Thursday, April 9, 2015

Earnings on Need v. Merit

There has been a lot of talk in recent years about income inequality and the wage gap.  The former focuses on the increasing discrepancy between the most affluent in our society v. everyone else, with particular emphasis on those at the bottom of the wage scale.  The latter is the term used to describe that women have historically been paid less than men, even for the same work.  Even today, though the wage gap has shrunk, various estimates seem to agree that women still only make 70+% of what a man makes in the workplace.

I think both issues are important but I wanted to flag that their underlying concerns are based on distinct theories of compensation. 

Income inequality is based on the concern that those at the lower end of the wage scale are not being paid adequately.  They aren't earning enough to support themselves and their families.  If the workers at the lower end of the wage scale were all driving BMWs and vacationing in Aspen, no one would care about income inequality.  But the driving force in the coining of that term is that some are growing richer and richer in our society while the ranks of the poor explode.  It is that imbalance that is thought to be unhealthy.  But in the income inequality debate, there is no discussion about whether workers at the lower end of the wage scale are being paid their worth. 

Walmart is held up as the poster child of contributing to an exploding underclass with workers who are often being subsidized by taxpayers via SNAP, food stamps and Medicaid.  However, Walmart is premised on a business model with thin margins.  Though their gross revenue is huge, their actual profits are relatively thin.  They make the profits they do by doing everything on the cheap.  They force suppliers to undervalue their goods, their parking lots are notoriously dark, and shopping carts often clog their parking lots because of inadequate staffing to retrieve them.  In such a business model, all of Walmart's non-executive employees are poorly compensated.

But the wage gap is different.  It is premised on the idea that people should be paid what they earn regardless of their gender.  If a man is paid X for a job, a woman should not be paid X - 30% when she does the same job.  The wage gap has nothing to do with concern about whether people are being paid a livable wage.  Indeed, the wage gap is often particularly noticeable in the glass ceiling context when elite women are paid less than their male counterparts.  Lower down the wage scale, minimum wage often sets a floor to prevent a gender wage gap.

However, the wage gap originated in the idea that men needed their wages more because they had families to support, while women who worked just for "pin money."  Women's wages were for fun amusements while men's wages put food on the table for hungry children. 

I flag this difference between income inequality and the wage gap because I think it gets to fundamental issues in our economy.  We are a capitalist society that believes we should get what we earn.  As a culture, we eschew communitarian societies and a robust safety net.  So, the concerns over income inequality (which is dependent more on the latter) and the wage gap (which emphasize the former) are in some ways at odds with one another.