Social Matters in Germany

Does it make sense that a CEO earns 240 times as much as an assembly-line worker? And doesn’t someone who works hard all week have the right to be able to live from his work? What is a fair wage? Goethe.de put these questions to Stefan Liebig, Professor for Social Inequality and Social Structure Analysis at the University of Bielefeld.

Professor Liebig, what determines how a person perceives his income?

That depends above all on the comparison with others. Is the training the same, the load similar, must the other person work just as long as I must? If then the one earns more than the other, we feel that this is unfair. Comparison with big earners such as Ackermann or Winterkorn doesn’t play a role here. It’s rather a question that concerns social equals in a similar age group and of the same sex.

So women compare themselves with women and men to men?

Yes, the interesting thing is that women, with their rather lower incomes, are content to compare themselves with each other instead of with men in comparable positions. The income that women regard as fair is below the income that men actually receive.

In one of your studies, 95 percent of the respondents believe that income is distributed unfairly. Is there such a thing as a fair income at all?

Those are very different questions. If you ask people about income differences in society in general, you get a very blanket answer in the style of “It’s all unfair”. If you ask them to evaluate examples, however, whether they regard as fair what a doctor, a doorman or a hairdresser earns, you get a very different picture.

How did you proceed?

Respondents were asked to evaluate whether they regard as fair earning of € 8,000 gross for a 45 year-old, single doctor. Or € 2,500 for a hairdresser. In most cases the respondents in the upper income brackets went slightly down, while those in the lower brackets when slightly up. But most agreed that, in principle, income distribution is fair. We repeated these sorts of questions over a period of ten years. The result: two thirds of the respondents thought the distribution of incomes as it now exists is fair enough. This opinion varies now and then only plus or minus ten percent, depending on prevailing economic conditions.

If an employee learns that his boss is earning 100 times his own income, what remains of his sense of justice?

Basically, that doesn’t really affect an employee in his everyday life. Most people also have nothing against football players earning millions of euros. Unless someone fouls up. Then people take it badly. If a manager, who is responsible for ensuring that an airport is ready on time, fails and is fired but still receives a parachute payment of several hundred thousand euros, then people feel this is unjust. But that’s another story; it’s a question of something like fair procedure.

The labor market is determined by supply and demand

Has justice been achieved when someone can live with his family on what he earns without social transfers?

Incomes are formed on markets. In a market economy the gross wage that someone receives for his work first of all depends on supply and demand in the labor market. People who have skills and abilities that few others have and that are urgently needed by employers can earn higher incomes. Conversely, those who have qualifications that they share with many others and for which there is a slighter demand on the part of the employer receive lower wages. Supply and demand rules.

Is that socially just?

Enter the social market economy: the state makes adjustments, supports here, controls there. This is politically desirable. The state can’t dictate wages; they have to come about freely. But it can make it a political goal that someone must have a fair minimum wage – and then top up low wages with support services so that low wage earners and their families can live.

So the pure market economy wouldn’t allow for fair wages?

Prominent economists such as Friedrich von Hayek have seen it in that way. The paradox is that, as a buyer, every participant in the market follows the motto “tight is right” and is after the newest TV for the cheapest possible market price. On the labor market, on the other hand, he wants to be protected against competition in every possible way. That the economy no longer asks where someone comes from, whether he professes the “true faith”, whether he has the permission of his sovereign – this is the great progress over the feudal system such as still sometimes prevailed even into the nineteenth century.

“Fair” isn’t an economic criterion?

At bottom, it isn’t an economic goal – there are people who slave away twelve hours a day and still can’t live from their work, and others who hardly raise a finger and still earn more than enough. That doesn’t mean fairness has no meaning in the economy. It’s certainly a relevant factor, namely when employees feel their income is unfair and therefore quit inwardly, work less, are less committed to the goals of the business.

Can we put a lid on high incomes?

Of course, that happens regularly with top rate taxes – when they bite and the taxpayer hasn’t already fled to a tax haven. But companies will never cap salaries; they pay their top people what those people can demand on the market.

What do you think of an “unconditional basic income”?

We did a survey in 2002 on the idea of an unconditional, performance-independent income. The result: the vast majority of respondents rejected it because it undermines the achievement principle. The tenor was “Those who don’t work shouldn’t get anything”. However, behind the idea of an unconditional basic income is a not unreasonable consideration: if the state were to distribute money without reference to the person and without any examination, the entire social bureaucracy would vanish. The whole complicated Hartz IV administration would dissolve into thin air. It would have to be worked out whether the money then saved would be enough to finance a basic income.

Are you satisfied with your income? Yes, I’m satisfied with my income and think it’s fair.