Two thirds of my income come from bonuses based on my performance. I work in finance. I work my ass off to get those bonuses. They're not just handed out. My company likely employs very few, if any minimum wage workers. I don't see why there's even a comparison between the earnings in the finance world and minimum wage workers? Why not the earnings of doctors vs minimum wage workers? The people earning these bonuses aren't all selling credit default swaps etc. I know that is a nice and convenient narrative to cling to. Bonuses are more often than not tied directly to performance. If someone does a great job, they should get rewarded. As you get more and more highly skilled and specialized in your work, those rewards increase in value. When I was a waiter I got tips. The better I got at waiting tables, the greater the tips became. I see very little difference. wasoxygen -your thoughts?I don't think a moral argument is even necessary.
-Me either, what someone earns from the company they work for is none of my business. There is little evidence that these bonuses are good for anyone but those receiving them
-What evidence exists that your compensation is good for anyone but you and your family? It seems a failure that such waste is encouraged from a business point of view.
If it were wasteful, they wouldn't do it. Let's say a scientist earns $80k a year, that's well above minimum wage, should we be up in arms about that? If not, what if that same scientist earned $80k, but if the project he/she was working on became successful commercially and the organization they work for gave them a $100k bonus, is it now wasteful?
I think you have said it pretty well. But I am not sure I would disagree with mk if we could get him to elaborate on his position. I think he would say something pretty unobjectionable like “A $10,000 bonus paid to TNG helps his family less than the same money would help the poor family of a minimum wage earner.” In an abstract way, we might say that the money is “wasted” on TNG because it could do more good elsewhere. This is not very useful, because there are surely even more desperate families than the one with a minimum wage earner. We end up saying “money does the most good where it does the most good.” If I could grant mk unlimited time to respond to questions, I would pose these: When a bonus is given to an affluent employee, what happens to that money? Do they spend or invest it in ways that benefit others? If we disapprove of a large bonus paid to an affluent employee, what is the realistic alternative? We get more sympathy if we imagine the money given, without explanation, to a poor worker. What if, more realistically, the bonus money is retained by the employer? Would the employer simply find other ways to motivate the employee? Will the employer spend the bonus money in a more or less beneficial way than the employee? If we consider mechanisms that discourage large cash bonuses paid to affluent employees, and encourage money transfers to poorer people, what unwanted consequences might we anticipate? What unintended harmful consequences do we observe as a result of other well-intentioned wealth redistribution schemes? Is the sentiment “what someone earns from the company they work for is none of my business” anything but a natural, polite, and decent way of thinking?your thoughts?
Sorry, I should have been more clear. What I am saying, is that these particular bonuses might reflect a coziness with execs and board of directors, and a regulatory capture that ensures a government backstop that has decoupled the bonuses from performance and the rewarding of talent. The size and lobbying of these institutions insulates them from competition they might otherwise face from other firms that spend less on bonuses, especially when the companies are performing poorly. Of course, we can always say that shareholders have an option not to invest in a company that gives such bonuses. However, this is a industry where free market principles are not always at work. They can afford to be wasteful in many respects, like giving bonuses at the same time that the company is receiving government financial support in order to keep them solvent.
Thanks for clarifying. We should remember that government favors are important inputs for many businesses, and some executives will be more skilled at winning them than others. If the connected CEO of Nerrex Corp. can get protective tariffs or environmental waivers, Nerrex shareholders benefit, even if others in the industry also benefit. Investors are not known for scruples, and many may prefer to buy into a company that has a money pipeline from D.C.
Complicated questions, all. I think a solution to both problems (worker pay on either end of the spectrum) could be addressed by tax policy. It seems that both right and left agree that our tax code is inefficient. A return to a more progressive tax code might make companies more reticent to pay very high wages, as opposed to reinvesting or raising pay at the bottom. But, as you say, bonuses are often, though not exclusively, paid for performance, so capping them seems to create a problem while trying to address another. (And just to be clear, the problem in question is the fact that there's so much money in the US that we shouldn't, in theory, have very poor people, but we do, nonetheless.) The more I think about the problem, the more I'm inclined to support a flat tax, that darling of the right, so long as all monies, regardless of origin, were considered "income", and that all other forms of personal federal tax were done away with. At least then we wouldn't have the current regressive tax code, which I believe is harmful to families. Just eliminating the payroll tax would be tantamount to a large increase in pay for workers at the bottom (it stands at 12.4% currently, if I'm not mistaken). I think there is room for political compromise on tax reform, but only if the extreme factions of both parties (but especially the GOP) are intentionally marginalized in any potential negotiation. Moderation is over hyped in many political fights, but I think when it comes to finance, being a moderate is the best place to be, as we have many examples of the extremes on either side being very harmful to the majority of the population.
