It's much more than a negative impact on democracy, it has a huge effect on people's happiness and wellbeing. A lot of research suggests that, once a country has reached a wealth level where there are no longer people starving and very few people homeless, an increase in GDP does not increase wellbeing, but an increase in equality does.

See for example the excellent book 'The Spirit Level' or this website from the same authors: http://www.equalitytrust.org.uk/ 

Unfortunately it's human nature to want more than our neighbours. For example, an interesting sociology experiment showed that, when offered two scenarios:

1) Everyone in your company gets a 10% raise

2) You get a 5% raise and everyone else gets nothing

people are happier with 2, even though they get less money, because of the implied boost to their status and ego.

Since people won't give up their wage differential voluntary, the only way to reduce it is legislation.

I would propose a 'maximum wage' tied to the minimum wage. the maximum wage would not be a set number but a multiple of the smallest wage in that company. So for example, if the CEO is earning 100 times what the cleaner earns, and he wants a raise, he can only have it if he gives the cleaner the same raise.

When first introduced the multiple could be, say, 100. Slowly it would be reduced to less than 10. I don't necessarily support reducing it all the way to 1 i.e. complete equality, I think that some incentive to promotion should remain.

Hi Adam,

thanks for your comments. I would not support total equality either, because this would indeed massively reduce peoples motvation. And it is just fair, when people who work harder earn more money. But to earn the double, triple or at most the fivefold than others should be enough incentive to work efficient! Your proposal is quite original, but maybe companies would find ways to bend the rules (maybe outsource the cheapest employees, etc). In my opinion the tax system is still the best instrument to regulate income. But it does not happen because of the international tax competition.So, countries should agree to implement similar tax rates.

Yes, I have thought about the problem of outsourcing. The law would need to be very carefully worded to avoid this. For example, you could say that everyone working in the same building is included in the same 'wage group' which has to respect the maximum multiplier.