So just off the bat reading the title, I was expecting numeric evidence for a very numerically based claim.
The data the article provides does not support the author's claim, to say it nicely. For one to claim there's an association between wages dropping and corporate profit increasing, you'd need an area graph over time of corporate expenditures with with worker wages and other common expenses listed. Neither of the graphs included support his claim, as there's a multitude of other variables that could explain their trends.
The second claim the author makes is that this is occurring specifically for US companies. There is no data at all cited for this claim.
I wish people would at least "try" when publishing articles with a political motive. All this article will do is reinforce the belief that wages need to rise for people who already believe it.
Presumably fajitas didn't mean that the graph proves the article's claim is true; just that the graph is close to what root comment asked for. Indeed it's evidence that the article's assertion is false.
Looks like it's just summarizing what the Chief Economist at Goldman Sachs thinks. There is lots of other reporting about it on the news.
Do you have a theory on what political motive GS might be pushing? Promoting worker wages with made up arguments and unfairly criticising corporate profits doesn't seem to fit their agenda.
What is the macroeconomic effect of workers 401K stock investment plans? Stock transactions. You get to skim a little off the top both at purchase and sale. Back in the old days when more people were working, on average having higher income, they'd skim more commissions.
There is an interesting secondary effect of small retail players having been net purchasers of stock via retirement plans, which is to push the market up. You can rely on the fed lowering interest rates to push the market up until rates hit zero, you know, like now, then that stops. Hmm what happens to stock prices when more baby boomers are selling than millennials are buying... Maybe their only hope is to get as many people contributing to retirement funds as possible to at least reduce the blow.
Stocks are fundamentally kinda like real estate in that sellers can stamp their feet and pout and demand whatever rate of return they like, but in the long run, the median sales price is going to be whatever the median dude can afford, and "the market" doesn't care what the sellers "need" it only cares what the buyers median income is, which has been falling for a couple decades depending on who cooks your numbers.
In the long run, not just next quarter, GS badly needs a lot more workers contributing to 401K and other retirement options. Maybe they're too heavily leveraged up to survive not having more workers to transactionally skim off of.
They had a Ford moment? Final realization that if there is no one to buy stuff the whole financial industry is doomed? Got scared of 6th year of depression?
What's particularly disturbing is the sheer greed being shown in pursuit of these profits. There was a recent article about an auto plant in Michigan that went through near-bankruptcy but is now making a $2bn/year profit. The profit was attributed in part to $50m/year in reduced wages that were extracted from the union in exchange for not closing the plant. Those concessions represented over one third of the wages but only 2.5% of the resulting profits. That's just disgusting. They should have kept the wages steady and enjoyed their more-than-sufficient 1.95bn/year in profits.
Disturbing is that apparently some people would prefer to see this "one of last plants in Detroit" bankrupt a all employees and their jobless, rather then tripling workforce in what is now most distressed place in US with 16% unemployment.
Apparently these (pre tax) profits don't end up in somebody's pocket as you imagine but are reinvested in giving more people
jobs and growing the plant.
For their own benefit??? Do your only see what confirms your world view? No they hired 3 times more people for the money they made. If I had a family in Detroit I would be much happier to have a job that stay unemployed. They are doing the good thing.
Apparently managers are doing a good job - the company was bankrupt all of those people would risk ending up on streets - it's Detroit we're talking about. Instead they turned it over and gave jobs to 3 times more families.
And no not everyone is savvy enough to run a business, some people don't have necessary skills - we all have different talents and aspirations.
Oh, I agree that hiring people and giving them an honest job is a very good thing in general.
I was just highlighting the principal agent problems. Managers like to hire people---because they can build their empire. Influence and status in most companies go up the more people you have reporting to you.
In this case, hiring more people seems to be in the interest of employees, managers and shareholders alike. Remember, selfish does not necessarily mean bad.
This is entirely anecdotal, but I grew up in the Midwest and know many people who spent their lives working in automotive factories. I wish these people the best, and I'm glad that they are doing well, but many of them are making $25+ / hour installing doors and seat belts (and the '+' here has a high ceiling).
This is a job that any able bodied person can do, but they make that living, for better or worse, because of their unions. If I were funding these plants I wouldn't want to pay those wages either.
As a reasonable person I have to admit that this sort of work is simply is not worth that pay, regardless of what my personal feelings toward my friends and their families are. These are not skilled positions.
This is the thing I don't get, why shouldn't the employees of the company, no matter how skilled, share in the good times? They certainly pay in the bad times.
As companies have become ever more callous and unions ever weaker all the money has moved to the owner side. It's not simply just about "I won this factory, therefore I get all the money", as I think we're going to find out in the next 20 years, that kind of thinking leads to major civil unrest and we will probably see the replacement to unions forming in the next decade or so.
But they don't generally share in the bad times. If a company has a bad year most people don't take a pay cut. And they definitely won't get paid nothing for a year while lending money to the company!!!
For example you own a local garage. On normal years to make $500,000. Your costs are $400,000. One year thing go bad and you only make $300,000. In most cases the owner will borrow the money to cover the difference. Maybe someone is let go but in most cases the owner tries to retain the staff hoping next year is back to normal. Maybe the owner will use his own money rather than borrow. In any case they will find the money somehow or close. And remember this is at the same time as having your salary reduced to $0!
Eventually the owner wants to recoup and protect themselves from any bad year. But at a $100,000 profit a year, and remember this is pre tax, and profits are double taxed for the owner, then how long will it take to save pay them back and save enough for the next bad year?
So if one year he make $600,000, or double the profits, he needs to keep those profits for the bad years.
Now big corporations are slightly different but at the same time they need to be absorb harder years. So right now they squeezing profits but at some point those profits will be needed for a bad year. Or perhaps it was to pay for the recent bad years in which they may have acquire debt...
Some corporations are greedy, but a lot aren't. You have to look at the multi year picture when it comes to profit sharing. And most employees are not willing to loan money to a corporation in a bad year like the owners will most likely have to ;)
You're assuming that both the company and that division of the company survives. If it goes under, if labor is outsourced, if a factory closes, the workers lose their jobs. Of course they share in the bad times, and far more than the owners of the company do, since the workers have more at stake.
You present a false choice here, regarding employees not "generally sharing in the bad times". The CEOs of these companies often don't share in the bad times either, while they most certainly are rewarded for the good times. Why should it be any different for all levels of employees?
Now, regarding the owner of a small business loaning their company money, while employees do not. Employees are not given the choice, likely because the loan is to high of risk for the average employee given their personal net worth and as important most owner's don't want their employees to be given the option (ie. as an owner of a garage I would not want my employees having that level of access to the company's finances).
The primary issue however is the treatment of labor, let's not get lost in details of risk/loans/etc. Given that technology is leading to a surplus of labor, a general multi-decade trend against labor. The question that society needs to address is how do we treat labor? Business can exploit labor pushing what's acceptable, which will lead to larger wins for industry as we can already see today, but is that right? I think you and I differ in opinion on the answer to that question.
The way to do that is via profit sharing/bonuses - converting payroll from a fixed to a floating expense, essentially.
I disagree that "companies" have become more callous. The general public want their cheap stuff, and they don't really care. The press is full of horror stories about sweatshops every week and yet, everyone wants their new iPhone and their new trainers and their clothes to wear for a few months at most... What will it take to effect a change in the mind of the consumer?
It's a tightrope because when it becomes cheaper to automate whatever job they were doing manually, then they make $0 per hour.
That's the case in South Africa with farm workers and their unions driving up the minimum wage. There is 25% unemployment nationally and they are clamoring for more money. The farmers just go "well at this price point, I might as well just buy some more machines and get rid of these people".
How is inflation is SA currently? Inflation tends to hypertrophyze unions, because there comes a need to a common agreement to adjust wages across the board to keep up with prices.
It varies, but for the past 2 years it's been around 6%. So yes increases are necessitated, but the unions generally start off with ridiculous demands like 15% increases and benefits and they have no problem with striking for days on end.
The problem really is that when you have 25% unemployment, where those 25% are almost all unskilled then you work to eat and not much more. You don't have much bargaining power there. So again, if you're unskilled, oversupplied and are replaceable by machines, you should be very careful about what sort of demands you throw around. I'm not sure if unions are really conscious of this fact or just trying to appease the workers demands.
