No government responsiveness on economic inequality and minimum wage

Posted on October 17, 2014 by Yoram Gat

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
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Not so wise: median estimates around the globe underestimate income inequality

Posted on September 28, 2014 by Yoram Gat

A recent study by Michael Norton and Sorapop Kiatpongsan finds that for all countries studied median estimate of income inequality is much lower than reality:

In their study, Norton and Kiatpongsan asked about 55,000 people around the globe, including 1,581 participants in the U.S., how much money they thought corporate CEOs made compared with unskilled factory workers. Then they asked how much more pay they thought CEOs should make. The median American guessed that executives out-earned factory workers roughly 30-to-1 — exponentially lower than the highest actual estimate of 354-to-1. They believed the ideal ratio would be about 7-to-1.

“In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates,” the authors write.

Americans didn’t answer the survey much differently from participants in other countries. Australians believed that roughly 8-to-1 would be a good ratio; the French settled on about 7-to-1; and the Germans settled on around 6-to-1. In every country, the CEO pay-gap ratio was far greater than people assumed. And though they didn’t concur on precisely what would be fair, both conservatives and liberals around the world also concurred that the pay gap should be smaller. People agreed across income and education levels, as well as across age groups.

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