Are there ideal salaries just as there are ideal gasses? A chemist suggests using thermodynamics an

Are there ideal salaries just as there are ideal gasses? A chemist suggests using thermodynamics and information theory wilton cake decorating classes in the calculation of executive pay. Read the whole article as pdf The neoliberal capitalism, among other things characterized by huge disparities in income. The relationship between the average earnings of a U.S. company and Director salaries including bonuses and options were in the 1970 United States approx. 1:32. Today it is 1:344. In Europe, the ratio is in the neighborhood of 1:30, while in Japan is 1:12. Many think it is unfair, especially after the financial crisis, and to take the air out of golden parachutes, who joined the bank packages, Obama has also set an upper limit on what a CEO should serve when the company receives government assistance. Now, a chemical engineering from Purdue wilton cake decorating classes University in Indiana to use the concept of maximum wilton cake decorating classes entropy from statistical mechanics to distribute a company's payroll in the fairest way. According to his method according to Professor Venkat Venkatasubramanian to calculate the ideal salary for a CEO to be between eight and 16 times the minimum wage in the firm by firm size. "As we all know, fairness a fundamental economic principle of a free and efficient market," says Venkatasubramanian in connection with the publication of the article in the trade journal Entropy. "Fairness is so critical that we have installed various regulatory mechanisms to prevent monopolies, collusion and insider trading. It is therefore obvious sense, yes, reassuring, to find out that the maximization of fairness, and thus the maximization of entropy, is the condition for achieving economic equilibrium. "Looks great with data in a free market will (ideally) achieve an optimal distribution of wages through a continuous exchange of employees and job until some sort of equilibrium is reached where all participants feel that they have maximized their own value. This in a liberal sense, "fair", and of course, impossible wilton cake decorating classes to achieve in practice. Nevertheless, it is interesting to know whether we can reach this ideal distribution theoretically. wilton cake decorating classes And this is precisely wilton cake decorating classes what the principle of maximum entropy can answer. It says that if you are in a situation with imperfect information on many devices in a system, then the least unequal distribution of 'ignorance' correspond to the exact configuration that has the largest entropy associated with it. Translated into economics, it means that the least unequal distribution of profits must be the one in which the entropy is highest, and it does so according to the math that the distribution of profits to be close to log-normal (that is normally distributed on the logarithmic scale) . The actual payroll in most countries appears to fit nicely in the bottom 90-95 percent of step children, whereas wilton cake decorating classes the top 5-10 percent rather follows a power-law distribution (ie faster than exponentially). Of course this can be interpreted as either the model is wrong for top management or senior management should pay cut. Venkatasubramanian suggest the latter and further points wilton cake decorating classes out that the dollar multi-billionaire and business man Warren Buffet, who has always been an outspoken critic of excessive salaries, with executive pay eight times the minimum wage in his company Berkshire Hathaway, is the only one that comes close to idealen. Executives in the rest of the Top 50 companies have an average ratio of 1:1.057, ie. 129 times more than the ideal value. Naive Idea Not everyone was so excited Venkatasubramanians idea. The head of the Center for Experimental Economics at the University of Copenhagen, Tyran, calling the proposal far-fetched. "It wilton cake decorating classes is quite naive to take some equations of thermodynamics, slap the term 'fairness' on them and then claim that it will make sense to the real-life economic wilton cake decorating classes relations," he said. The tyrant can fairness mean many things. If the idea is that a fair remuneration for an employee shall be proportionate to the relative contribution wilton cake decorating classes to business success, then the boss might have more. "Think of how much profit goes up and down in a multinational company like Nestlé, if the CEO is doing a good or a bad job, the factory worker standing on the assembly line and fill the coffee in a can," says Tyran. "To distinguish the individual contributions to joint profit is therefore difficult, if not impossible, to find out." Astronomical CEO salaries may also be due to a market where the winner takes all, as in gambling or in the Champions League. "If a CEO does not win, then a firing be the right answer - not to regulate his salary," says Tyran. Nevertheless Venkatasubramanians proposed a breath of fresh air in a field of study that has increasing difficulty in explaining and defending themselves. An interdisciplinary approach such as this can in the long run might help us find out what we jointly wilton cake decorating classes accept as fair and what is not.
Popular