Business income is volatile. The business made a $2B profit in one particular year, whereas in other years they made losses that nearly destroyed them. Somehow I suspect when the business took losses, the employees did not return their wages.
Unless you want employees to share the downside of business income volatility, it's unreasonable to expect them to share the upside.
> Unless you want employees to share the downside of business income volatility, it's unreasonable to expect them to share the upside.
This is an incredibly dishonest statement. Employees DO indeed share the downside of business income volatility by being forced to take pay cuts when their company is going through a rough patch. I see it all the time and I've had it happen to me.
I'm confused. You signed on to be paid $X/month, you worked a month and were paid $X. Later you renegotiated the contract to be paid $Y < X/month, you worked a month and were paid $Y. If you want to work elsewhere for $X or $2X or whatever, you can.
Downside risk: you signed on to be paid S shares/month or P% of profits. You worked a month and the share price tanked. You already took the loss.
There is nothing to be confused about, the scenario is pretty straightforward: you are presented with a (non)choice of either taking a pay cut or finding a box waiting for your on your desk. By being placed in this position, you have already been placed in a predicament where you have to accept the financial downside either in the form of taking a pay cut or having to find a new job. Again, the downside has already manifested and you are left dealing with the situation. So how exactly has being a salaried employee protected your from the said financial downside?
When you're a 20something techie living in the Valley, it really doesn't matter since you'll have 5 offers waiting in your inbox tomorrow. When you're a 50 year old blue collar worker with a family, a mortgage and maybe a medical condition, this kind of situation can ruin your life.
Most company owners don't readily share profits with their employees when their company is doing well but don't have a problem downsizing and cutting salaries across the board when they aren't doing so well. Since it's impossible to guarantee somebody income (even the best companies will go through rough patches), the only fair thing for managers to do is to share more wealth with the people who created that wealth when the times are good.
...you have already been placed in a predicament where you have to accept the financial downside either in the form of taking a pay cut or having to find a new job. Again, the downside has already manifested and you are left dealing with the situation.
You seem to be confusing your wages with a bond or perhaps a call option. Just because you sold something at a price $X does not mean you own some right to continue selling it at the same price.
And if someone chooses not to keep paying you an old price, you have lost nothing - you simply have not gained as much as you thought you might.
Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent.
I don't think anyone is arguing that an employer has a legal obligation to give employees a share in profits, or to continue employing them at their existing salary when times are difficult, or indeed to do anything beyond what they are contractually obliged to do.
What I'm hearing is a different argument, to which your analogies with bonds and call options and forward contracts and whatnot are (I think) completely nonresponsive.
The argument goes something like this:
1. The success of a company is due to the work of its "ordinary" employees at least as much as to the genius or hard work of its executives or the generosity of its shareholders.
2. Ordinary employees are not adequately compensated for the work they do and the risk they bear. (This is primarily a claim in the realm of ethics, not economics.)
3. In particular, they share in the downside (via the likelihood of losing their jobs or taking substantial paycuts, if times are difficult) without getting much of the upside (via any sort of profit-sharing, or substantial pay rises, if times are good).
4. Yes, in principle, any employee is free to go elsewhere in search of better compensation (or other improvements) but in practice other jobs are often in short enough supply that there is little prospect of this.
5. You might argue that this means that they can't possibly be being underpaid because they're getting what The Market gives them, and The Market is the sole arbiter of what constitutes fair compensation -- but (a) if that's meant to be some kind of moral axiom then it isn't very plausible as such, and (b) if it's meant to be some kind of consequence of market efficiency, economists' optimality theorems, etc., then there are a whole lot of missing steps that look like they make desperately overoptimistic assumptions about what markets do.
6. The fact that employees are treated in this way means that in difficult economic times they are liable to find themselves in desperate situations. This is a bad thing. If employers were more generous then their employees would be at less risk of (e.g.) losing their homes, and society as a whole would be more stable and happier. (This is one sense in which it is possible for someone to be underpaid despite getting the salary The Market gives them: it may be that a higher salary would still leave the employer with a substantial gain from employing them, while making society as a whole better off.)
Poverty and vulnerability seems to cloud the issue a bit.
If we take the example of a Hollywood movie where the actors are paid a fixed amount for their work, then I don't think many people would disagree with yummyfajitas' analysis. If the movie bombs, they still got their pay, meanwhile the producers actually lose their capital. So it's not unreasonable that if the movie turns into a smash hit, the producers capture all the upside and the actors just get their fixed pay.
When we change the scenario to workers who are not wealthy Hollywood actors, it seems no one agrees with the analysis any more. Even though it's essentially the same relationships and principles at work. Why is this? If a business employs non-wealthy people, do the owners also take on a whole package of social issues beyond the basic contract of employment? Does our judgement change due to pity?
1. It doesn't seem unreasonable for an employer's attitude to an employee's pay to depend on how desperately the employee needs that pay. This doesn't need to involve pity as such (though it might be indecent not to feel pity, in some cases). If I see you drowning in a lake, then arguably I am obliged to help you even if it takes some time and costs me money (e.g., to get my clothes cleaned afterwards) -- but if I see you in a less desperate situation I might owe you no help of any sort.
2. A movie actor is (I think) generally engaged on a limited-term contract to make a particular movie. That's quite a different situation from a (so-called) permanent employee who is (foolishly or not) hoping to go on being paid for an indefinite period.
3. The real complaint (as I understand it) is not simply "Employees should get a substantial fraction of the large upside if their company has a good year"; it's that it seems a lot of employees are getting neither that upside nor security and stability: they are in big danger in bad years but don't get the big gains in good years. Or, to put it differently, the primary complaint isn't that employees get exposed to a different pattern of risk from employers; it's simply that they are underpaid.
4. As it happens, I think there's a lot to be said for paying movie actors partly in proportion to the success of the movie. (Though I fear that in practice that would turn into a way to underpay them grotesquely, via "Hollywood accounting".) So I don't think I'm guilty of the inconsistency you allege. (Others might be; I don't know.)
I would say the diff between actor and salaryman are superficial: yes the expectations are different but their contracts have the same fundamental property (you do some work, then you get irreversibly paid for it).
However I think what's really happening in this debate is that one side is arguing about conditions for individual labourers, and the other about labor in aggregate.
The two can lead to very different conclusions. For instance high income tax is good for individuals who benefit from public spending, but it also consolidates the gap between those who already own the wealth and those whose only chance to acquire it was through higher income. So in a sense it's bad for 'the class'. Could probably think of a better example but hopefully you get what I mean.
> Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent
Except that a blue collar family with children don't exactly "pile" up savings... and most of those savings are tied up in his house, whose value is closely correlated to local employment.
It's obvious that you are neither a blue collar worker, 50, or with children, so try to see things from that point of view instead of simply projecting your personal political beliefs
"If you want to work elsewhere for $X or $2X or whatever, you can."
No, you can't. Government regulations and tax codes were purchased by the companies to eliminate competition and centralize capital, such that there is only one monopoly provider of car factory jobs in your area. The .com and .gov merger made the mess, they should have to clean it up.
If there was a competitive commodity free-ish market, then your plan makes sense. Sometimes that exists. Usually, very intentionally, it is prevented from existing.
You left out an option: start your own business. What the Reuters article tells me is that there is a large pool of available labor for new businesses to use. Why aren't more people taking advantage of this opportunity?
Funny that you post that question on a forum full of people who know well from first-hand experience how difficult it is to start a successful business.
I didn't say it wasn't difficult. Of course if the choice is between having a steady, reliable job and starting your own business, it's a lot easier to choose the steady, reliable job. But the whole point of the article in Reuters is that the job is not steady and reliable any more; that changes the relative risks involved.
Also, to the extent that it's hard to start a business because of government regulation (which is a large extent), the obvious response is to remove the regulations that make it hard to start a business. That would mean more people starting businesses, hence more new jobs available for other people who are currently out of work. Funny how the Reuters article doesn't mention that.
>the whole point of the article in Reuters is that the job is not steady and reliable any more
That's circular reasoning where this thread is concerned. People are saying here that corporations should be sharing the upside with employees. You are saying that since they are not, people should start businesses. You're changing the subject and giving the corporations a pass.
>to the extent that it's hard to start a business because of government regulation (which is a large extent), the obvious response is to remove the regulations that make it hard to start a business.
Sorry about the delay. Took me a while to wipe the vomit from keyboard.
