A Philosopher's Blog

Inequality & Incentives

Posted in Ethics by Michael LaBossiere on January 13, 2016

One of the stock arguments used to justify income inequality is the incentive argument. The gist is that income inequality is necessary as a motivating factor—crudely put, if people could not get (very) rich, then they would not have the incentive to do such things as work hard, innovate, invent and so on. The argument requires the assumption that hard work, innovation, inventing and so on are good; an assumption that has a certain general plausibility.

This argument does have considerable appeal. In terms of psychology, it is reasonable to make the descriptive claim that people are primarily motivated by the possibility of gain (and also glory). This view was held by Thomas Hobbes and numerous other thinkers on the grounds that it does match the observed behavior of many (but not all) people. If this view is correct, then achieving the goods of hard work, innovation, invention and so on would require income inequality.

There is, of course, the counter that some people seem to be very motivated by factors other than achieving an inequality in financial gain. Some are motivated by altruism, by a desire to improve, by curiosity, by the love of invention, by the desire to create things of beauty, to solve problems and so many other motives that do not depend on income. These sort of motivations do suggest that income inequality is not necessary as a motivating factor—at least for some people.

Since this is a matter of fact regarding human psychology, it is something that can (in theory) be settled by the right sort of empirical research. It is well worth noting that even if income inequality is necessary as a motivating factor, there remain many other concerns, such as the question of how much income inequality is necessary (and also how much is morally acceptable).

Interestingly, the incentive argument is something of a two-edged sword: while it can be used to justify income inequality, it can also be used to argue against the sort of economic inequality that exists in the United States and almost all other countries. The argument is as follows.

While worker productivity has increased significantly in the United States (and other countries) income for workers has not matched this productivity. This is a change from the past—income of workers went up more proportionally to the increase in productivity. This explains, in part, why CEO (and upper management in general) salaries have seen a significant increase relative to the income of workers: the increased productivity of the workers generates more income for the upper management than it does for the workers doing the work.

If it is assumed that gain is necessary for motivation and that inequality is justified by the results (working harder, innovating, producing and so on), then the workers should receive a greater proportion of the returns on their productivity. After all, if high executive compensation is justified on the grounds of its motivation in regards to productivity, innovation and so on, then the same principle would also apply to the workers. They, too, should receive compensation proportional to their productivity, innovation and so on. If they do not, then the incentive argument would entail that they would not have the incentive to be as productive, etc.

It could, of course, be argued, that top management earns its higher income by being primarily responsible for the increase in worker productivity—that is, the increase in worker productivity is not because of the workers but because of the leadership which is motivated by the possibility of gain on the part of the leadership. If this is the case, then the disparity would be fully justified by the incentive argument: the workers are more productive because the CEO is motivated to make them more productive so she can have even greater income.

However, if the increased productivity is due mainly to the workers, then this seems to counter the incentive argument: if workers are more productive than before with less relative compensation, then there does not seem to be that alleged critical connection between incentive and productivity required by the incentive argument. That is, if workers will increase productivity while receiving less compensation relative to their productivity, then the same would presumably hold for the top executives. While there are many other ways to warrant extreme income inequality, the incentive argument does seem to have a problem.

One possible response is to argue for important differences between the executives and workers such that executives need the incentive provided by the extreme inequality and workers are motivated sufficiently by other factors (like being able to buy food). It could also be contended that the workers are motivated by the extreme inequality as well—they would not be as productive if they did not have the (almost certainly false) belief that they will become rich.

 

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  1. TJB said, on January 13, 2016 at 8:39 am

    Mike, what is your premise? Why does income inequality need to be justified rather than any other sort of inequality, say social inequality?

    In order to combat social inequality, maybe we should ask academics to all work for five years on a farm? Wait…

    • WTP said, on January 13, 2016 at 9:18 am

      C’mon, TJ, why ask questions you already know the answers to? The “premise” is a D talking point. It’s all bullshit. Mike will now spew some bullshit back to you, that is if you’re “lucky” and he deems it worthy of himself to descend from his Ivory Tower, but rest assured that should he choose to do so the response will be full of bullshit such as “seems to be” and “it could be argued”. You can find these “answers” you seek in any lefty blog or editorial section of pretty much any major news or opinion journal. Thus, by shear volume, the bullshit becomes fact that all knowledgeable people nod their heads to. Because none of it is real. As I’ve quoted here before…

      “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

      This is known as “bad luck.”

