> It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers. This assumption comes from evidence in our not-s

> It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers. This assumption comes from evidence in our not-so-distant past. In the 1940s-60s, income was taxed at a much higher rate in the higher brackets (50-80%+ depending on the time); this served a similar function of the executive pay cap in your hypothetical. After the highest earners in a company reached the top brackets, it didn't make much sense for the company to further increase their pay (much of it would be lost to taxes so the ROI wasn't great). So now you have all this leftover profit that, in 2018, would have went to CEO pay or bonuses. What is there to do with it? Invest in the company of course: give the best performing line-level employees raises, start internal training programs, kickstart moonshot R&D ideas, and so on. (Unions also helped in ensuring that the rank and file got pay increases commensurate with management's raises) Don't get me wrong, the highest earners were still very wealthy (and had plenty of yachts/summer homes/other symbols we associate with the 0.1%) and it was common to give them raises every year, but the higher marginal rates really did help in "forcing" profits downward.