Pay increases, How the well paid become even better paid
Recent letters to the editor of the Ottawa Citizen and actions by the Ford government of Ontarios. suggest there is an appetite for giving lower paid workers a higher percentage than higher paid employees. A reasonable argument can be for such a scheme in my opinion.
When both lower paid and higher paid employees receive the same percentage increase, the gap between the lower paid employees and the higher paid employees, in terms of absolute increases, widens. In short, the spending power for the higher paid employees for both discretionary and non-discretionary expenses increases, less so for lower paid employees.
As an example, if employees earning a salary of $40,000 were given a annual raise of 3% in ten years, that salary would be $56,756, an increase of 34.4%, or $13,756. Workers earning $80,000 per year receiving the same increase would see their salary increase to $27,513 (double the increase for the $40,000 a year earner) but by the same 34.4%. From the point of view of the low income earner, this seems unfair. They lose ground in relative terms, only because they start from a lower base. (See Table 1.) (The enormous gap between senior bank executives and their lowest paid staff is another story.)
One could simply give all employees the same absolute increase, say $$1,200. The absolute difference would remain constant. At the micro level, if. wanted. in a larger increase you would have to improve your skills and get a promotion or change jobs. From a macro perspective, It would save employers a lot of money and put the least pressure on inflationary trends. Trying to institute such a scheme at this point in labour history would likely creat riots. However, not doing anything perpetuates the growing gap in wages and inflationary pressure.
Is there a compromise position? As mentioned above, some are suggesting a two-tiered system, higher increases for lower paid employees and lower increases for higher paid employees. Could we be even more imaginative? We could calculate a sliding scale of increases for employees who earn above $40,000, fixed rate (inflation of the previous year or a moving average of the previous three years) for those who earn $40,000 and below. Why? I would argue that it is most important to protect the entire salary of the lowest paid workers against inflationary pressure, as most, if not all, their income is non discretionary. Conversely, it could be argued that the higher earners have more discretionary income and thus not all of it need be protected against inflation. Thus, one could increase their salaries by the rate of inflation. To avoid the proverbial bracket approach that is used for income tax purposes, for example, which is not quite fair, I devised a simple, non linear equation to calculate the6 percent increase based on the salary in excess of $40,000: (PI=3-Log of SD to the base 13 where PI is percent increase in salary and SD is the salary greater than $40,000.) Everyone would get the same increase on the first $40,000. Compared to the above example, a person earning $40,000 would receive an increase of 3% or $1,200 and a person earning $45,000 would receive a blended increase of 2.92% or $3,115 rather than $1,350 and a person earning $80,000 would receive a blended increase of 1.59% or $1,270 rather than $2,400. (I would be happy to give the equation to any curious reader interested in the math.) The gap would still be increasing, albeit at a slower rate. (See Table Two.)
. In short, such a scheme would create less inflationary pressure, diminish the gap between lower and higher paid employees(Compare Table 1 and Table 3), and help avoid labour stoppages if it were enshrined in law for the public service.
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