A recently published study produced some revealing findings on beliefs about inequality in a range of countries around the world. The study, by Chulalongkorn University’s Sorapop Kiatpongsan and Harvard Business School’s Michael Norton, examined the views of 55,000 people in 16 countries. It asked subjects two questions about CEO pay and worker pay.
The first question was: “What do you believe is the average ratio of the pay of CEOs to that of workers?” The second question was: “What, in your opinion, is the ideal ratio between the pay of CEOs and workers?”
CEOs get paid far more than people think
One finding was that, in all countries surveyed, people consistently underestimated how much CEOs were paid.
The discrepancy was particularly large in the US. Respondents thought the average CEO earned about 30 times as much as the average worker. According to the study, the average CEO earns 354 times as much.
Some other countries had even larger discrepancies. But in every country surveyed, CEOs earned more – often much more – than people believed they did.
Subjects were also asked what they thought the ideal ratio of CEO pay to that of workers would be. In every country surveyed, this figure was significantly lower than both the actual ratio and what people believed the ratio to be.
In Britain, for example, CEOs earn 84 times what workers earn, people believed CEOs probably earned about 13.5 times as much, and thought that ideally it ought to be 5.3 times as much. A more or less similar pattern was found in all countries surveyed.
‘Ideal’ pay ratios vary widely
There were, however significant differences between countries concerning beliefs about the ideal ratio between CEO pay and worker pay.
Perhaps unsurprisingly, the Scandinavian countries had the most egalitarian views. Respondents in Denmark thought that, ideally, the CEO ought to earn twice what workers earned. In Sweden, they thought CEO pay ought to be 2.2 times that of workers, while in Norway they thought it ought to be 2.3 times worker pay.
Well towards the other end of the spectrum lay the US. People surveyed there thought the CEO ought to earn 6.7 times as much as a worker.
Which country favours the biggest pay gap?
The United States was not the country in which people saw the largest gap between CEO and worker as ideal. The identity of that country might come as a surprise.
It was not Germany or Japan or France. It was Australia. We thought the ideal ratio of CEO pay to worker pay would be 8.3.
Not only did Australians approve of the largest gap between CEO and worker, we did so by a fair margin. Here, in order, are the countries seeing the largest pay gaps as ideal:
The “gap” between Australia at 8.3 and the second place-getter – the US – is 1.6. This is more than twice the “gap” (0.7) between the US and fifth-placed Japan.
By a significant margin Australians are, it seems, most accepting of a large pay gap between those at the top and those at the bottom. This is certainly very different from the image of Australia as a highly egalitarian country.
In The Lucky Country (published in 1964), Donald Horne described Australia as “the most egalitarian of countries” where “most people earn within a few pounds of the average”. Although Horne acknowledged there were still some forms of inequality, he expressed the belief these would fade with time. For Horne, Australia was above all a place that valued egalitarianism.
What’s become of our fabled egalitarianism?
Now, 50 years later, we are the country (at least of those surveyed) most accepting of big differences in pay between those at the bottom and those at the top. What has happened? Is it possible that in the last half-century we have in our values gone from being “the most egalitarian of countries” to the least, or one of the least, egalitarian?
A few possible answers to these questions might be considered.
Perhaps the most obvious suggestion is that Australians are most accepting of high levels of inequality because we have not, as yet, actually been exposed to the stark contrasts found in some other countries. Perhaps if billionaires and people in grinding poverty lived side by side, we would be repelled by gross inequality. But living in a society in which there just isn’t that much difference between those at the top and those at the bottom, we have yet to see what a bad thing inequality can be.
The only problem with this suggestion is that it is false. Compared to other developed countries, Australia is well towards the unequal end of the spectrum on some measures. If inequality is defined as the ratio of incomes of the top 10% to the bottom 10%, Australia generally comes in at around the third- or fourth-most-unequal developed country.
It might be suggested that Australians are so accepting of large pay differences because in this country there is little or no “absolute” poverty.
The thinking behind this suggestion might be as follows: the main reason inequality is bad is not because there is a gap between those at the top and those at the bottom, but because those at the bottom are deprived of what we regard as the necessities for a decent life. It is the poverty of those at the bottom that is the real “culprit”, not the fact that some have very much more.
And, it might be suggested, we in Australia fortunately do not have significant numbers living in poverty. But this suggestion, too, is false.
An explanation of a rather different kind might be sought. One reason people in some countries might be wary of great inequality of wealth is the inequality of power it may produce. Perhaps in some other countries people are concerned about their wealthiest exerting power or influence in the political sphere, and are worried this would be inimical to healthy democracy.
Is it possible that we in Australia are happy with a larger pay gap between those at the top and those at the bottom because our wealthy have not sought to exert political influence?
Again, this suggestion pretty clearly doesn’t square with the facts. After all, Australia has an exceptionally high concentration of media ownership. News Corporation alone accounts for about two-thirds of daily newspaper circulation.
And there other ways, such as the recent success of the Palmer United Party, in which great wealth would seem to be able to acquire political power. In Australia, differences in wealth have brought about differences in political power.
So it remains unclear why Australians are accepting of such large pay differences between those at the top and the rest. Is it possible we just no longer believe in the fair go?