I think a solution to both problems (worker pay on either end of the spectrum) could be addressed by tax policy. It seems that both right and left agree that our tax code is inefficient
The IRS specifies a flat “supplemental rate” of 25%, meaning that any supplemental wages (including bonuses) should be taxed in that amount. If you receive a $5,000 bonus, under this rule, $1,250 (25% of $5,000) goes straight to the IRS. Let's say someone earns $50k a year and get's roughly $100k in bonuses, they would have paid between $30 and $40k in taxes that year. That's a shit-ton and while taking home $110k is no chump change, it's definitely not "private jet" money. A person with a family to support, or kids in college can very easily have a modest lifestyle and just squeak by on that. -Now, if it truly were just the top 1-2% that people wanted to raise the rates on, not many people would care, but it's these people in the middle that continually get squeezed. Why? Because they don't have the means by which to shelter their income. The more I think about the problem, the more I'm inclined to support a flat tax, that darling of the right, so long as all monies, regardless of origin, were considered "income"
-I'm fine with that. Make the rate 15-20% and I'm sure we'd cover our bases, so long as all money is included.
Yes, this is exactly my point. The code is progressive from low to middle to upper middle, then becomes regressive at the top. It's perverse. People in the upper middle class who primarily make their money at a decent paying job pay the most in federal tax (as a percent of income). $200,000 sounds like a lot of money, but a family making $200,000 has a lot more in common (in terms of financial challenges) with a family making $60,000 than they do with a family making $2,000,000. I'm not saying we need to cry for the poor $200k/yr wage earner, but just that there's not a lot of sense in making that person have a higher tax burden than people above and below her. Bonus, income, capital gains, etc, are all fungible, so we shouldn't be treating them as separate.
I don't think she's saying 'the government should appropriate those bonuses and give them to minimum wage workers,' but rather, 'clearly, the national economy is capable of sustaining an increased minimum wage.'My company likely employs very few, if any minimum wage workers. I don't see why there's even a comparison between the earnings in the finance world and minimum wage workers?
My reply was in response to mk's comment more than it was to the article. I have no qualms with raising the minimum wage, substantially. I do take issue with anyone giving a crap about bonuses in any industry, unless it's government, if you are a shareholder in a company that is excessive in the way in which it compensates its people or the specific company took govt bail out money that it has yet to payback. Otherwise, it's none of my business how much money some mid-level manager makes in his bonus check.
Is there some point at which you would start having qualms? What are the negative consequences you would watch out for as warning signs that you raised minimum wage too far? Do those consequences not exist at the current level? I think I have figured out what the optimal level is.I have no qualms with raising the minimum wage, substantially.
I consider it highly fascinating that there is a mindset which allows one to look at the national wealth and income distribution of the US and come to the conclusion that the problem is a minimum wage greater than 0. I'm sure it makes sense within the theoretical framework you're coming from. That's why "Real world economics" is a thing.
It's not clear what problem you suppose I am trying to address. Let's say it is the existence of poverty in a prosperous country like the United States. Old-fashioned economics explains why I think minimum wage contributes more to the problem than it relieves. When stuff costs more, people buy less of it. I don't see any reason why this would not be true of labor as it is of goods and services. When the thing for sale is a math lesson or a massage, the good essentially is labor. A minimum hourly wage of $7 or 8 is too low to do much harm. Most people earn more than that, and I imagine that many unemployed people would not choose to work for less than that. And the law is full of exemptions like the Bonior loophole and for internships and even volunteerism. But those it hurts are the very people who suffer from poverty that we intend to help. Those who appear to be helped by minimum wage may be subject to compensating adjustments in the workplace, since businesses do not succeed by operating as charities. Some flaws were found in my earlier argument, but my strongest points were not acknowledged. "The chief practical negative of minimum wage is increased unemployment among the most vulnerable workers, who would most benefit from greater access to employment."