Seriously, while these regulatory complaints are something that we tend to hear from people with certain political affiliations, I challenge you to cite references to actual regulations that are to any "large extent" preventing actual small businesses from starting. In fact, the implication in the Reuter's article is that businesses are doing just fine in the current regulatory environment. They are more profitable than ever at the expense of the worker.
And, I think the HN populace exemplifies the actual difficulty in starting successful businesses. I doubt many here will cite regulations as a key challenge. Instead, it's actual business problems, such as product development, finding market-fit, competition, marketing, lack of capital, inability to scale, etc.
People are saying here that corporations should be sharing the upside with employees. You are saying that since they are not, people should start businesses.
That's part of what I'm saying, but not all. Another part of what I'm saying is that, if the premise is that current corporations are not sharing enough upside with employees, then one obvious response is to start a business that does share upside with employees. If that's really as big a deal as people are claiming, employees should flock to such a business. Only some of those who are now dissatisfied would actually have to start such businesses; the rest could simply choose to work for them because they treat employees better.
I challenge you to cite references to actual regulations that are to any "large extent" preventing actual small businesses from starting.
First of all, it's not just starting but growing businesses that should be less impeded by regulation. Sure, start a business with only a few employees and the burden might not be too bad (depending on what kind of business it is--see below); but hit a fairly small threshold number of employees and all of a sudden you have regulations galore that you have to comply with or a dozen government agencies will come after you.
As for regulatory barriers to starting businesses, here are a few off the top of my head: professional licensing, even for professions like hairdressing where any putative benefit to the customer is far outweighed by the costs of the barrier to entry; zoning laws that clearly go way beyond any public benefit; government sweetheart deals for companies like cable providers, which prevent all kinds of competition in the ISP arena. That's just from a few minutes of brainstorming; I'm sure there are plenty more examples.
the implication in the Reuter's article is that businesses are doing just fine in the current regulatory environment.
That's because they (i.e., existing businesses) paid good money for the current regulatory environment. That does not at all imply that said environment is good for potential competitors of those existing businesses; if it were, they'd be complaining to their politicians that they weren't getting their money's worth.
I doubt many here will cite regulations as a key challenge. Instead, it's actual business problems, such as product development, finding market-fit, competition, marketing, lack of capital, inability to scale, etc.
But all of these business problems are also faced by existing businesses. Markets are not static; a product-market fit that worked fine yesterday might not work fine today, and businesses that serve their customers well often have to reinvent themselves. The response of many existing businesses (the music and movie industries being two outstanding examples), instead of reinventing themselves, is to try to outlaw their competition. The fact that those businesses continue to make profits even though there are obvious ways in which they are not serving their customers well (let alone their employees) indicates that their political efforts to get the playing field tilted in their favor have been successful.
>Another part of what I'm saying is that, if the premise is that current corporations are not sharing enough upside with employees, then one obvious response is to start a business...
That's fine. But, what I'm saying is that's where you're effectively changing the subject. That is, it still doesn't speak to the current treatment of employees at corporations that employ millions of workers right now, and will likely continue to do so for the foreseeable future. So, why let them off the hook? It just comes off as a disingenuous red herring to suggest that the remedy is for folks to go out and start new businesses. We know that it's extremely difficult for any individual business to succeed for a variety of reasons. Yet, what you're saying is that to remedy this problem, many, many new businesses must do so in significant numbers. I'm an idealist, but that's just not realistic--particularly in the near future.
And, I read at least a tinge of disdain for workers implied in your comments, especially given the current environment that has seen more than its share of Ayn Rand talk and hostility aimed at workers. The sentiment comes off as one of "be happy with what you get, and if you don't like the way you're treated, then start your own business".
>it's not just starting but growing businesses that should be less impeded by regulation
Yeah, I was simply responding to what you'd written re: starting a business, but agreed that regulations pose some hurdle at all phases. I run a business. You're not going to hear me cheer-leading in favor of the current regulatory environment. I don't like it either, but it's not my biggest problem by miles. I'm sure it varies by industry type, and I agree with those that you listed. But, the decrying of regulations has generally been overblown, political buzz-wording in an effort to promote a particular agenda.
So, here we have to distinguish between small businesses and major corporations. When you hear the political-speak decrying regulations it's generally a tactic to use small-businesess as cover for large corporations. "There's too much regulation and it's killing our small businesses", which is cover for "abolish environmental protections, consumer protections, financial market protections, etc. so corporations can realize even more profit".
So, the term "over-regulated" comes fully-loaded. And, that's what makes me wretch.
Where we do intersect is in acknowledgment of the tilted playing field and pay-to-play political environment/markets. Whether it's through manipulation of the regulatory environment, ridiculous subsidies, or any multitude of tools, this obviously hurts the market, workers, and everyone--except of course, those who have the deepest pockets.
it still doesn't speak to the current treatment of employees at corporations that employ millions of workers right now, and will likely continue to do so for the foreseeable future. So, why let them off the hook?
How does encouraging people to start competing businesses that treat employees better count as letting existing corporations off the hook?
Also, what alternative remedies would you propose? As far as I can tell from other comments in this thread (not yours), the main remedy appears to be to complain really loudly. If it's not realistic to expect lots of people to start new businesses, it's even less realistic, IMO, to expect complaining really loudly to make a significant difference.
I read at least a tinge of disdain for workers implied in your comment
Not disdain, just a reality check. I completely agree that workers at a lot of existing corporations should be dissatisfied with the way they are being treated. But I don't see much potential for change in just complaining about it. What these corporations need is competition.
here we have to distinguish between small businesses and major corporations.
Yes, this is a good point. However, I would offer a slightly different take on it. Small businesses, in my experience (a friend of mine runs one), just want to do business; they don't have the time or the resources or the inclination to expend effort in non-productive activities like playing political games. (That's one reason I think society as a whole would be better off if the average size of a business were considerably smaller than it is now.) The major corporations are the ones buying the regulations. But that means that much of the "protection" that we as consumers are supposedly getting from those regulations is illusory.
For example, lots of people claim that the financial crisis in 2008 was the result of lack of regulation of the financial markets. But if you look at what actually went on, there was plenty of regulation; it was just regulation that the major investment banks had written to favor themselves, rather than regulation that was written to actually protect the average person from having their retirement savings invested in junk securities that were made to look like AAA securities. As far as I can tell, that situation has not improved at all.
So when I say there should be less regulation, part of the reason is that the regulations we have are useless anyway. Small businesses are too busy doing business to engage in the kinds of shenanigans the regulations are supposed to protect us from; and major corporations can manipulate the regulations so someone else pays the price for the shenanigans anyway. If it were possible to have regulations that really did protect us as they're supposed to, I would be in favor of it; but I don't think we can, at least, not the way our political system currently does it.
So they should get the rewards without the risk? By claiming it would be a poor investment for someone who can't afford the risk, you're implicitly arguing that the actual owners are taking a bigger risk than the employees, and thus it's unsurprising that they capture the rewards from growth.
Any company could go bust at any moment, and the only risk to you is the transactional costs of finding a new job. Those could be high, but it's not your current/prospective employer that's determining what that amount is, it's a function of the labor market and your own value.
Beyond that, it's not as if you're putting any of your own money on the table. Ownership (whether that be private management or shareholders) is putting their money on the table.
If you'd like a higher risk/reward level, negotiate for equity or other variable compensation.
By claiming that the owners are taking a bigger risk than the employees, you're implicitly arguing that employees are taking some risk. Thus, it's surprising that they capture none of the rewards from growth.
There is nothing stopping the union from re-negotiating the contract that exists today, the same way management wanted to re-negotiate the contract that previously existed.
Except for the fact that many unions don't exist now.
Of course, your suggestion also implies a labor market balance that simply does not exist. The article is actually about the fact that corporations are realizing record profits by employing fewer people and paying less to those whom they do employ. It's a buyer's market for labor. Not exactly a strong negotiating position for the worker.
I don't get it. If they have enough money to buy stock in their own company, they have enough money to buy stock in some other company as well. Even if the money comes from not having to pay union dues, which is what the post I was responding to hypothesized, there's still no reason why it has to go into the stock of the company they work for.
The broader thread is about the lack of parity between corporate shareholders/executives (i.e. those who "automatically" share in the upside) and workers (i.e. those who don't typically share in the upside).
