The Advisors' Blog

– Broc Romanek

This “Financial Times” article by Katrine Marçal is an eye-opener:

It is one of the last taboos. You can swear on television and breastfeed in public, but you cannot talk about how much you earn. Not in Britain, at least. Viewed from Scandinavia, the controversy around the UK government forcing the BBC to reveal the salaries of its top presenters was hard to understand.

Each year Sweden, Finland and Norway publish everyone’s income tax returns. In Sweden anyone can find out anyone’s salary with a quick phone call to the tax authorities. The person whose returns you request will know it was you, but that is all. You can know how much your neighbour earns, and how much tax she pays. The practice dates back to the 18th century. Different cultures have different ideas about privacy. The British seem not to mind being watched by millions of surveillance cameras, but they do not want their salaries to be public record. In Sweden it is the other way around.

For many Britons, how much someone earns is not information that belongs in the public space. Money is private. Except, of course, it is not. Having more information tends to help people make better decisions and the economy to work better. Why should pay be any exception? “The personal is political” used to be the slogan of second-wave feminists. And most political progress for women has required some kind of renegotiation of the border between the private and the public sphere.

The debate about pay transparency is no different. The salaries of BBC presenters such as Gary Lineker or John Humphrys are not strictly private matters — they are part of a larger pattern in which the average pay gap between men and women in the UK is 18 per cent. It might not be “very nice” to talk about, as the actor Kate Winslet put it, but that does not make the conversation any less necessary.

In Sweden, businesses with 25 or more employees have to establish an equality action plan. And companies with big pay gaps face fines if they fail to take steps to close them. The Swedish gender pay gap has become smaller since this system was introduced, but it is still 15 per cent. Finland, where tax returns are also public, has a gender pay gap similar to that of the UK.

One reason for Sweden’s gender pay gap being relatively high is the segregated nature of the labour market. A large proportion of women work in the public sector, where pay is low. But if you only measure men and women doing the same jobs, Sweden does much better. The pay gap here is 6 per cent.

Pay transparency probably has a lot to do with this. It also has other benefits. In 2015, the American company PayScale surveyed more than 70,000 US employees. The resulting study showed that the more people knew about why they earn what they earn, especially in relation to their peers, the less likely they were to quit. Dave Smith of PayScale said that “open and honest discussion around pay was found to be more important than typical measures of employee engagement” — career advancement, say, or earning the approbation of one’s boss.

Having more information tends to help people make better decisions and the economy to work better. Why should pay be any exception? One of the reasons people in Scandinavian countries tend to be more relaxed about talking about money is that what you earn carries less weight there. But in a more unequal society, like Britain, where quality of life is closely tied to income, conversations about pay are much more freighted.

John Maynard Keynes once dreamt of a world in which economics is less important. Once our economic problems are solved, he thought, we would be free to focus on other things. Economists would be “thought of as humble, competent people on a level with dentists”. Maybe one day talking about how much you earn might be no more fraught than talking about the weather. Even in Britain.