The way that people’s pay is determined has become “too politicised” with Government actions regarding salary policiy often based on poor economic analysis, a think tank has claimed.
New research from the Institute of Economic Affairs (IEA) reveals that vast swathes of government action in pay policy are unnecessary and that interventions themselves fail to deal with perceived problems - whether that be inequality, pay gaps or poverty.
The IEA said that there was scant evidence that the recently introduced National Living Wage (NLW) is an effective tool to alleviate poverty and said the momentum building to impose limits on executive pay and require companies to do more to close the gender pay gap were based on “faulty pretexts that the former is a market failure and the latter arises because of discrimination”.
It added that it had found no evidence to support the claim that the gender pay gap was based on employer discrimination and that forcing the publication of pay levels would raise business costs and creates perverse incentives to not hire women for certain roles. On high pay it recommended simplifying the tax system and removing loopholes for all high earners.
Author Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs, said: “Price controls in wage-setting have severe negative consequences. Regulations that try to influence wages in order to meet an arbitrary target will create perverse incentives in hiring and compensation decisions. Sadly, rather than accepting that employers and employees come to agreements about pay according to a specific job, pay policy is being driven by popular misconceptions. Where political views on pay are concerned, we have seen a regression to the meme.”