To advocate that--rather than participate in the upside--employees should simply buy stock in other companies is irrelevant and does not address this lack of parity.
The added notion that employees should invest in stocks instead of participating in union advocacy (that, in part, attempts to provide them with some parity) is just plain cynical and suggests a total lack of respect for the worker.
The broader thread is about the lack of parity between corporate shareholders/executives (i.e. those who "automatically" share in the upside) and workers (i.e. those who don't typically share in the upside).
I mostly responded to this in responding to your post in the other subthread we're having, but I do have one other comment about this. I think there's a key distinction to be made here between two reasons why corporate owners/executives get more upside: one is a good reason and one is not.
The good reason is that owners and executives have to deal with all the business risks that you talked about in the other subthread: finding product-market fit, raising capital, how to scale, etc. Workers don't; they come to work, do a job, and go home. Like it or not, it's easier to find people who will do the latter than it is to find people who will do the former; so, since the former type of person is scarce, they can demand more upside in exchange for the use of their talents.
The bad reason why corporate owners/executives get more upside is basically the one that's been given multiple times in this thread: corporate owners/executives are in a position to take more upside by abusing the corporate governance structure, whereas workers are not. (Unions were an attempt to stop this by giving workers more of a voice in the corporate governance structure; unfortunately, in many cases, the unions have ended up with exactly the same governance problems as the corporations they were supposedly fighting against. I saw this firsthand when I was working in the auto industry.) In fact, in many cases it's executives manipulating the structure for their own benefit at the expense of the owners, not just the workers. This is easier now that many "owners" are large mutual funds rather than individuals holding large blocks of stock, so the theoretical model of shareholders controlling the company by voting their shares bears little resemblance to reality in many cases.
One reason why I like the "why not start your own business?" response to this issue is that I think a larger percentage of people really are capable of dealing with the business risks themselves, instead of letting someone else (the owners/executives of the business they work for) do it. I think our society would work better, overall, if we had a larger number of smaller, more diverse businesses as opposed to a smaller number of large, monolithic corporations. The large, monolithic corporations are a historical artifact of the way the industrial revolution happened, and I think that in many ways they have outlived their usefulness.
"Unless you want employees to share the downside of business income volatility, it's unreasonable to expect them to share the upside."
Can you justify that? It seems like one of those statements that is designed to appear correct without provoking concious analysis. Kind of like "truithiness" [1]. Isn't there rather a lot of evidence that properly implemented profit sharing results in more motivated, productive employees?
The justification is simple - a call option is worth more than a forward with the same strike price. If employees are to receive their market rate in cash (call it $X), they can receive $X worth of forward contracts, or $X worth of call options. If they choose call options, either the value of the contracts or the strike price will need to be lower.
So more precisely, the reasonable choices would be wages, profit sharing in upside and downside, or lower wages + profit sharing in upside only.
Profit sharing works great when employees have the ability to significantly affect profits. Traders/hedge fund managers are a great example of this. For manufacturing employees, a piece rate (rather than hourly rate) would be a similar way to create such incentives.
So more precisely, the reasonable choices would be wages, profit sharing in upside and downside, or lower wages + profit sharing in upside only.
In another comment, someone asked about the executives who get paid and then "only have upside", as if that somehow proved that employees should also get an upside. Not so: executives are the last option: lower wages + profit sharing in upside only. Employees are—literally—taking the first option. If they want the last option, they can become executives. We don't have a legally-mandated cast system in this country, anyone who is competent can become an executive and take option three.
And the wages really are lower for executives who only have upside potential. If you are an executive (not a manager, an executive) you can either run your own company, or run someone else's company. If you run your own company, you've got upside and downside risk. If you run someone else's company, you have (much) smaller upside potential, but that's compensated by: (a) lower, but guaranteed, wages + (b) no downside potential.
It's a reasonable trade for a lot of executives to make.
Employees, at least those earning income from real labor, always share the downside of business income volatility. In fact, it's arguably an outsized share. One simply needs to observe the various employment metrics, and their rate of change. Particularly those tracking layoffs, discharges, and other involuntary separations initiated by employers.
What's perhaps even more illustrative are the comparisons of job requirements and starting salaries for positions with similar responsibilities; found in employment advertisements before, during, and after a "business cycle".
In fact I've read several studies showing that people who happen to graduate and enter the workforce during the nadir of financial crises earn, over the course of their entire career, substantially lower wages as compared to people who simply happen to enter the workforce at any other point of the business cycle.
They share some risk in the form of correlations to the actual risk to their employment contracts. But employees who are fired during downturns walk away with all of their human capital and most of their future earning potential (minus what the firing signals in their CV), while the downturn chips away at the firm's capital.
Let me put this another way: no one is really entitled to a job; not in the way their entitled to their properties, which have a _title to their name_. Capital, on the other hand, risks its very entitlement. Employees don't have any assets seized during a downturn. If they wanted to share in the risk and return, they could have bought stock.
There's a graph out there, or several, showing annual real median income plotted against productivity gains. Income has lagged in the aggregate, significantly. It's also lagged when plotted against GDP. Both since the early 80s.
Volatility's a red herring. Look at the 3-decade trendline.
Why would productivity be related to wages? To put it concretely, if I replace 4/5 workers with a small shell script, does that mean the 5'th worker deserves a pay raise?
(For the sake of argument, say his work and output has not changed at all.)
If you're working there, it would be a case of the 6th worker, you, replacing 4/5 of his peers with a shell script. Would you deserve a raise?
If you're being anecdotal, you can justify whatever you want. In the aggregate, wages have lagged productivity, corporate profits have skyrocketed while US wages have stagnated relative to inflation.
Surely businesses and the people who run them (i.e. board level) should have a moral and fiscal responsibility to bank cash to cover for the lean years rather than splashing out their profits on shareholders and senior board members.
Most employees (other than trying to be more productive) have no control over what decisions business owners make (such that they roller coaster between profit and losses year by year) so why should they share the downside? It's not as if they get the same magnitudes of rewards as board level staff do to allow them to buffer themselves financially for downturns.
You assume they don't. But often times the lean years go on longer than expected or are more severe than expected. Individuals should do this too; many don't, or don't save enough in their "rainy day" funds.
Left to their own devices there are no morals in business. The only fiscal responsibility is to keep profits high.
> Most employees ... have no control over what decisions business owners make ... so why should they share the downside?
You mean the Human Resources. You don't complain when any other resource is sold or retired to save money, why should the business care specially about this resource type?
>The only fiscal responsibility [for a business] is to keep profits high.
>You don't complain when any other resource [other than Human Resources] is sold or retired to save money
It's funny that you point this out. Our treatment of and relationship to corporations is interesting. On one hand, we want to treat them as faceless entities or machines that have only the fiscal responsibility of generating profits. In this view, their impact on "regular" employees is an unfortunate by-product of this responsibility and no-one's fault.
On the other hand, we grant them full person-hood, where convenient. Further, the profits they generate do frequently accrue to actual human beings.
So, the corporation seems to have become nothing but a tool (or weapon) for redistributing wealth in ways for which no-one should be held accountable.
(I am having trouble figuring out whether you wrote what you did with tongue in cheek and deliberate cynicism. I'm taking it at face value, and apologize if I've misconstrued.)
> why should the business care specially about this resource type?
Because people are often hurt when they are "sold or retired to save money" whereas, so far at least, other "resources" don't have that capacity.
This is also the reason why, generally, people cannot be explicitly bought or sold as other resources can. This is widely considered a Good Thing, although indeed an idealized amoral business (or its owners) might well think it unfortunate.
> whether you wrote what you did with tongue in cheek and deliberate cynicism
No it was unfortunately serious.
> people are often hurt
If you still believe that any business still cares about this you haven't been paying attention. If you are not at the top, you are just a cog in a machine and will be treated as such. You are just a human resource, a resource that is one of the largest, if not the largest, singly money drain.
As I said, left to their own devices a business does not have any moral duty and the only fiscal duty they pursue is maximizing profits for themselves.
I wasn't claiming that any business does care about this (though in fact I bet some do, at least a bit). Only suggesting that they should.
Your question (which, I now take it, was intended to express businesses' attitudes rather than your own) was "why should the business care?". I agree that they commonly don't, and that there are structural reasons why they commonly don't. But I think most would say that they should.
