "excluding outliers" could be calculated in an admitedly somewhat arbitrary, but common way like e.g. https://en.wikipedia.org/wiki/Interquartile_range#Outliers https://en.wikipedia.org/wiki/Interquartile_range#Outliers. Or just use something that already exists instead of re-inventing the wheel https://en.wikipedia.org/wiki/Gini_index https://en.wikipedia.org/wiki/Gini_index