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October 31, 2010



"That’s what happened to Victorian Britain, he suggests, when it was surpassed by the United States and Germany. Britain had capable businessmen and good financial markets to support them. There’s no evidence that Victorian businessmen failed to invest wisely. The problem, argues Nye, is that they didn’t invest unwisely."


Tim Worstall

Yes, but....top incomes aren't (entirely or exclusively) driven by earnings of corporate executives.

The top 0.5% is 150,000 taxpayers in the UK. There's a big chunk of all sorts of other people in that number: most professional sportsmen, most of the successful people in the entertainment industries, actual entrepreneurs not just execs and so on and so on.

I still maintain that a goodly chunk of top people's wages ( top meaning top 1%, 0.1%, to taste) is determined by this globalisation thing. The few people who are able to earn pennies from billions worldwide rather than pennies from millions domestically.

For those to people's wages do seem to have risen everywhere, whatever is happening to corporate profits etc etc.


Er, what, exactly, is the difference between being bribed not to seize corporate assets and, um, actually just seizing them?

Couldn't it well be asked whether senior corporate management - the supposed 'agents' - are actually now, in a de facto sense, the 'principals' as they have effective control of the distributions of the firm's assets?

Only asking like.

Mark Wadsworth

I think it is misleading to look at boardroom 'salaries' as in any way akin to 'salaries' like for normal people, or to regard them as a business expense.

They are in fact a priority profit share. The 'business' makes profits after paying market salaries to actual working people, and then the profits are divvied up between the directors and the shareholders.

High footballer salaries aren't paid by 'the fans' either, they are paid more or less directly by very rich businessmen with massive egos who are prepared to bankrupt themselves by buying a football team.

And finally, high salaries for civil servants, solicitors (esp. 'human rights' lawyers), auditors etc aren't really salaries at all, they are more akin to rents - without the government there to invent all the stupid rules, we wouldn't need nearly as many of these people.


Sorry, but your chart shows nothing, for a number of good reasons:

1. the earnings of the top 0.5% is highly volatile and subject to measurement errors. This is a property of estimation of high and low quantiles.

2. these earnings are not very meaningful. You are interested in managerial compensation, and are throwing in the picture a lot of earners who have nothing to do with it (well-paid professional, idiots like Beckham, etc.).

3. it's really hard to see any relationship that stands up to scrutiny. Try to plot the two series as paired observations, not as time series. Your "rough correlation" must be a new exciting sort of statistics. On my side of the world is called apophenia.

Two additional remarks:

1. the efficiency wage theory of management is appealing, but I wait to see better empirical evidence in its support. Actually, I am waiting to see better empirical evidence for anything that involves economy of information and principal-agent theory.

2. as for the fragility of capitalism because its dependency of managerial skills, it would be true in a world with one firm and one skilled but mortal manager. You are ignoring that the world has a large number of skills and a large number of skilled, mostly interchangeable agents. One expect that averaging will reduce fluctuations here. If Jobs eventually dies of pancreatic cancer, Jony Ive may do a better job.

Having said that, I am always and forever a big fan of your blog, and of "The End of Politics". I quote them incessantly. But the last few posts must have been written under the influence.


@Mark: Why is your use of quote marks so liberal? Are you saying there are no such things as salaries, fans, human rights etc.?


@ Mark

Profit share? They do better than that. When there's no money in a company, there are no dividends for shareholders. You won't see a high level exec letting a little thing like that that stand in the way of their pay.

Peter Risdon

Is the fact that human assets can move between corporations a weakness of capitalism, or a strength?


Profits are up, share prices are up. What do you think should happen to the wages of people hired to increase profits and share prices?

I dunno. What happened to their wages when profits and share prices fell?


@ ajay
They did, for the most part, fall. Substantially in some cases. High rises this year now are a reflection of a "low" starting point.

Tom Addison

Executive pay is a joke, they take way too much credit for a company's good performance.

"The board rejected the employees annual pay increase.... The board approved the directors bonus for the year"

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