Those concessions represented over one third of the wages but only 2.5% of the resulting profits
This doesn't seem to make sense. It's a VERY rare industry that has labor costs as little as 7.5% of profits. Very few are even as low as 7.5% of revenues, and those are high automation businesses. (Think software, not automotives)
All that said, this article quotes "After tax" profits. Given how much tax avoidance is happening at big companies, I think it would be interesting to see pre-tax profits too. How much of this is coming from tax loopholes, in addition to squeezing workers?
I don't find this disgusting at all. Some years car companies make billions, some years they lose billions. How much money has this plant made, on average, over the last 20 years?
Should you wish to bring down capitalism, your plan should have the feature of being immensely profitable in the short term. Then the transnational investment arm of a major banking conglomerate will steal your idea and go off and do it for you and you can put your feet up.
> By definition, the legal obligation of a business company is to maximize its profits, preferably while not getting caught breaking any laws. That is the legally enforced and encoded definition of what capitalism must do. [citation needed].
There is no law that I can think of that forces me, as a business owner to maximize my profits nor does any law prescribe the golden path for achieving said maximum. Generally speaking my business can incur losses as long as I find people willing to pay the money - either through loans, donations, whatever other means. I'm free to run my company as I wish as long as I get the majority of shareholders to agree.
There is one caveats that applies: If I run out of money, my company goes bankrupt. If I willfully or negligently damage the company by e.g. performing illegal acts and thus damage the property of other shareholders I might be liable. Paying decent wages certainly does not fall into this category.
Capitalism does not require companies to become bad actors. It certainly provides a lot of incentives to do so, but it's still the actors decision. Blaming any "legally enforced and encoded definition" is blame shifting.
Generally speaking, most of the biggest and most profitable businesses don't have a single owner, but are instead traded on stock markets. People who own the shares are not people who run the company. The managers, people who run the company, have an obligation to maximize the profits (in US, and probably UK), otherwise the shareholders can sue them for loosing their money, even if they did the morally right thing. In Germany, however, profit maximization is not the only goal, but businesses can consider other stakeholders as well (employees, community, environment, ...)
> The managers, people who run the company, have an obligation to maximize the profits (in US, and probably UK), otherwise the shareholders can sue them for loosing their money, even if they did the morally right thing.
Nope. You certainly got it wrong. See the linked posts from https://news.ycombinator.com/item?id=7129788. One of the potential source for that confusion might be that directors decisions can be challenged on the presumption that they are wasteful, but you'd have to prove that paying a decent wage is wasteful which is a very hard hurdle to overcome. Bad faith may be another option - but that's a different story.
Being traded on the stock market provides a lot of incentive to maximize profits since more profitable companies trade better - but it's not a legal requirement.
Those who ignore history etc etc. go back to the 70's and 80's and you will find investor lawsuits over boards being financially negligent with investor money. That is one of the reasons we find ourselves in this mess today.
>>legally enforced and encoded definition of what capitalism must do.
Well then certainly you can point us to the law that legally encodes a definition of capitalism and provides a regulatory regime that provides relief when someone practices "unorthodox capitalism."
There are two standards for a corporate executive to consider:
1) What the majority of the shareholders say
2) What a court would rule if a minority of the shareholders decided to sue the executive on the grounds that they (and presumably the majority stake) are depriving the minority shareholder of profits they have a legal fiduciary responsibility to provide.
What you are speaking about is #2. There is a high bar for such lawsuits, but there is a legal standard.
The people in control of the company have a legal duty not to waste shareholder money. Giving everyone a raise without a good reason would get them in hot water.
There would need to be a fact-based reason to give that raise out to the entire workforce. For example, workers would need to be leaving for better jobs, or the workers would have to go on strike.
I hope this doesn't sound too harsh, but I think this comment is a case of "enough knowledge to be dangerous."
Companies certainly do have a duty to shareholders. That's absolutely true and breaches in duty should be taken seriously. A common issue where this responsibility needs to be better policed is lopsided risk decisions where in many cases executives can make large bonuses and on rare occasions they don't make a bonus while shareholders lose big - a complicated mess of scheming and tricky incentives that can in extreme cases amount to theft. This is the main type of abuse that these legal duties are meant to prevent. They do so imperfectly, but that's a different discussion.
"This company pays a fair wage and maintains a high standard of labour conditions. These are core values of this company and an important part of how we do business."
The above statement is completely legitimate position for a company to take and absolutely does not count as wasting shareholder money.* These are not new legal concepts. They have many years of legislation and litigation behind them.
I have frequently heard this statement, but just as frequently heard people say its a myth. Do you have any citations for it, such as a case where a board was sued for paying wages too high?
Delaware Chancery Court on Monday, alleging the firm's practice of allocating nearly 50 percent of revenue to management's compensation constitutes corporate waste.
Note first that this complaint/case is about financial asset managers, who have more specific duties to deal with specific conflicts of interest. IE, the managers can manipulate the risk the company is taking in a way that benefits them personally. In very simple terms, the boss giving himself a very fat bonus. This isn't even close to the boss paying ground floor employees a better wage.
The Plaintiffs’ problems with the compensation plan structure can be
summarized as follows: Goldman’s compensation plan is a positive
feedback loop where employees reap the benefits but the stockholders bear
the losses. Goldman’s plan incentivizes employees to leverage Goldman’s
assets and engage in risky behavior in order to maximize yearly net revenue
and their yearly bonuses. At the end of the year, the remaining revenue that
is not paid as compensation, with the exception of small dividend payments
to stockholders, is funneled back into the company.
This increases the quantity of assets Goldman employees have available to leverage and invest.
Goldman employees then start the process over with a greater asset base,
increase net revenue again, receive even larger paychecks the next year, and
the cycle continues. At the same time, stockholders are only receiving a
small percentage of net revenue as dividends; therefore, the majority of the
stockholders’ assets are simply being cycled back into Goldman for the
Goldman employees to use*
Even in this case, the shareholders were not able to prove that this was anything other than poor
business decisions which are not something the court can make decisions about.
The facts pled in support of these allegations,
however, if true, support only a conclusion that the directors made poor
business decisions. Through the business judgment rule, Delaware law
encourages corporate fiduciaries to attempt to increase stockholder wealth
by engaging in those risks that, in their business judgment, are in the best
interest of the corporation “without the debilitating fear that they will be
held personally liable if the company experiences losses.”
Saying that companies can't raise wages because of fiduciary duty is bollocks. It's just an untruth, from a practical perspective.
Companies have a legal obligation to maximize shareholder profits, but that doesn't directly translate into how they treat their employees. If company directors felt that hiring the 'best' employees at a premium was actually making them more efficient and thus in the best interests of shareholders, they could do exactly that.
You are speaking about company directors deliberately devaluing their company on purpose to serve some other end. Often this would be connected to fraud, or semi-fraudulent, hence the the case law behind your idea.
Devil's advocate here... the higher than average profit margins have resulted at a time when the cost of capital is much higher. The market has seen a huge move away from risky assets, into dull stuff like bonds and non-productive assets like gold (and, go on, bitcoin).
Hence, the required return in order for companies to access funding has been much, much higher, forcing them to aim for higher than normal profit margins. So, really, they are justing paying back their higher costs of borrowing. (equity is a form of borrowing, in a sense)
Now, why is the cost of capital so bloody high with TARP and QE and all that quatsch? Answer: Because banks are cs and investors are short-termist r*ards.
Isn't this case the exact opposite of what's being claimed in the article? I.e. you're saying wages don't really affect total profits one way or another.
I had to comment on this due to the large amount of misinformation in this thread.
Many people think that companies should be kind, and pay more than the market wage for their workers. This is false and unreasonable. Companies try to minimize their costs, including wages.
Now if in some industry, some company is making huge profit margins, and paying low wages, what is the cause, and what is the solution? In economics, profits go down until they reach 0 or close to 0. Why? because if there are huge profit margins, more firms come in, to compete. Therefore in all industries, profits go down to a lower level.
Now why doesn't this happen in practice? The answer is artificial barriers to entry. Political agreements and regulations benefiting the big companies. So what is needed here is an easier path for new companies (Which are people after all). This will always ensure that profit margins stay low, and wages approach the true market rate.
The solution is not donation. Why would a company pay 9 dollars to a worker who is willing to work for 8? Why aren't YOU donating money to poor people in Africa? The answer is not minimum wage either. This distorts markets. If you want to alleviate poverty, in a more economically reasonable way, do it though universal income.
