New AIAS working paper: Who should earn what? A Q methodological study on notions of justice of wage differences

By Wout Scholten & Margo Trappenburg

AIAS WP 141


Introduction

In the summer of 2013 the Dutch minister of education asked 26 managers of large organizations in the broad area of science, culture and education to voluntarily give up part of their income. Nineteen managers agreed, four refused (the others have not responded up till now). These four were invited by the minister for a heart-to-heart at the department (BN/De Stem August 20, 2013).

In the same fashion, the minister and the junior minister of justice made a similar request to the best-paid chiefs of police falling under his department. Many of them agreed, five refused to go along (NRC, July 31, 2013).

The ministerial requests were inspired by a recently adopted law on top incomes in the public sector, in which the upper salary is declared to be that of the prime minister (the Balkenende norm, named after former prime minister Balkenende, 2002-2010). The law on top incomes was approved unanimously in both houses of Parliament (HTK 6 December 2011; HEK 13 November 2012). The law sees to it that future employment contracts in the public sector will adhere to this maximum salary. However, present top managers were hired before the law was adopted; thus cannot be bound by the new rules. Hence the appeal to their moral conscience.
Although public debate about wages in the Netherlands is usually focused on public sector salaries (people who are paid with tax or social premium money in one way or another), the private sector is occasionally drawn into the discussion as well. The coverage of the subject in the media is characterized by structural reports (monthly, annual, biennial) on the rise and decline of incomes, and incidental ‘outbursts’ of indignation about, for instance, a bonus for a badly performing CEO while his employees face a wage decline or dismissal (De Volkskrant, June 15, 2013: 2, 24-25; De Volkskrant, June 17, 2013: 6).
Since the financial crisis bankers’ salaries and bonuses have been widely disapproved in the media. The minister of social affairs has urged companies to be transparent about rewards in their annual reports and to adhere to their corporate governance code (TK June 21 2013, Kamerbrief beloning van topbestuurders in de private sector). Moreover the minister announces that he will consider other measures to ensure that in the future income differences between the top and the bottom of companies will not be too large.

Consultancy firm Capgemini started a debate about income differences between older and younger employees, based on age rather than performance (De Volkskrant, January 8, 2013: 21; NRC, January 8-9 2013: 22-23). Capgemini’s main interest is the firm’s profit and organizational continuity, but the newspapers put the issue in a broader perspective, arguing that perhaps we ought to have a bigger debate about demotion for older workers who could be ushered into less demanding jobs and thus be able to work past retirement age but at a lower salary (cf. also Vrij Nederland 2-11- 2013: 10-12).

The debate about just wages is not a Dutch phenomenon only. Switzerland recently held a referendum in which the Swiss decided to impose strict controls on executive pay, in what Euronews calls “an anti-fat cat vote” (Euronews 2013). The Belgian government recently reached an agreement to limit the salaries of top managers in a number of government financed organizations to € 290,000 per year. Although strictly not defined as wage, the European Parliament passed rules to cap bankers’ bonuses in July 2011 (ec.europa.eu). In 2009 the G-20 in Pittsburgh endorsed plans to limit bankers’ bonuses and variable remuneration, since this reward structure was assumed to have led to excessive risk taking among bankers in the past (Leaders’ statement, Pittsburgh summit 2009). Teun Dekker organized a discourse analysis of public debate in many Western countries on top wages in the public sector. He derives from this research a large number of standard arguments pro and against high wages for public officials that come up in many countries (Dekker 2013).

It is not just high wages that attract attention. In 2010 cleaners went on strike in The Netherlands demanding a wage rise of 4% in two years (NRC, April 13, 2010). They succeeded after laying their work down for weeks. In 2011 school teachers protested against measures that stopped wage correction for inflation, the so-called zero line (Trouw, January 17, 2011). The same zero line was imposed on wages for civil service and police. These measures of wage constraint are accompanied by a general decrease in real income since 2008 of 4% (CBS 2013). Attention for the highly paid seems to go hand in hand with attention for the lowly paid, focusing on high wages in the light of declining low wages and vice versa. Therefore, income differences and income inequality are the main topics of interest in this paper. This choice is supported by the observation that in the last 35 years the income inequality in The Netherlands has not been this high (Salverda 2013).
Since high and low wages are under discussion ‘who should earn what’ seems to be a question in many people’s minds. It is interesting to observe in many of the examples mentioned above that they do not just talk about governmental policies taxing away excessive incomes and bonuses. They also address the highly paid themselves, who are asked to practice restraint and to be content with a more modest salary. And not just the extremely highly paid. The older employees at Capgemini were accosted by their boss who explicitly asked them to reconsider their own income and subsequently to agree that they did not really deserve what they earned. In our opinion that is a worthwhile approach. Income policy is not just a matter of governments deciding on appropriate levels of taxation, the beneficial and perverse effects of interfering in the market of supply and demand or – in the public sector – on how much tax payers’ money should go to civil servants and managers in public organizations. It is also about us, about employees earning wages and reflecting on them. Do we deserve what we earn? Do other people deserve what they get at the end of each month? And what should determine the level of the wages? In this paper we intend to find out how people feel about wages and wage differences. What do they consider a just wage? How does a just wage relate to the character of the work, training and studies, responsibilities, visibility of the job, uncertainty of the job etcetera? In this paper we will use Q methodology to establish patterns in people’s thoughts on wage differences.
In the next two theoretical sections we start by giving a theoretical background on just income differences and income distribution, which is mostly inspired by political philosophy (section 2). We shift our focus to empirical research from social psychology and political science to find insights in people’s views and judgments on just wage differences (section 3). In section 4 we explain Q-methodology as well as the set-up of this research. In section 5 we present the results and our findings are discussed in section 6.


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