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Unequal pay favours 'white-collar chums'


'Unequal pay sees the rich get richer', by Chris JohnstonIt's widely believed that well-educated people in responsible positions should be paid more. But pay inequality, as the major cause of general inequality, generates significant social costs. It is vital to understand these costs and to scrutinise justifications for inequality.

Let's consider costs first. Pay inequality often means low-income people cannot afford necessities like housing, education and healthcare. It can prevent them from developing their talents, and means their children are also worse off. It reduces spending power, and thus economic prosperity, in their communities. This is clearly unjust.

It's also inefficient. Money allocated to low-income earners usually makes more of a difference and thus produces more wellbeing and happiness. It stimulates economies because it's more likely to be spent. Conversely, poor pay for the lower-paid can adversely affect whole economies — witness the American sub-prime mortgage crisis.

Furthermore, pay inequality combines with and reinforces social and political inequality. The wealthy, with more education, more influence, and more media and lobbying power, use this to advance their economic interests. This in turn increases their political and social power. The cycle of inequality expands.

Income produces positional, as well as material, benefits. This allows us to surpass the Joneses and feel superior. But the Joneses in turn may feel like failures and turn to drink, gambling, violence or crime.

A highly unequal society is a divided one. The poor resent the rich for their wealth, while the rich disparage the poor to rationalise their privilege. There's more crime, communities feel unsafe and cooperation is harder.

Finally, unequal societies must rely on permanently high economic growth to lift the poor out of poverty. However, such growth generates environmental costs from the ever-increasing consumption by the affluent.

What, then, are pay inequality's justifications?

Economic libertarians argue that people entering into legal and voluntary agreements are entitled to keep any income or wealth they gain. They say depriving them of it through taxation or wage regulation compromises this principle. This ignores advantages people may start with — talent, education, connections and family wealth. It also ignores imperatives to save the planet and meet basic needs.

It's argued that people should be compensated for getting educated. Because education is more unpleasant than work? Hardly. Because education costs money and earnings are foregone? Calculated over a lifetime, incomes of the well-educated compensate them many times over for such costs. They often get substantial parental help with them anyway.

Some contend that people should be compensated for the stress of responsibility. However, studies show that lower paid workers have more stress and illness. Probably because their jobs are more boring, dirty, dangerous, arduous, low-status and powerless. Perhaps we should compensate them, rather than compensating managers and professionals for interesting, varied, high-status work.

Finally, it's argued that the best outcomes are achieved by leaving income levels 'to the market'. Supply comes to equal demand, incentives promote hard work and productivity, and the economic cake keeps expanding.

In this regard, there are two models Australia can follow: the market-driven American model, and Europe's 'social economy'.

Neoliberals portray Europe as an economic failure. They point to its high unemployment, slow growth, lower living standards, high taxes, bloated welfare systems and sclerotic bureaucracy.

But Europe has much more evenly distributed income and wealth than the US. It also has less poverty, higher life expectancy, lower infant mortality, better healthcare, a stronger social safety net, fewer homicides, less imprisonment, a far smaller ecological footprint, shorter working hours, longer holidays and more family-friendly working conditions.

Between 1950 and 2000 Europe's productivity grew about 70 per cent faster than America's. It is now almost on par (and higher in six countries). European unemployment is currently only 1 per cent higher than America's (which is artificially lowered by an enormous prison population: 2.2 million).

Europe's incomes are still only 72 per cent of America's, but three-quarters of this is attributable to shorter hours (a legitimate trade-off). Also, the US average masks huge income differences with stagnant incomes at lower levels.

So Europe is thriving, and many see this century as Europe's era, with success flowing from an educated, secure, fairly paid workforce.

Arguments for income inequality may just be rationalising a system in which well-paid people set pay levels favouring their white-collar chums. If so, it must be challenged.

Rob SalterRobert Salter is a writer and researcher, particularly on the subject of investment in the disadvantaged. He has many years experience in the community sector, teaching at university and TAFE, and  campaigning with overseas aid and environmental organisations. He wrote a PhD thesis on an Indian political movement in the 1970s.


Topic tags: rob salter, pay inequality



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Existing comments

Well done Robert.

I have recently written to Kevin Rudd about such inequality in our nation and how it relates to education and his so called "Education Reform".

It would be great for Kevin Rudd to read your article because he seems hell bent on taking us down the road of the American experience.

There is a clear need for both major parties to move from their positions of protecting the rich and powerful and make a real effort to address the issues of inequity in our nation.

Lindsay Gardner | 02 September 2008  

Having always worked in administration and struggled with an award that was unable to reward initiative and the acceptance of responsibility, I can see both sides of the argument. What needs to happen is for the gap to be narrowed. A good start would be to stop paying many CEOs obscene amounts and to acknowledge the need for recreation.
All workers need to be rewarded and we need to recognise that 'leisure' is necessary for the family life and to create the caring community needed to build our country.

Margaret McDonald | 02 September 2008  

Mr Salter's argument begins by asserting that income inequality is unjust. But he does not attempt to support this equation of inequality with injustice. He simply asserts it. Yet a key principle of justice is to treat unequals unequally.

He ends by extolling the virtues of Europe. That's fine, but income inequality also exists in Europe, so presumably it is simply less unjust that the villain America.

On this logic, the only just society is one in which there is no inequality of income. Pragmatically, this is only possible through a worldwide totalitarian regime that stifles innovation and incentive. In such a world, the equal incomes would soon equal zero.

This century belongs to India and China, not the US, and not Europe. Ask the Chinese Government if they believe in the virtues of income equality as firmly as Mr Salter does, and watch them double over with laughter. Mr Rudd is following the Chinese example, not the American.

Mr Salter could benefit from studying the work of Nobel Prize winning economist, Amartya Sen, who has shown that the best thing we can do for the disadvantaged is not to disempower them through totalitarian programs of income equality, but to provide them with the opportunities and capacities to exercise their freedom, and be rewarded accordingly.

David de Carvalho | 03 September 2008  

Mr Carvalho's views harken to a certain period in US and British history prior to the great depression. It is precisely such attitudes which led to the depression and the resulting Rossevelt 'New Deal' and the welfare frameworks in most Western nations. The US may be more dynamic but Canada's nicer!

Mr Carvalho mistakes the example of China and India. Unfettered capitalism and market economies have let loose very destructive trends leading to total loss of social cohesion, the politics of envy and the breakdown of the family structures. As one famous economist put it, "every divorce is good for the economy - it leads to real estate transactions and other activities.." Does this mean that we should encourage divorce? I would ask Mr Carvalho why the Scandianavia coutries and the Netherlands, for example, always head all world surveys in quality of life indexes? The US rating is pretty low. I rest my case!

B. Chettur | 08 September 2008  

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