      ― Robert A. Heinlein

    • Michael LaBossiere said, on January 13, 2016 at 2:15 pm

      Income inequality is a result of consciously chosen actions and policies and there are numerous alternatives. As such, there should be a justification for accepting the form of inequality we have as opposed to embracing another system.

      To assume that income inequality is justified would be to beg the question. Likewise, to assume that income equality is correct would also beg the question. Neither enjoys the position of being the self-evidently correct view.

      I’m in favor of merit based income inequality: people should receive based on their performance (productivity, innovation, leadership, etc.) and people obviously vary a great deal in this regard. If you bust your brain creating a multimillion dollar invention, you certainly deserve more than some chump who just sits back and coasts through the work day, shuffling papers and drinking coffee.

      From each according to his ability, to each according to his performance.

      • Glen Wallace said, on January 13, 2016 at 2:35 pm

        Or maybe the guy creates the important new invention gets his just reward in the invention process itself. One of history’s greatest inventors Nikola Tesla once wrote “I do not think there is any thrill that can go through the human heart like that felt by the inventor as he sees some creation of the brain unfolding to success… Such emotions make a man forget food, sleep, friends, love, everything.” So then it is the guy just coasting, drinking coffee who loses out in the wonders of the invention process — or maybe the State has failed him in not providing the proper psychological tests to determine where his bliss would be in a work system under a form of government resembling that found in Plato’s Republic. I have envisioned a true communism where there would be these publicly owned and operated invention centers where the invention inclined individuals would be provided by the state all the tools and supplies to create their new wonders and that would be their reward and public would in turn be rewarded by the benefits of all those new inventions.

        • Anonymous said, on January 13, 2016 at 8:58 pm

          I have envisioned a true communism where there would be these publicly owned and operated invention centers where the invention inclined individuals would be provided by the state all the tools and supplies to create their new wonders and that would be their reward and public would in turn be rewarded by the benefits of all those new inventions.

          So after China, Cuba, Laos, North Korea, Vietnam, Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Afghanistan, Cambodia, Mongolia, Venezuela, Yemen, Bulgaria, Czech Republic, Germany (East), Hungary, Poland, Romania, Slovakia, Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Rep. of Macedonia, Montenegro, Serbia, Slovenia, Angola, Benin, Dem Rep. of Congo, Ethiopia, Somalia, Eritrea, Mozambique and a few others On the margins, I’m anxious to hear in what country you plan to try it now.

          • Wtp said, on January 13, 2016 at 9:13 pm

            Me…obviously.

          • Glen Wallace said, on January 14, 2016 at 10:58 am

            None of those countries were operating under a true communist system. They were merely tyrannical oligarchies or monarchies masquerading as communes in order to garner and maintain populist support from the plebs. Any country that places such reverence on a few individuals to the point of creating giant posters of such individuals as Stalin towering over the masses and giving those individuals and bureaucrats special material wealth and privilege, has veered far away from any communist ideal and devolved into just another elitist aristocratic system.

            As for where I would plan to try such a system, since I am a citizen of the US I am trying to make the case before my elected representatives and my fellow constituents to democratically progress towards incorporating more elements of true communism than we already have — we already have many elements of true communism in this country in the forms of our communally owned and operated public roads, sidewalks, parks, waterways, libraries, community centers, schools, universities, wildlife refuges like the one some heavily armed thuggish capitalist brutes have recently taken over, dams, bridges, bike paths…..

            • WTP said, on January 14, 2016 at 11:14 am

              They were merely tyrannical oligarchies or monarchies masquerading as communes in order to garner and maintain populist support from the plebs.

              Yeah, that’s kinda how you get communist systems to “work”. To some it’s not a bug but a feature. Out of ALLLLL those countries, don’t you think that if it would work it would work? Are you familiar with the “No True Scotsman” fallacy?

              we already have many elements of true communism in this country…

              Most of those things were built by private contractors. Or at least those things that were built properly. And as someone who has worked (key word there, “worked”) on both publicly funded and evil, dirty, rotten sometimes-quasi capitalist projects, I am very familiar with the degree of waste involved in these various enterprises.

              As for the ” heavily armed thuggish capitalist brutes” that you refer, while I completely disagree with their tactics and consider them seriously misguided in their understanding of how society works (kind of like the way I feel about leftists) to call them “capitalist brutes” calls into question your grasp of reality.

