The Sunday Times reports:
Workers are happy to see their bosses earn many times what they themselves take home, research shows. It explodes the myth that big pay gaps in firms cause low morale.
The research is this paper (pdf) by Andrew Clark. The theory is that when people see high pay for the boss, they figure: "I'll be earning that in a few years."
As a defence of big pay gaps, I'm wary of this:
1. If people are overconfident about their chances of promotion - either because they exaggerate their own abilities or the degree of meritocracy in the organization - their contentment will be founded upon irrational beliefs. I suspect that if you were to ask people in any firm, "what are the chances that you'll be CEO in ten years' time?" the probabilities will sum to much more than one.
Clark research is consistent with this. He finds that men are happier with bosses' high pay than women. And we know that men are more overconfident in economic life than women.
2. Clark's data come from Denmark. But we know that economic mobility is higher there than in the US or UK, suggesting that people really do have more chance of becoming boss there. So maybe we can't infer from this that pay inequality is good for workers in the UK.