Do Pay Gaps Matter?

Article first published as Do Pay Gaps Matter? on Technorati.

Pay inequalities seem to exist throughout society. The High Pay Commission reported today that the pay gap between the richest and poorest in society were at their highest levels since Victorian times.

The study, titled ‘More for Less’, warned that the gap between top FTSE 100 chief executives and the average worker was likely to double by 2020.

This follows similar research by the Chartered Management Institute that suggested that gender pay equality will not be reached for another 57 years, despite recent trends showing female pay rising faster than male pay.

So does pay equality matter?

The Gini coefficient looks at income equality around the world. The American Gini index has risen by nearly 10 points since it was started in 1947.

Some will argue that economic inequality in society leads to a loss of access to services and subsequent disenfranchisement with society, with knock on rises in crime and other anti-social activities.

In contrast, cultures that have a relatively high average wage and flatter economic pyramid, combined with services including universal health care, such as New Zealand, Australia, Sweden, Switzerland, Japan, Norway, the Netherlands, and Canada there is a significantly lower rate of violence.

What about inside companies?

What about pay inequality inside companies? Do highly paid executives demotivate those lower down the pay scale? With pay in the finance sector continuing to attract attention this is a valid concern.

Research published last year however suggests this is not the case. It revealed that pay in larger companies was typically higher across the scale, so even if top executives were paid handsomely, so were those lower down the scale, at least relative to their peers in other companies.

The reality of pay gaps

It seems that pay gaps will always exist. In an area of globalization the upside will present the brightest amongst us with increased opportunities to enhance their wealth. The flip side is that competition for jobs at the lower end will force pay down. This creates an inevitable pay divide. For me though it is a red herring, as we should be looking at whether the lifestyles of society are increasing rather than focusing on any divide between rich and poor. it seems clear that life in the western world has become significantly better in the past 60 years, even if income inequality has not. That should always remain the focus.

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