Jan Tinbergen (April 12, 1903 – June 9, 1994) was a Dutch economist. He was awarded the first Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1969, which he shared with Ragnar Frisch for having developed and applied dynamic models for the analysis of economic processes. Tinbergen was a founding trustee of Economists for Peace and Security.
Clearly we will need to investigate this guys concept of economic models, however for this post I would like to focus on his one theory that he appears well known for.
Jan Tinbergen’s claim to fame was the theory of “Tinbergen Norm” which explores the fact that if in a company the difference between the lowest and highest income exceeds a rate of 1:5 then the company will incur a loss.
Based upon this ratio we are certainly way out of control with executive salaries and compensation, as indicated by this report.
The average U.S. chief executive earned more than $11 million last year in salary, stock options and other compensation, according to a new analysis by the Economic Policy Institute. That’s about 231 times more, on average, than workers.
That ratio has shrunk a bit since the height of the dot.com bubble, when a ballooning stock market inflated CEO compensation to 411 times that of working stiffs.
And it’s smaller than the pay gap calculated recently by the AFL-CIO, the umbrella federation of unions representing about 12 million U.S. workers. Their analysis concluded that the typical CEO of an S&P 500 Index company made 380 times the average wages of U.S. workers in 2011.
So no matter whose numbers you use that is alot of profit not going to shareholders and average workers.
So what is the solution to all of this ?