Equitable payment and social inequalities

The paper on such matter that I have presented to the World Congress of the International Cost Engineering Council in Rio de Janeiro, October 2016, is the result of a research I have started in the ’90s and partially published during its development. The first presentation on that matter was held by me at Bocconi University, in 1996.

The earth of the matter is summarized in the abstract of the final paper:

 The problem of properly defining the equitable payment for different levels of work has been discussed since longtime, reference should also be made to a proper scheme of comparison of the work level in different organizations, starting from the basic theory of the “time span of discretion” defined by Elliot Jaques immediately after the second world war and still subject of discussions and consideration. Also we shall set up a model trying to justify why a difference in payment for high level and lower level works can be easily accepted in a so called “rich country” while it cannot be accepted in poorer countries.

The first topic of the research are the definition of “time span of discretion” as method of measuring the level of individual work:

• The starting point for measuring the level of work is the assertion that the level of maturity of a person, from a psychological point of view, corresponds to a temporal parameter.
• The first consideration is that each task has a target time, explicitly or implicitly assigned for to its completion, and that the more a person rises in the hierarchy, the more the time frame of the tasks assigned to him is characterized by long time intervals.
• Jaques and others have suggested, and then demonstrated with studies lasted from 1950 to the present, that the level of a task can be measured in a direct and simple way according to the time schedule for completion of the longer term tasks.
• We then define “time span of discretion”: the longest task assignment in a job with subsequent tasks with immediate control, the sequence of longer assignments to subsequent tasks with deferred control,the time allotted for the long between the long-term tasks, for jobs in concurrent tasks.
• A short definition of the time span of discretion is “the length of time that a person can work, into the future, without direction, using their own discretionary judgment”

The following step is to define the very concept of “equitable payment“:

• In a system of differential salaries, we define “equitable payment” or fair pay the salary that the employees statistically perceive as fair in relation to the duties actually carried out, without taking into consideration what they could or would play. The surveys have shown a direct relationship between time span of discretion and equitable payment.
• This is true for jobs within a business organization, but also for military hierarchies and public administration, as shown in the charts below.
• For each level and for each role can be defined an equitable payment, that is the pay statistically considered as equitable by people for the work they are actually doing (without considering neither the work they would like to do nor the work they feel to be able to do).
• According to the research of Jaques, the correlation  coefficient with the job was 0.86 for time span and 0.79 for fair pay. Other research gave values from 0.85 to 0.90
• The equitable payment can be calculated with an exponential formula: the actual values are the result of a statistical investigation and data collection.

The final step is a discussion about social inequalities as a consequence of differences in said compensation:

• In recent time, important studies on that matter have been made by Angus Maddison first (please refer to Maddison Project) and then by Branko Milanovic.
• The purpose of Milanovic’s research was to measure “how close is measured inequality to the maximum inequality that can exist in a given society”, that he calls maximum feasible inequality
• Inequality frontier:
  • A further consideration is given by the fact that, when the general level of the country increases, people will not accept anymore to live at subsistence level, then the physiological minimum becomes a social minimum S0 (relative poverty line), that tend to increase with the mean income.
  • A more affluent society requires a higher social minimum.
  • We must consider that the definition of poverty is not limited to the inability to satisfy basic needs, but should take into consideration the capability to operate without shame in a society: this definition can be found in the works of several scholars throughout the centuries, the most recent one are Amartya Sen and Ravallion.
  • The elasticity  of the social minimum compared to the mean income  is a number between 0 and 1, that is to say that its increase is less than proportional to the increase of the mean income.
  • According to Chen and Ravaillon the elasticity of the official poverty line with respect to the mean income is 0.33.
  • However, taking into consideration that the socially accepted minimum (subjective poverty) is well above the poverty line, a more reasonable value of the elasticity, seems to in the range from 0,40 to 0,70 (Flik, van der Praag)

Conclusions:

1. Time span of discretion is the focus of an extensive research conducted over a period of 50 years by Elliott Jaques and others. The concept allows understanding and measuring several elements related to the complexity of a task, complexity of a role and the capability of a person. more details).
2. The time span of discretion can be used as a guideline to create a system of ranks in order to divide rank from role as well as to compare roles and then working levels and related payment in different organisations. This is quite normal in major organisations; reference can easily be made to the military structure.
3. Each person at a certain time of his life is able to work at a certain individual time span of discretion corresponding to his level of culture, experience, and professional capacity as well as of psychological maturity. The individual time span of discretion increases with the age, the time span corresponding to 55 years of age is defined “nominal time span of discretion”.
4. The use of this measuring method, besides allowing comparisons between roles in different organisations and dimensioning of the payment system, allows to compare the individual capacity to the job assigned as well as to make some assumption with regards to the potential capacity.
5. The individual capacity should be congruent with the role and with the payment.
6. The differential payment that is considered equitable increases with the increasing of the general level of the economic system.

The complete text of the paper is available on request.