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What if…

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… the same quality of reasoning and familiarity with economic reality and economic theory that fuel the typical argument for the minimum wage were to be applied to CEO pay?  The result might well be an argument similar in content and quality to the following:

Let’s use government force to impose a minimum annual salary for CEOs!  These men and women are the economy’s leaders!  Without their executive and managerial skills, every firm’s productivity would collapse – crushing the well-being of us all.  And the beauty is that a high minimum annual CEO salary will pay for itself!  Not only will conspicuously consuming CEOs spend their larger incomes, thus putting more money into the economy out of which their higher salaries will be fully paid, but, also, these CEOs will work harder when they are paid more.  CEO turnover will also fall and the productivity of the firms they manage will all rise by at least enough to enable those firms to afford to pay the higher, government-mandated CEO salaries.  It’s a win-win for everyone!

To top off the case for imposing a high minimum salary for CEOs is the economic reality that the market for CEO talent is infected with monopsony power.  The market for CEOs – contrary to naive economic theory on which the case for free markets exclusively rests – is not perfectly competitive.  After all, there isn’t a large, thick market of countless employers of CEOs.  Two other imperfections mar the CEO labor market: First, no CEO, or aspiring CEO, has perfect knowledge of his or her job opportunities; second, because each CEO’s salary is high, the amount of income that a CEO loses who quits his or her job to search for another job is so large that too few CEOs will risk quitting their current jobs in order to find jobs that pay salaries closer to the market value of these CEO’s marginal productivity.  The result is that CEOs are virtually held hostage by their current employers.  These employers, naturally, underpay their CEOs.

Put differently: the supply curve of CEO talent is upward sloping – which, as is known to every student who has dutifully memorized how to manipulate the graphs in intermediate-microeconomics textbooks, means that the annual pay of CEOs must be lower than the marginal productivity of these workers.  It is child’s play for such students to show how a minimum CEO salary will not only not decrease the number of jobs for CEOs but will likely increase this number!  Therefore, a government-imposed minimum annual salary for CEOs will cause CEOs to be paid more fairly, as well as improve the overall performance of the economy.

Justice and economic prosperity require a high, government-imposed minimum salary for CEOs!

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