The Motive to Work

With the current administration having greater interest in raising taxes on the rich and achieving greater "income equality," I have begun to think about incentives and their strong force upon economic systems. It is quite evident that people do respond to incentives, especially monetary ones.  Higher taxes unequivocally lower the incentive to work, and executive pay caps do so to an even greater extent. Some populists might ask why society should care about those at the top and whether they are able to reap the great pecuniary benefits of being a CEO or another top executive. 

Let's forget about the big men for a second, and let's focus on the youngest of adults, teenagers. Think about that senior high school quarterback who dreams daily of getting a Division 1A football scholarship, and having a shot to be drafted and play in the NFL, making millions of dollars. He works exceedingly hard to get to that point, yet only a miniscule amount of high school football players ever make it to the NFL. This is even translated to crack dealers, as seen in Freakanomics, where they discuss why youths in the projects turn to running crack, when there is a 1 in four chance of being killed (most dangerous job in the nation after lumberjacking, where there is a 1 in 200 chance), and a great risk of facing criminal charges among other consequences. One may ask themselves, why would they do that? It's to get to the top. As shown in the book, these drug cartels have a hierarchy, where they have a quasi board of directors, each of whom receives a six figure salary. Surprisingly enough, some of those guys are actually Ivy League educated. The kids in the projects see those at the top and dream to get there, therefore they start running drugs hoping to eventually get to the top. 

How is this relevant to executive pay caps? Well, why would people work so hard, so arduously to increase their paychecks and move up the proverbial "ladder" without the "pot of gold" at the end of the rainbow? The answer is that people wouldn't be motivated, if they knew that the top didn't exist, or that they would eventually have exorbitant amounts taken from them due to heavy taxation and have their pay capped, eradicating any motive to work harder for an end of year bonus. 

The moral of the story is this: the many at the bottom are cognizant of the top, and aspire to get there. With a marketplace that limits pay and reduces incentives to next to nothing. Adequate incentives to work must be present at all times, especially at the top, or else productivity will decline, since the motivation to work will decline as a result of poor economic policy.