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Linking Work and Reward: A New Calculation

A Review: Susan Steed, Helen Kersley, and Eilís Lawlor, A Bit Rich: Calculating the real value to society of different professions. New Economics Foundation, London, December 2009. 40 pp.

What if we paid people by the real contribution their work makes — to our economic and social well-being? If we did, would investment bankers routinely make more in a morning, as they do today, than teachers make in a year?

Of course not. Yet the pay gap between professions like banking and teaching continues to widen. People who do vitally necessary work, throughout our economy, continue to take home far less than people whose jobs add trivial value to the lives we lead.

That should worry us. Think about it. Our current pay rate patterns give talented people a powerful financial incentive to enter professions that do the rest of us little good.

What can we do to change this sorry situation? For starters, suggests Britain’s New Economics Foundation in this provocative new report [1], we can try to determine exactly how much value various jobs actually create — or destroy. Researchers at the foundation, a “think-and-do tank” that seeks to challenge standard-issue economic discourse, have done just that.

Their new study, A Bit Rich, examines six jobs, three high-paying (banker, advertising executive, and tax avoidance accounting specialist) and three low-paying (child care worker, hospital custodian, and waste recycling worker).

For each of these six, the New Economics Foundation analysts “quantify the social, environmental, and economic value” the role produces — or undermines. They take into account impacts both obvious and subtle and lay out all their analytical assumptions in a thoroughly detailed methodological appendix.

Their basic conclusion?

“We found,” the researchers write, “that some of the most highly paid benefit us least, and some of the lowest-paid benefit us most.”

High-earning British investment bankers, for instance, turn out “to destroy £7 of social value for every pound in value they generate.” Child care workers, on the other hand, generate between £7 and £9.50 worth of benefits to society for every £1 they get paid.

Child care workers in Britain, as in the United States, get paid quite little. In the UK, child care workers seldom make more than £13,000, or $21,000.

But the authors of A Bit Rich repeatedly emphasize that they’re not “simply suggesting that people in low-paid jobs should be paid more.” Their fundamental message: We need “a relationship between what we are paid and the value our work generates for society.”

To move us in that direction, A Bit Rich offers a wide-ranging set of policy recommendations.
Lawmakers, the report urges, need to get more serious about taxing progressively.

“The wealthiest do not pay their fair share of tax,” the authors note. “Redistribution, particularly of assets and land, is an effective way both to offset inequality and to reward jobs that the market does not.”

That market doesn’t function particularly well at the top end either. Those fortunate enough to bestride that top end, the foundation researchers note, “have the power to command salaries over and above what the market will bear.”

To curb that power, the foundation researchers argue, our modern societies ought to establish “a national maximum pay differential,” a ratio that limits pay at the top of an enterprise to a multiple of what workers at the bottom take home.

But wouldn’t limiting pay at the top strangle the philanthropic capacity of our society’s rich — and end up hurting people at the bottom? And shouldn’t those who create profits get rewarded for their creations?

And don’t people at the top of the economic ladder work harder — and deserve much more — than people at the bottom? And wouldn’t capping pay at the top take away the incentive that drives people to want the climb that ladder?

A Bit Rich directly takes on all these rationales for our deeply unequal compensation status quo. The authors, in their debunking, offer up both sophisticated statistical analyses and common-sense reasoning.

For the ablest kids of waste recycling plant workers to “climb the ladder” and find places at the top, as the report notes at one point, an equivalent number of banker kids would have to move down. But that doesn’t happen in a society where wealth sits concentrated.

“Those with high incomes,” A Bit Rich notes, “can protect their position and that of their children by buying assets and advantage.”

These wealthy, in effect, can “kick away” the ladder that those below are trying to climb. So what must we do to encourage true opportunity? Make society more equal. We need above all, sums up A Bit Rich, to “shorten the ladder.”

Sam Pizzigati, editor, Too Much