This in-depth study looks for the first time at the possible options for applying a maximum wage cap and the benefits it could create for lower and middle income earners. 

Britain operates a starkly unequal labour market (the 9th most unequal in the OECD), and the Covid pandemic is revealing its true extent. As the UK economy buckles and growth crawls to a halt, the government – and business leaders – need to consider mechanisms by which existing cash in the labour market can be more equally distributed, so as to save livelihoods and industries. Wage caps are a powerful instrument to do this.

We believe the report carries out unprecedented estimations of the earnings of the top percentiles of salaried, full-time employees, based on available data. This represents a new step forward for economic modelling in this area. 

As firms of all kinds from a variety of sectors plan and carry out layoffs at scale, we ask the question: ‘are these cuts to jobs necessary?’

And as the government suggests that it will not follow through with its 2019 election promise of a £10.50 per hour minimum wage, we ask the question: ‘Can we afford to raise the minimum wage?’

These charts show the huge benefits and minimal costs that wage caps on the very highest earners could produce. Using the slider you can see:

• What the new max wage for top earners would be.
• The percentage of highest earning jobs receiving pay cuts.
• The increase in median salary in terms of cash for the bottom half of the earnings spectrum.
• The increase in median salary for the bottom half of the earnings spectrum (as a percentage).
• The number of jobs (FTE) that this redistribution equates to.
• The number of jobs receiving pay-rises and then number of jobs receiving pay-cuts.

In Chart 1’s scenario, a £100,000 wage cap (the most popular option with the British public) would redistribute the cash equivalent of over 1 million jobs, showing that mass-layoffs are not necessary, if the very rich earn a little less. In the scenario of redistributing that income to middle and lower earners, over 9 million workers would receive pay rises with only 2.8% receiving pay cuts.

We  can also see that even very high wage caps (£200,000 and £300,000 respectively) on diminishing numbers of high earners (0.5% and 0.2%) could still realise pay rises for around 8.5 million workers. Alternatively, this redistributed income could be used to create or save hundreds of thousands of jobs.

In Chart 2 we have presented the same data, but have provided a slider that marks the percentage of high earning jobs that would receive pay cuts.

By moving the slider, you can see the impact that redistributive pay caps could have on lower and middle income earners. As above, you can see:

• What the new max wage for top earners would be.
• The percentage of highest earning jobs receiving pay cuts.
• The increase in median salary in terms of cash for the bottom half of the earnings spectrum.
• The increase in median salary for the bottom half of the earnings spectrum (as a percentage).
• The number of jobs (FTE) that this redistribution equates to.
• The number of jobs receiving pay-rises and then number of jobs receiving pay-cuts.

With Chart 3 we ask the question: can we afford a rise in the national minimum wage and how many high income jobs would need to receive pay cuts to achieve it?

A minimum wage of £10.50 per hour (£20,160 per year) could be achieved if a salary cap of £187,000 was utilised. This would only affect the top 0.6% of earners and give pay rises to over 3 million workers. 

A minimum wage of £12 per hour (approx. £25,000 per year) would affect the top 3.21% of earners, but would give pay rises to 5.5 million workers.

In the below table we have listed the hypothetical new minimum wages, the pay caps that would be required to redistribute funds and the numbers of ‘winners and losers’ in these scenarios.

Autonomy has released new polling by Survation which shows public support for the introduction of a maximum wage cap of £100,000.

The polling found that 54% of the public support the introduction of a maximum wage. When asked in a follow up question what would be the fairest maximum wage, the most popular option was a cap of £100,000 which was supported by 31%. 

Overall, 69% of the public supported maximum wages of either £100,000, £200,00 or £300,000.

There are essentially two factors that contribute to the above study producing underestimations of earnings inequality:

– First, the fact that we set an artificial min wage (£10,000 per annum), which is lower than the legal min wage, but also probably lower than the true UK min wage. We did this to provide a conservative parameter that realistically would catch all possible incomes. This low bar shifts the whole distribution lower somewhat, contributing to a probable underestimation of true earnings.

– Second, the total amount of earnings paid out is given by mean earnings multiplied by the number of jobs. The reported mean earning is likely to be lower than the true mean earnings, as lower paid jobs are likely to be over-represented in the ASHE polling.