Among the issues fuelling political upheaval at the moment is the gap between bosses’ and workers’ pay. Leaders, including the UK’s prime minister Theresa May, are busy .
The past five years have seen a groundswell of concern in many parts of the world over the divide between rich and poor. They include the Spanish Indignados movement and Occupy Wall Street in 2011, a 2013 Swiss referendum to cap CEO pay at 12 times that of the lowest paid workers (), and ongoing protests in various countries that the system is “rigged” in favour of the wealthy.
So how large should the pay gap be? There are countless approaches to try to answer this, from exploring how wage gaps affect productivity and economic growth to assessing how larger gaps affect generalised trust in government and financial institutions.
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My colleague Sorapop Kiatpongsan and I took , one rooted in psychology: we wanted to find out what people felt the ideal pay gap should be. This would give us a sense of how they weigh up what is morally acceptable, and perhaps explain public anger.
We used data from the , which involves more than 55,000 respondents from 40 countries, including Australia, China, Russia, Turkey, the US and the UK. Key questions included: How much do you think a chief executive of a large national company makes in your country? How much do you think an unskilled factory worker makes?
Averaged across all 40 countries, those questions produced an estimated pay ratio of 10:1, meaning that people believed that bosses made 10 times more than unskilled workers. In the UK, the estimate was 13.5:1.
Ideals versus reality
Now consider two more questions: How much do you think the CEO of a large national company should make in your country? How much do you think an unskilled factory worker should make?
Averaged again across all 40 countries, the answers produced an ideal ratio of 4.6:1; in the UK, it was 5.3:1. Around the world, people would prefer the distribution of pay to be more equitable than their estimate of reality.
Now compare these ratios with the actual pay gap. Recall that in the UK, people estimated a 13.5:1 gap and preferred a 5.3:1 gap. The actual ratio is 84:1.
What’s more, wage gaps have been . In the US, for example, the boss-to-worker pay ratio was roughly 20:1 in the 1960s and 30:1 in the 1970s – before ballooning to roughly 300:1 in recent years.
While both 20:1 and 30:1 are larger gaps than the ideal of roughly 5:1 that people describe, it is not difficult to understand why this is now a critical issue: the huge gaps of today are far from our universal sense of what’s right.
