The 1:12, morality and the failure/success of education.

[Livemike]

Recently the Swiss had a referendum of the so-called "1:12" law, which limited the highest paid employees of a company to 12 times the wages of the lowest paid employee.  It failed by 35% to 65% but only after an aggressive advertising campaign against it by corporations.  At times support was running neck and neck with opposition.  Anyone knowledgable about economics will know that this law was a very bad idea, but the fact that struck me stongest was it's complete immorality.  That anyone needed to run a campaign against it, that it wasn't simply dismissed out of hand as impractical, immoral, uneconomic and unenforcable shows the fundamental failure of public education.  

 

Of course it's proponents pushed it in moral terms claiming it was about "fair" pay, but even a cursory look at it's intended effects disproves this.  Employees of large corporations would either get large raises so that the corporation can continue to attract the high-productivity people it needs or those people would have to take a pay cut.  Indentically skilled, identically hard-working people in identical positions with identical levels of productivity would not get the same raise.  Why?  In terms of their own abilities, histories, personalities and everything morally relevant about them the answer is "No reason".  Morality by definition must be about an individual's choices, but this law benefits people on the basis of only one choice, the choice to work for a company that employs highly-paid people.  The extent to which a person applied himself at study or work, learned new skills, researched what employers wanted in an employee and got it, made himself easy to work with, modified his personality through therapy or honest self-examination to be more curious, none of that mattered.  One morally trivial choice is more important than all the choices that actually reveal the character of the person.  

 

Let's take a look at who loses pay under this system and why.  The proponents claim that this is a morally positive feature, that they actually want a ratio between highest and lowest.  But employing low-wage employees isn't something done for meanness.  Executives don't sit around in meetings and going "I'm feeling really evil today, let's hire some people and pay them $8 an hour.  We can use the extra profits to build child torture centres in our basements.  BWWAHAHAHAHAHHA!".  So why should they be punished for it?  

 

People hire people for low wages because nobody else will hire them for high wages, generally because they don't have the skills, habits, abilities or talents to be productive enough to justify high wages.  Conversely the choice to hire high-wage workers isn't done because they are nice people but because they believe their higher productivity justifies the wages needed to get them.  Not hiring high wage employees simply means they take the next best offer, which since they are productive will probably be quite a good job.  If they didn't have the alternative potential employment that was so nice you wouldn't have to pay them so much if you did hire them.   

 

In fact this law penalises the executives who employ those who most need the work and are least able to get it.  At the extreme consider an executive who commits to modifying his business plan and plant to be able to use the intellectually or physically disabled.  He invests in extra plant and equipment to be able to achieve the same production with less productive workers.  He calculates that this is profitable provided he can pay them $X less a year.  If the disabled people agree to work for that money then who wins?  He does because he found a way to use resources that were not being used or not used efficiently, the disabled do because they get a job that is better than what they had (which is quite likely sitting around the house feeling useless) and probably the government budget does because they're no longer on welfare.  Who loses?  Able-bodied workers who might have done the work but who can do plenty of other jobs so they do.  Yet this law would punish this move by cutting the executives pay, because he did what he's supposed to do, use the resources that other people find least useful.

 

The case of non-executives whose pay would be cut is even worse.  While the proponents talked only of limiting EXECUTIVE pay it in fact limited the pay of accountants, actuaries, scientists and researchers, lawyers and salesmen as well.  These people have little or no ability to affect the pay of the lowest paid workers in the firm, so they are being punished again, for something outside their control.  

 

 

Note that it's not just the disabled this applies to, the new immigrant who doesn't speak the language well or know the customs, the school leaver with zero experience, women who've been out of the workforce and don't have current skills, ex-convicts anyone other employers don't want to use and therefore can be had cheaper, this law will penalise employing them.  Despite being advanced by leftists this law acts to ensure that white, highly-educated, native, able-bodied men get the benefit.  

 

Now some people will say "Hang on a second, you can't judge what someone _morally_ deserves by their level of productivity.  They might be less productive for any number of reasons, some of them having nothing to do with the morality of their actions, and some even praiseworthy.".  I agree wholeheartedly.  A woman who chose to spend years looking after her disabled child and searching out and applying every therapy to improve his life cannot rightfully be condemned for it.  But she cannot expect that she be rewarded for this effort by her employer.  Her employer is not the beneficiary of the effort and was not set up to reward such effort.  While you could argue that her efforts saved society considerable problems and she should be rewarded, that will have to be left for some sort of charitable or government organisation.  There is no reason why a commercial concern is obliged by it.  The employer's job is to reward for productivity, not to correct the moral imbalance, however heinous in many cases, that afflicts their actual and potential employees.  

 

The economic effects of course deserve a mention.  Assuming that firms that pay large salaries do not simply leave Switzerland they will face a dilema.  They can either pay too much for their least productive employees or too little for their most productive or both.  Either approach causes problems.that reduce the actual amount the economy produces.  If they pay their least productive too much then they will attract to the lowest paid jobs people who would be more productive in other jobs.  For instance suppose they want to pay some people $480,000 a year and therefore have to pay their lowest grade clerks at least $40K.  People with the skills and experience to earn $35K will be attracted to these positions, even though the company only gets $30K worth of productivity out of them.  The company loses $5K, the other potential employer loses $5K and the employee gains only $5K for a net lose the economy of $5K.  

 

Paying too little of course means that people don't have the incentive to become highly productive.  Why spend years of your life improving your skills when it will mostly serve to raise the wages of people who haven't?   

 

Nothing in this piece is hard to understand.  It doesn't require specialised economic knowledge.  It requires only that people be prepared to think before forcing choices on others.  Yet 35% of the voters voted to force those choices and of the others many had to be persuaded of things that should have been self-evident.  So what use were those years in school if they can't figure out something that requires the most basic of reasoning skills combined with knowledge common to almost everyone?

[TheRobin]

if you think that's crazy: In probably abour two years, the Swiss will have to vote about an "unconditional income". That being said, I'm still relieved "we" dodged the bullet on the 1:12 bullshit. At least for now.

[LovePrevails]

good way to get all the most skilled managers in Switzerland to move somewhere else