The reality is that people who make more will tend to value themselves at that monetary value, and live that lifestyle, instead of realizing they are making 70k a year for a 40k job.
In theory, people would understand that and take the extra money and invest it, or at the very least, understand that the basis of their current standard of living is unstable, and take precautions to ensure their financial security.
The reality is, even though people are entirely capable of doing the math themselves, when some banker tells them they can "afford" a 700k house or when their politicking or nice boss causes them to be paid above scale, the loss of that becomes equivalent to the loss of some sort of human right. They then expect to be compensated for their loss, even though the economics doesn't support that rate of pay.
So no, that's not a reason to deny someone a raise, but it doesn't necessarily provide a fix for the problem that there are people out there who don't have the skills needed or alternately, there are more people with that skillset than there is demand for that skillset out there.
There are two problems out there, and they are not actually directly related. The first is that people see large inequities in wages between the top and the bottom. The second is that some people have trouble making ends meet.
Although many people feel as if the 1% taking a drastic pay cut will solve the problem of poverty, the reality is that it will not necessarily. If Bill Gates has 90 billion dollars and I make say 50k a year, but I have everything I need to live comfortably, then is Bill Gates making 90 billion actually a problem? The answer is "no".
The actual problem is determining why people are not making enough to be comfortable. And for that, we do need to understand the issue of pay inequity, but we need to look away from what I'd consider simple envy, and look at solutions that actually get people out of poverty. You could shear away all 90 billion of Gates' money and dump it into a welfare fund for everyone in the USA. That's $300 per person. Once. Period. Shear away the earnings of the top 1% and you might increase that into a few thousand per person in a one time, lump sum. That wouldn't even be enough to pay for a semester of college at a state school.
The amount of money you get isn't actually a problem. We can manufacture money. The government prints it. But what happens when we give more of that money to your average person? I'd argue that a lot of people would suddenly become better off and more comfortable, but within a generation or two, you'd be sliding back to where you started. Why? Because some people make poor decisions about how to spend their money. While you can suggest that they get "tricked" or swindled out of it, most con men will tell you that their scams work basically because people get greedy and disengage their brain. They ignore good solid math to make risky decisions or take gambles which feel good to them, but cause long term disaster. You can't make that problem go away by simply giving them a raise, because bad decision-making is a black hole which can consume any amount of money you throw at it.
And on the other hand, you have people like your Gates' or Buffetts of the world. Some people are good at making cars, some people are good at being doctors. They are simply good at making *money*. Making money is a skill like anything else is, and some people have that skill. Those people will generate cash, because they are good at it, and they enjoy it. Just like you enjoy watching your favorite TV show. Those sorts of people will on average, always make more money than everyone else. Its a matter of focus, not criminality. If your tax laws allow a tax haven, they will use it, because it helps them be more profitable. Is it their responsibility to not take that completely legal break because you don't think they "need" it? Do they get to tell you that maybe you shouldn't buy a McMansion that you would know you can't afford if you simply added up your mortgage payments for 5/10/30 years and compared it to your take-home salary?
The market isn't wise, the market is simply us. It isn't this mythical thing that exists separately from humanity, it reflects what we ourselves do, both our good and bad decisions. It isn't the Messiah or a Prophet, it is simply the way things are. If you want to change how things are, you don't try and game the market, you listen to what it is telling you and you act on that. If people are poor, there is a reason they are poor and that reason is not always external to them, nor is it always out of their control.
If you want to end poverty, you don't simply redistribute money. You create an ongoing basis for providing people certain comforts despite their bad decision-making. The tricky part is how we set the level of comfort and then how we pay for it, and how we make sure people value it. Does everyone get a house? Sounds good, but how do we keep it from becoming "The Projects" where no one respects what they have been given. If they're renting a place, they'll never really fully believe it is theirs, but if we give them a house to own, how do we keep them from selling it to pay for their gambling debts?
I think that the talk about the 1% is a red herring. There are some asshole rich owners out there, but I think we need to focus on what causes those lower down the income line to be unable to maintain their standard of living over time. Giving people at that level a raise is not a permanent fix, it's a band-aid. It could provide an opportunity for some motivated person to make something of it, but most people will burn it up, just as surely as if they lit the bills and smoked them.