B) Is Maximum Wage Legislation the Best Way to Reduce Unequal Distribution of Income?

In: Business and Management

Submitted By cmccormick2006
Words 1283
Pages 6
Maximum wage legislation would mean that there would be a cap on what different people could earn in different professions. For example a Doctor may be able to earn a maximum of £200,000 per annum whilst a footballer may be limited to £1 million per annum. Unequal distribution of income is were groups of the population are receiving a much higher income then others. For example in the UK the average income of 90% of the population as whole in 2012 was £12,969 whilst the top 10% was earning around £79,000 and the top 1% having an income of £271,888 [The equality trust income inequality in the UK report 2013]. There is an unequal distribution of the income here because the top 10% of the population are earning around 600% more then the rest of the population.

Maximum wage legislation could help reduce unequal distribution for several reasons. The main reasons is due to the simple fact that if the people at the top of the pay chart were to have caps placed on their incomes, then their incomes would most likely fall to this cap or below it and therefore the difference between the top and lowest incomes would be reduced. This would be a good way of reducing unequal distribution of income because unlike a minimum wage this legislation would be unlikely to cost firms money but in-turn save them money. This is because the firms would gain the surplus of the money already being paid to employees in comparison to the cap whereas a minimum wage can sometimes mean that firms will have to pay their lower paid employees more in order to match the wage. However maximum wage distribution could also lead to an increase of unequal distribution of income. This is because assuming ceteris paribus and the fact that there is no minimum wage, firms may decide to lower the wages of their lower paid employees. This is because placing a cap on wages could lead to a decrease in…...

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