Your intuition is correct, but unfortunately, it doesn't actually work that way, because on a per-employee basis, big business is ~4x more efficient.
That is, for every $1 in revenue an SMB brings in, big business brings in $4. (These numbers are averages, but the basic relationship holds across industries.)
I personally do not see how SMBs can compete when they are paying 4x more for labor.
The reason big business is so efficient is IT investment, and the problem with IT investment is that you need to be big in order to really take advantage of it. The amount of improvement SMBs get for a proportional amount of investment is low. You have to spend a lot to get anything, really, and SMBs just can't afford that.
So, to recap: big business profits stay high because SMBs actually can't force prices downward, due to the huge imbalance in labor costs between SMBs and big business.
If we could get the same IT advantage to SMBs at a cost that is proportional to their revenue, then the dynamic you expect to be occurring would, in fact, happen.
Big Businesses also have larger overheads, internal bureaucracy and are generally show on the uptake. A small and nimble SMB can surely take advantage of this?
After all, most of the tech startups are in some way small businesses and don't seem to have any trouble innovating against the lumbering tech giants.
Not a great comparison. Capital investments needed for IT production are actually much smaller than other industries, and IT just doesn't really scale well at all with respect to company size. Large and small companies alike are limited to the talent they can attract and pay for.
You seriously believe that IT investment is the sole reason for large companies being more efficient? How about the fact that they can make large investments in general (for example, build a pipeline or a nuclear power plant), at the scale where few competitors exist?
You seriously believe that IT investment is the sole reason for large companies being more efficient?
Of course not. For one thing, large companies typically have far more efficient financials. For example, revolving loans are common to smooth over cash flow bumps and due to their size they can demand long payment terms (120 days or longer to pay for stuff). There's definitely an advantage there.
Large businesses also have a regulatory advantage, since they write the actual regulations that govern themselves (at least in the United States).
Nevertheless, IMO while these are significant, I don't think they are the overwhelming reason why big businesses have 4x the revenue per employee. Regulatory overhead is real, but it's not 4x, and better financials certainly help with profitability, but I don't think they're responsible for bringing in 4x the revenue per employee, either.
I honestly think IT is the thing that counts the most (Amdahl's Law) if you want to see SMBs become competitive, at least on a revenue per employee basis, with the Global 2000.
It's not just lack of IT investment that hurts SMBs. Even when they do invest in IT, they use it differently than the Global 2000, and that difference is, IMO, why SMBs are relatively inefficient, and why gains from IT haven't trickled down to them.
But hey, I could be wrong. It is, after all, just my opinion after studying the problem. YMMV and all that.
> How about the fact that they can make large investments in general (for example, build a pipeline or a nuclear power plant), at the scale where few competitors exist?
Sure, that helps, but revenue is regulated by law in the two cases you mentioned. And the Global 2000 is not primarily made up of companies doing large capital investments in infrastructure. Furthermore, the 1:4 relationship exists across industries. So we're not comparing apple's to oranges here. Even within the exact same industry the Global 2000 has a 4x advantage in revenue per employee.
Like I said, I don't think you can explain a 4x advantage in revenue per employee solely with better financial management and regulatory efficiencies.
I want to capitalize on my argument on huge barriers to entry being a major factor. In industries with such barriers (huge initial investment required) there's always only a limited number of players, and usually no one is interested in "spoiling the market" by selling their products with too small margins. Some of that are just natural dynamics, while sometimes explicit, illegal under the table deals are being made (where prices across the whole industry are being set).
Consider your statement in the light of looking at the 10 largest corporations in America on a decade by decade basis. Go back a few decades, and I bet you won't even recognize the names.
Again and again, small companies have displaced can't-fail big ones.
It's interesting, although the Dow Jones index is sort of arbitrary in its choices; it's certainly not the "largest corporations" as you stated, although of course some of the largest will end up in it.
In fact, I'm not really able to find what it is that actually determines what companies are in the Dow Jones Index. If you know or find something I'm curious.
So let's look at the 10 biggest public American companies as calculated by Forbes in May of 2013:
1) J.P Morgan
2) General Electric
3) Exxon Mobile
4) Berkshire Hathaway
5) Wells Fargo
6) Chevron
7) Apple
8) Walmart
9) Citigroup
10) AT&T
Yea, I am going to have to disagree with your premise, that the top companies from decades ago have been replaced by bit players considering at least half these companies predate WWII and the rest came about not by competition, but by market evolution.
And at least half of those companies have received large bailouts from the government or are getting access to natural resources on the cheap ($1/year leases).
In all industry, the trend goes one way: The wages of working people (including white-collar, I hope, that is the right word) have to go down, and the earnings from investments (pure money makes money business) have to climb.
There are only very few exceptions: One are lawyers, as mentioned in an other thread, and the other are people that work in the investment business (investment bankers, traders, ...). The reason for the second exception is obvious: their work is needed to make even more money from the money and every trick is played, to have the smartest, best guys getting the job done ... and get it done better and better.
Problem is: The whole thing breaks our society. Middle classes are already melting massively in many countries. The possessions of the worlds are concentrating in the hands of very few people more and more. Those people make our laws! The other people become poorer, even in the situation that the overall worlds possessions expand massively. The countries are already so much in dept, that many of them can not pay even the interest. Even the US is so much in dept, that there seems to be no possibility to get ever rid of it.
Nobody seems to realize, that while we are talking, investment companies are roaming the world for land, for houses, for companies to buy them, exploit them and throw it away when not needed (and not useful) any more. The wealth of the world gets accumulated in the hand of investment companies and the super-rich.
By rising the value of pure money investments, the value of human labor (to a more and more extend even high-paid and high-value labor) is degrading.
"Those people" are definitely the problem. All for money and power. It's pure greed. They infiltrate our governments, they corrupt our politicians, they sway popular opinion with their ads and their social media trickery. The own the new stations, and the radio stations. The money is all that drives it. I wanted to say so much more but couldn't articulate my comment well enough. The problem is just like you explain but 10X worst than anyone can see. Those people are a cancer and it will only end with a collapse. Greed with be the fall of human kind.
The problem is not that of some vested, grounded elite who rule from high. The problem is not that we have some variety of malevolent overclass or illuminati pulling the strings. The problem is rather that of a culture of greed, which creates and perpetuates the "high" and the "low". By this I do not mean the capitalist system in general, rather the current neo-liberal brand of laissez-faire capitalism to the point of negligence. Hayek was vociferous on the topic of adequate regulation being essential to the sustenance and perpetuation of a liberal democracy - and adequate regulation we do not have - nor can we, with our current sociopolitical frameworks coupled with a furious pace of change. The last time technological progress so outpaced cultural and economic development, we called it the industrial revolution - and the disruption and change in life for most of man was, frankly, mindboggling - never mind the ensuing bloody transition into industrialised society, which still drags on.
As long as we continue to crank the same handle on the same sausage machine, the same sausages will continue to come out. You cannot simply remove the elite and expect magic to happen, for that power vacuum will be filled by successive elites, and the labour vacuum will be filled by successive underclasses, until the whole thing comes crashing down due to resource exhaustion and Malthus's revenge. We reside in the same sausage-machine as the Romans resided in, and inherited from the Greeks, from the Hittites and friends, from Sumeria - c.f. Baudrillard & Dick on "The Empire Never Ended". Plus ça change, plus c'est la même chose...
Bloody revolution will simply replace one elite with another, and maintain the status quo, with a few new twists but no real change. Forceful change by the populace (i.e. revolution, but not necessarily bloody) will also be very difficult to enact at this stage, partially as we've allowed our governments and domestic armies (law enforcement) to become sufficiently militarised that any opposition would likely be quashed, and partially as we've allowed ourselves to become so sedated and mollycoddled by our Brave New World that only a minority even perceive that there is something amiss.
Our only option is systemic change which comes from within. This can only happen at the volition of those in power, who will be unwilling to give up their own vested interests. Selling future elites down the river, however, is something our governments have done before and will almost certainly do again.
Humanity requires a sufficiently large gun to be put to the head of every man, woman and child on this great greasy ball of rock, in order that we might change. That gun may well be here already, in the form of our friend "climatic alteration" ("climate change" is just too polluted a phrase now, just as "global warming" became over a decade ago). We may be faced to change our oil-dependent economies, beyond the superficial relocating of where and how we fetch that oil. We may be faced to change our attitudes to what comprises wealth, and decouple such from consumption of resources. We're still stuck in the "that fat dude must be rich" neolithic mindset. Our own survival instincts are currently working against us. We must make them work for us.
