The top 10% of workers in the UK have their annual wages rise by 3% over the past decade according to research from the London School of Economics (LSE).
Its report Bankers’ Pay and Extreme Wage Inequality in the UK from the Centre for Economic Performance (CEP) at LSE showed that from 1998 this group of employees’ share of annual wages rose from 27% to 30%.
The majority of this went to the top 1% of earners and can be mainly accounted for by bonuses to financial sector workers. By 2008, the increased share that bankers were taking amounted to an extra £12 billion per year in wages alone.
The report showed the size of these bonuses and the way in which they were structured may have been a contributing factor to the financial crisis. Bankers paid large cash bonuses on the basis of short-term returns often unadjusted for risk have incentives to take on excessive risk.
According to the report, it is unclear whether shifting away from cash toward equity-based compensation would alter any perverse risk incentives because unlike a chief executive officer, an individual banker typically has only a small effect on the share price.
The research concluded there was little evidence as to whether tax rises affecting higher earners would cause a significant number of firms and employees to leave Britain. In any case, highly-paid workers are likely to change their behaviour to minimise the impact of the tax rises and so reduce the expected revenue gains to the Exchequer.
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