Feasibility of a Progressive Minimum Wage: Challenges and Solutions

The debate over a minimum wage is a contentious issue in many regions. One approach suggested by some is to implement a progressive minimum wage. This article explores the feasibility of such a system and proposes alternative methods that might be more effective.

Exploring the Progressive Minimum Wage Concept

One potential method for managing CEO and officer salaries is to apply a tax threshold. For example, if a company pays more than a certain salary amount, the excess is taxed at a higher rate, incentivizing companies to keep salaries within a reasonable range. However, this solution might not be comprehensive enough to address the needs of all employees.

Some countries and industries use a collective bargaining system where unions negotiate pay and compensation standards. This method has advantages but can also lead to potential complications, especially when the system is not uniformly applied.

Systems Based on Collective Bargaining

A system where unions and labor organizations negotiate pay and compensation standards can indeed be effective. These agreements often include tiered pay minimums beyond a traditional minimum wage. However, this system can also introduce complexities and invite gaming the system. Companies with low wages may supply parts and services to firms with high CEO compensation, creating an uneven playing field.

Challenges and Potential Outcomes of Complex Regulatory Changes

Regulatory changes are often met with mixed outcomes. Some states and countries have implemented changes to the tax laws, energy sectors, farming regulations, and other industries, only to see the new systems fail or be ineffective. These outcomes include:

Economic activity shutting down, as seen with insurance companies dropping out of Obamacare in smaller states. Rules being bypassed or gutted by other laws and regulations, making the effort fruitless. Holes in the regulations being exploited by groups seeking to make more money.

Given these outcomes, it is important to reconsider the approach to these systems.

CEO Compensation and Economic Value

Critically, the high compensation of CEOs is not necessarily unjustified. CEOs are paid for the value they deliver to their companies and the economy as a whole. High compensation acts as an incentive for CEOs to perform well, and many successful CEOs choose to work for less due to the incentives they already have. For example, Alan Mullaly, who moved from Boeing to Ford, contributed to saving US taxpayers tens of billions of dollars during the 2008 Financial Crisis by ensuring that Ford did not require a bailout.

Alternative Solutions to the Minimum Wage Debate

Instead of a progressive minimum wage, a more feasible and effective solution might be to incentivize companies to provide higher wages. One idea is to increase the deductibility of salaries that pay a certain multiple of the median income. For instance, if a company pays salaries within a range of 1x to 2x the median income, these salaries could be deductible at a rate of 125% of the salary paid above or below the deductible rate.

By offering such incentives, companies are encouraged to pay fair and competitive wages, which can attract and retain top talent without introducing complex regulatory challenges.

Conclusion

While the concept of a progressive minimum wage is intriguing, it may not be the most effective or practical solution. Instead, using company incentives and tax policies that reward fair pay can be a more sustainable approach. By aligning compensation with economic value and acknowledging the role of executive compensation in delivering value, we can create a more equitable and effective system.