Then again, we may not succeed, and we may all end up very extinct.... which isn't the end of the world. Just of us.
You are right, that the problem lies within. The problem is greed. Pure egoism.
Our current system also bases on growth. But every mathematician can tell you, that endless growth is not possible. The Earth can only provide limited resources and even now, the Earth is under heavy pressure because of the Human kind. We are able to exterminate humanity just be our greed. We need to change our system.
I also wish a pistol on somebodies heads ... but I don't think, that it must be all humans. 1% of the humans would suffice.
"The predicament of so many students and so many recent graduates who may never procure the employment they anticipated when they enrolled in their law schools is a compelling reality that should be heeded by all who are involved in our system of legal education
I think, there is just a difference between high earning lawyers and those that are not. It is difficult to get into a position, where the high rates are earned. But I think, it is at least more likely, that you can earn real big money as lawyer (without starting an own company) than as a programmer.
Well history is repeating herself, if middle class disappears, revolution comes guns go out, everybody gets killed we have a third (French?) revolution and so on...
No, they didn't! Forces available back then were too human-dependent, and a real inherently-human risk of treachery of changing sides have always been a concern for the leading circles. Nowadays there can be built automatic (i.e. reliable) self-sufficient and self-defending domains that would require a major external force to be brought under control. Just masses of people won't do it anymore.
I was in .mil. That word pairing is unfortunately an oxymoron. Reliable if you have a large army of non-elite skilled techs and contractors providing support, while totally unconcerned about what their system is doing to their friends and family back home. Even a sociopathic orphan would have to be concerned about how everyone else would likely treat quislings aka himself. Historically you really don't want to be the quisling, they historically tend to get worse treatment than the actual bad guys. MAYBE you could pull it off if you went all multicultural and made sure groups never fought against their own people. Maybe.
The first week would, indeed, be pretty rough on "the masses". Then again if the average lifespan of an elite is 80 years, lets say 40 remaining years on average, that means life will be pretty good for about a week and then they die having thrown away 39 years and 51 weeks of life. They're not dumb enough to try that unless pushed into a corner (perhaps literally, by rioters?) with a predicted lifespan under a week. Then a lifespan of a week or so starts sounding like an upgrade. Who knows, maybe the horse will speak after all (weird fable reference).
All you need is one domestic "wedding party" incident and next thing you know, its the modern equivalent of the claymores getting turned backwards into the compound and set off. If you think combat drones would be effective against a favella, imagine how much better they'd work against a landed estate when one techie gets pissed off and changes a few things.
Its hard to keep 999 people happy with a management style of "iron fist and no quarter". Street gangs can only pull off 9 or so and attempting 99 is a recipe for factional fighting and an elimination of the organization that allowed one guy to be in charge of so many. It just doesn't scale.
There are ways to implement an authoritarian regime, most of the successful ones historically did not find domestically created and applied technology to be a primary part of the strategy. Tangentially on the borders something or other helped or maybe made some activity more profitable, but not as a pillar of the strategy.
"Just masses of people won't do it anymore."
You need masses of people to fight when the other side also has masses of people. Think Germany in the 20s/30s when huge right wing groups were fighting huge left wing groups, before the right rose to power over the left and wiped them out. When the ratio is 1:100 or 1:1000, one side can have all the drones they want, but if the other side has one angry guy with a sniper rifle, they win. Rephrased, a war of attrition is a great battle strategy if both sides are roughly evenly matched, but when its 1:1000 or so, attrition is no longer a wise strategy, in fact its about the dumbest strategy I can think of. We have the neocons acting as quislings because they're dumb enough to think they'll get better treatment under the new regime if they're good little quislings today. But that's not going to happen to 30% or whatever it is of the population when it hits the fan, so that illusion will evaporate relatively quickly. Under realistic bad conditions, just aren't enough quislings to require masses of non-quislings to oppose them.
The threat to the apparent future American "regime change" isn't a crowd of hundreds of hippies occupying a park, but one angry dude with a sniper rifle. If one thing defines Americans its being ridiculously heavily armed compared to most other civilians, and the guy who buys a "scoped deer hunting rifle" and keeps it in his basement is much more of a deterrent than a hundred hippies waving signs in a protest march. An armed society is a polite society, so there is at least some hope for a peaceful future.
As an optimist I always hope humans will be smart enough to avoid the kind of stupid violence I see in history, and I often end up disappointed, especially when they're money to be made off violence (and I'm not talking about videogames, but the real thing). I'm not a fan of what I see on the horizon, but I'm not going to pretend to be blind just because I intensely dislike it and hope it can be averted.
> If you think combat drones would be effective against a favella, imagine how much better they'd work against a landed estate when one techie gets pissed off and changes a few things.
Few people have any idea how powerfull is a pissed of techie in a hightly automated world. I don't think that acconted for in anybody's plan.
that's kind of how it was. there were no earnings from investments when there was no investment; when everybody was working it was workers who took all of the gains because there was nobody else involved.
I agree with you, that the 20th century was better than the 19th and the 19th was better than the 18th. Thus I disagree with PythonicAlpha, who said
> In all industry, the trend goes one way: The wages of working people (including white-collar, I hope, that is the right word) have to go down, and the earnings from investments (pure money makes money business) have to climb."
I guess my argument by contradiction relied too much on the context higher up in the thread.
Oh, so NOW correlation is causation. Great, I'll go correct my notes so I don't forget, it's always so confusing.
There's one thing lacking here, and that is, of course, a causal link. It would be nice if they went down the line and compared employee wages relative to corporate profits on a per company basis. It might be that there are different things at play here.
There's a lot of data missing from this incredibly shallow analysis. Not that I dispute the results, but the argument isn't well backed by the data.
Edit: as a side note I think a lot of problems with employment in the developed world today are due to extremely outdated labor laws that prove to be more damaging than helpful. The expectation of the entire system is that workers will be locked into employment at a particular company for life, will work 40hr/wk on average week in week out, and will rise in pay incrementally over their career. Those assumptions result in worker benefits being tied to employers. They're why the government can get away with hiding half the tax rate of the payroll tax from workers behind the "employer contribution". They're partly why savings rates have fallen so badly over the past few decades. And so on. A lot of which is ultimately to the detriment of the individual worker. If workers were more independent and more mobile, able to self-employ more easily, and so on then they'd tend to have much higher wages on average, I'd wager. The current system doesn't reward independence, it punishes it, but independence is precisely how workers gain an upper hand once they've built up a considerable amount of experience.
The thinking tends to imply that somewhere, workers wages are being set by a central committee, who is more interested in profits than wages. Such thinking is wrong.
I agree that there may be some cause that makes profits go higher and wages go lower, or they could be totally unrelated. But the driver of wages is competition for hiring people. It's no surprise that in a time of relatively higher employment, there has been little or no wages growth. What is surprising is that corporate profits have expanded. But then, if you have a monetary regime where printing money (QE) is designed to re-inflate the capital of financial institutions via devaluing the currency, then it's not surprising that profits go up for those with first bite at the new-money.
Is that the cause? I doubt it. But can someone hold down employee wages for the sole purpose of increasing their profits? No.
Solve unemployment, and you will solve stagnant wages growth.
I don't agree with this article (wages may be low, but that's exactly why corporate profits are so high). I think the internet and new technology has helped companies expand their profits at incredibly low cost. Consider the recent article about Stripe joining The Billion Dollar Club [1]. It's an absurd fact that such a small and new company can become so successful in so little time. If that is the effect that tech is having on small companies, imagine what effect it is having on large companies. The internet is like steroids for business.
Quite simply, "productivity" is the sum of all real goods and services produced in the economy, while "wages" are simply the share of that produce brought home by the workers who produce it. The difference is profit. If productivity increases (as it has since the 1950s) and wages flatline (as they have since the 1970s), then the result must be rising profits. You can see this graphed in the brief "The wedges between productivity and median compensation growth" at http://www.epi.org/publication/ib330-productivity-vs-compens...
The question left unanswered in this article is why are wages in the US falling relative to productivity?
