Could a national maximum wage work? | tutor2u Economics

On Tuesday's Today programme, Jeremy Corbyn suggested that introducing "maximum pay" would be an effective way of reducing inequality and tackling the issue of overly-high pay in the boardroom (see this BBC video report on Fatcat Wednesday)

This article from the BBC explores some of the reasons why a legal limit on pay would be unlikely to work, not least of all because boardroom pay can take many forms, including salaries, dividends, share options and so on. Furthermore, in a global economy, top executives might simply choose to work in countries where there are no limits, or devise ever-more imaginative ways of evading tax (you could consider the Laffer curve here).

Possible alternatives that have been suggested include legal restrictions on the ratio between top and bottom earners in an organisation, and higher marginal tax rates for the rich. Or, supply side policies that would boost the productivity and earnings-potential of the poor may be a solution, albeit one that would take longer to have an effect.

Some of the responses to Corbyn's musings have been quite interesting, and rather blunt. Edwin Morgan, from the Institute of Directors, agreed that firms should listen to public and political concerns and "moderate" their pay awards but went on to say that maximum pay laws would be a "blunt tool". The economist Danny Blanchflower said it was "totally idiotic, unworkable" idea, and the economist Richard Murphy said it made "no economic sense".

Subscribe to email updates from the tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Job board

Teacher of Economics

Tonbridge School, Tonbridge, Kent

Teaching Vacancies


Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u

A New Home for tutor2u Resources

We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores.

For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.