              Communes have been tried repeatedly on smaller scales. They fail repeatedly. But I suggest perhaps you put your efforts into getting just one small commune to function. Get some land together, raise some chickens, plant some crops, etc. Then try to get it to scale. Do some actual work. Keep a small group of people happy. Then tell the rest of us how wonderful it all is and we can join in of our own free will.

            • TJB said, on January 14, 2016 at 7:54 pm

              Sure, let’s try communism again. What could possibly go wrong?

              In the introduction, editor Stéphane Courtois states that “…Communist regimes… turned mass crime into a full-blown system of government.”[3] He claims that a death toll totals 94 million.[4] The breakdown of the number of deaths given by Courtois is as follows:

              65 million in the People’s Republic of China
              20 million in the Soviet Union
              2 million in Cambodia
              2 million in North Korea
              1.7 million in Ethiopia
              1.5 million in Afghanistan
              1 million in the Communist states of Eastern Europe
              1 million in Vietnam
              150,000 in Latin America, mainly Cuba
              10,000 deaths “resulting from actions of the international Communist movement and Communist parties not in power.”[4]
              Courtois claims that Communist regimes are responsible for a greater number of deaths than any other political ideal or movement, including Nazism. The statistics of victims includes executions, famine, deaths resulting from deportations, physical confinement, or through forced labor.

              https://en.wikipedia.org/wiki/The_Black_Book_of_Communism

            • Michael LaBossiere said, on January 18, 2016 at 6:51 pm

              The “Communist” states have been manifestly evil, definitely topping fascism when it comes to murder.

            • Wtp said, on January 14, 2016 at 9:30 pm

              Yet you still see people walking around in Che regalia. Even the Beatles had it figured out. If you go carrying pictures of Chairman Mao, you ain’t gonna make it with anyone anyhow.

              You know, I could see how people fell for such crap 100-150 years ago. But after failure after failure after failure after failure, you would think certain people would get a clue. And yet it’s in these “educated” social classes where you continue to find such blind, religious-like allegiance. At some point, the clown quarter will need to be cut loose before they become an embarrassing drag on the rest of academia.

      • TJB said, on January 13, 2016 at 5:01 pm

        Mike, you are being philosophically incoherent.

        • Michael LaBossiere said, on January 18, 2016 at 6:52 pm

          How so? I mean, beyond my usual mileage induced ramblings. I can stop anytime I want. Wait, no I can’t.

          • WTP said, on January 20, 2016 at 10:16 pm

            Yeah, TJ…how so? Don’t dodge Mike’s legitimate question by trolloping off to a whole other subject. For shame.

      • WTP said, on January 13, 2016 at 5:14 pm

        “From each according to his ability, to each according to his performance.”

        According to this Scientific American article, not that I think SA is all that scientific, in the 1981 hunger strike by IRA political prisoners 10 individuals died after periods of between 46 and 73 days without food.

        http://www.scientificamerican.com/article/how-long-can-a-person-sur/

        You’re already a bit on the skinny side. Even with a decent amount of rain you’d be dead within the month.

        • TJB said, on January 14, 2016 at 7:55 pm

          Snarky, snark, snark, snark.

          • Wtp said, on January 14, 2016 at 9:19 pm

            Well, I do what I can….

  2. ajmacdonaldjr said, on January 13, 2016 at 12:37 pm

    Depends upon who you “work” for, doesn’t it?
    More than 100,000 federal employees to get special pay boost http://wpo.st/cJX31
    Veterans Affairs pays $142 million in bonuses amid scandals http://usat.ly/1iU1PLW
    “Waste” is a dirty word in Washington, which is never to be spoken of in public http://wp.me/pPnn7-2aF

  3. Glen Wallace said, on January 13, 2016 at 2:18 pm

    An irony is that many of those that argue for a financial motive being necessary for productivity, put all sorts of effort into writing posts attempting to make their case without ever having any hope for remuneration for all that work.

  4. nailheadtom said, on January 13, 2016 at 5:04 pm

    Human inventive ingenuity also includes figuring out how to raise oneself on the inequality ladder without doing anything to raise a sweat or get dirty. That’s what corporate management is all about. Middle and upper level executives spend their working hours developing schemes that include share buy-backs and options that become their reward for not coming up with better products and services. Rather than build a better mouse trap they buy the Acme Mousetrap Company with their shareholders’ dividends, sell its assets and lay off the employees.


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