No government responsiveness on economic inequality and minimum wage

A recent international study of inequality by Michael Norton and Sorapop Kiatpongsan was already mentioned here for its findings about how uninformed the public was about matters of public policy. The study collected the opinion of people about what the CEO-to-average-worker pay ratio should be, and their best guess of what it actually was. A summary of the findings are shown in the table at the bottom.

Interestingly, not only do median estimates of the pay ratio in all countries grossly underestimate the true values, but there is essentially not correlation between the two (R2 = 14%, 3.5% after dropping the U.S. outlier):

estimate-vs-actual

In fact, the estimates turn out to be almost perfectly correlated with the ideals (R2 = 90%, 95% after dropping the Japan outlier):

estimate-vs-ideal

A different point regarding the findings is also interesting (and to some extent it is implied by the findings just described) – not only is the actual pay difference many times larger than people’s ideal (about 20 times larger overall), there is essentially no correlation between people’s ideals and reality (R2 = 8%, 3% after dropping the U.S. outlier):

actual-vs-ideal

That is, the electoral systems of the 16 countries in the sample produce no responsiveness on the issue of income inequality.

Like the non-responsiveness on the matters of delegate salaries and lobbying regulation, the non-responsiveness regarding income inequality contradicts the standard electoralist dogma which asserts that electoral systems produce policy which follows public opinion.

It is also worth noticing the special case of the U.S., where actual CEO-to-average-worker pay ratio is by far the greatest – 350x. As in all other countries in the sample, Americans vastly underestimate this difference – thinking it is only 30x. Yet, even while being unrealistically optimistic about inequality large majorities of Americans consider this an important problem and want the government to take action to reduce it:

April 22, 2014 – A strong majority of Americans believe economic inequality in the U.S. today is a problem (79%), with over half believing more specifically that it’s a major problem (54%). Overall, the perception of economic inequality being a problem in the United States has changed little from 2012 (80%).

[…]

Two-thirds (66%) of Americans feel it’s important that the government introduce policies to reduce inequality in the U.S. (up from 62% in 2012), with four in ten (40%, up from 34% in 2012) identifying it as very important.

Specifically, about three quarters of Americans want to see the minimum wage raised substantially.


Summary of the findings of the Norton-Kiatpongsan study:

CEO-to-worker pay ratio by country
Country Actual Median estimate Median ideal
Australia 93 40 8.3
Austria 36 12 5
Czech Republic 110 9.4 4.2
Denmark 48 3.7 2
France 104 24.2 6.7
Germany 147 16.7 6.3
Israel 76 7 6
Japan 67 10 6
Norway 58 4.3 2.3
Poland 28 13.3 5
Portugal 53 14 5
Spain 127 6.7 3
Sweden 89 4.4 2.2
Switzerland 148 12 5
United Kingdom 84 13.5 5.3
United States 354 29.6 6.7
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One Response

  1. […] public opinion has very little effect on policy in the U.S. got significant media attention. Another study, by Norton and Kiatpongsan, showing that there is little association between people’s […]

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