Since wages are the "price" of labor, and prices are set by supply-and-demand, falling wages imply either (1) an increasing labor supply or (2) a shrinking demand for labor (or both). So here are some specific reasons for stagnating US wages:
INCREASING LABOR SUPPLY
- Slave labor, prison labor and child labor in countries like China.
- Immigration from Latin America after NAFTA.
- Liberated women entering the paid US labor force starting in the 70s.
DECREASING DEMAND FOR LABOR
- New labor-saving technology, computers and robots that work faster, better and cheaper than humans.
- Financialization: Investors can make more money from asset bubbles in housing, bonds, and dollars than they can from labor.
-- ZIRP: With real interest rates heading to zero (or less), why should I continue to pay high interest on the money I borrowed a decade ago to build this US factory? Liquidate the factory, fire the workers, and relocate somewhere cheaper; or better: simply use the money to buy bonds and bet on falling interest rates.
-- High housing prices: An employer needs to pay his workers subsistence wages, which means enough to buy a place to live, but with housing prices so high, this is impossible. Better to bet on the housing bubble than buy labor.
> INCREASING LABOR SUPPLY - Slave labor, prison labor and child labor in countries like China.
China had enough farmers moving into industry. Slave, prison and child labour may happen, but they are not particularly efficient and so don't make much of a dent in overall figures.
For there to be equilibrium between supply and demand, several conditions must be met: perfect competition; perfect information; no economies of scale; no barriers to entry; no negative externalities; and no cheating.
Things like slave labor, prison labor and child labor are cheating. There's a lot of evidence China cheats the free market in these ways, and that's why I singled them out.
Foxconn's factories in China installed suicide nets to catch workers jumping off the roof, which sure makes them look like forced labor camps. Picture here: http://news.cnet.com/2300-13579_3-10013733-14.html
> For there to be equilibrium between supply and demand, several conditions must be met: perfect competition; perfect information; no economies of scale; no barriers to entry; no negative externalities; and no cheating.
What do you mean by that? Prices work well to balance supply and demand in all kinds of `imperfect' markets.
Arrow-Debreu (1954) showed that under conditions of perfect competition, a general equilibrium must exist. But no comparable existence theorem can be found in the various models with imperfect competition. For example, if you remove the condition "no economies of scale," you exclude convex feasible production sets, and you don't get guaranteed existence. Models of imperfect competition need to add other less plausible assumptions to get back existence of equilibrium. (This won't bother Austrian economists or post-Keynesians, because they reject General Equilibrium Theory as misleading and useless anyway. However, these schools of economics don't frame their ideas in mathematics such that it is possible to prove theorems about the existence, uniqueness, and stability of equilibrium.)
Arrow-Debreu nice result gives you sufficient theoretical conditions for a unique (!) equilibrium to exist.
As you say, in practice, our markets are different, and the conditions don't apply fully. But I don't see how that applies here? There might be multiple equilibria, but that doesn't have anything to do with slave labour.
> Just because a market is not perfect, doesn't mean it provides no benefit.
Imperfect markets that permit slave labor provide a clear benefit to the slave holders. No real benefits for the slaves--they're worse off.
1st & 2nd theorems of welfare economics say markets in equilibrium are Pareto optimal: In every transaction, at least one party does better, but nobody does worse. Since slaves are clearly worse off, we know there's no general equilibrium in such an imperfect market.
So its OK if Chinese workers are cheated, as long as you get a bargain?
The ultimate impact of foreign slave labor on US free labor boils down to this: Is free labor superiority per hour more than counterbalanced by labor that can be flogged, worked to death, and quickly replaced? Is there slave labor with which no free labor can compete? If your answer is no, then go on buying cheap goods produced by slave labor, because it will have no consequences for the US standard of living. But if the real answer is yes, then buying slave-made goods paves the road to slavery for America.
"deserve": Are you arguing economics or social justice?
I'd like to see everyone's standard of living go up. But when equilibrium doesn't exist because of cheating, Pareto optimality no longer obtains, and some people profit at the direct expense of others. Slavery is a prime example. It shouldn't exist at all.
> "deserve": Are you arguing economics or social justice?
Social justice. I am not from the US of A after all (and even if I was, I don't see the point about worrying about some accident of geography / history).
Before the inevitable globalization, free trade, and we-should-get-rid of-the-minimum-wage arguments erupt, please keep in mind that the article is talking about, and the second chart (the wage one) is showing, average annual changes by percentage. So this applies to ALL jobs (including yours, Dear Reader) not just the usual suspects of manufacturing and low-skill jobs.
So ask yourself: how much has my pay gone up in the past year? How about in the last 5 years?
but it's gone up right? Why hasn't that been enough? Last year as a (relatively poor) postdoc, I made 40k/year. But if my grandfather had made 40k at age 31 he'd have been a happy camper.
remember, macroeconomics says that because of the phillips curve, inflation is a way to goose employment (because of sticky wages) in other words, the purpose of the policy of inflation is to screw laborers out of the real value of their labor.
I don't understand your argument. 40K in today's purchasing power buys you 1/20 of a house in San Jose. It is about real wages not nominal wages. And I think for many people in the middle class, we might be earning less than our parents did in their 20s and 30s (in real wage terms).
Addendum: what's more ... if someone in your pervious generation had a PhD, they likely would be able to get tenured jobs at Universities. That is a bit harder these days.
that's exactly my argument. These are all consequences of policies, not economics.... And, while research science may be a odd case, I am definitely making less than my dad did at my age.
Could the correlation be due to "the dreaded third thing"?[1] (a common cause)
Perhaps large corporations are now deriving a large portion of their income and profits from government-derived sources, and relationships between executives and government officials or regulators; if this is true, there is no reason to give raises to employees, as the low-level workers are relatively unimportant.
Companies have been unable to raise prices much because of the economic recovery has been fragile.
Perhaps related to a lack of disposable income and consumer confidence?
The concentration of wealth is starting to become genuinely worrisome from a societal perspective. There must be some sort of tipping point where real life crosses into dystopia, but I don't know quite what it would look like and what the longterm implications would be. The US political process is already buckling under the unseemly influence of contributions from a small number of donors. At what point are you awoken from your sleep and then realize that things really are going to be bad? What does "bad" look like, beyond what we're already seeing, such as long-time residents being priced out of San Francisco?
If this goes on too long, it might get bad. Manhattan will become a closed island where you won't be able to go onto until you live there because there will be too many protesting attempts. Easy to do with all those bridges.
People will start to assault people in suits. You will either swallow the blue pill and join a select club of salesmen, or die with your dreams.
I don't like to have those ideas and I hope they're stupid, but right now I would not be surprised to see terrorist groups that try to attack individuals who have some sort of a public, very long shadow, like Dick Cheney or the Koch Brothers. Any important kind of people who blatlanty shows their disrespect for poor people in general and their unhidden narrow minded view of the world.
Right now I'm not suprised to see so many conspiration theories, people are pissed and they want to burn witches, and I'm sure you can find some. It's bad, but I don't see any political future that is trying to make things a little better. At least during the cold war, the US had to be better than the communists and prove how markets are liberating. Now it just seems communism had good ideas and that capitalism is going to slowly fail.
I've graphed employee compensation and business profits on the same graph. Not seeing much correlation. Compensation mostly goes up. Business profits go up and down.
You should use nominal dollars. That would probably make it clearer that from around 2001 the profit started to skyrocket while compensation started to plateau. I wouldn't be surprised if the compensation in real dollar when down.
Also, your graph doesn't show people who lost their job. If you layoff people who make the less in the company, the average compensation goes up even if nobody got a wage increase.
Look at the graph again, work growth seem to be approaching a maximum, with it slowing heavily in the last few decades while corporate profits seem to be following an exponential type growth with a temporary drop in the recent recession.
Intentionally or not, your graph is incredibly manipulative, including not choosing a base-line zero on the y-axis for corporate profits which hides that exponential type growth.
What I see is corporate profits are volatile, whereas comp increases steadily. And they don't seem to move together - i.e., a spike in corporate profits doesn't correspond to a drop in wages, or vice versa.
The axes are just whatever the federal reserve site does by default. The baseline is also irrelevant to the main point - compensation and corporate profits don't seem to move together.
(This fact should not be surprising at all, since sticky nominal wages are the cornerstone of most modern macroeconomic theories.)
Nowadays you are only allowed to underfund government pensions (USPS excluded). Private sector pensions must be fully funded - i.e., if an employee has vested a pension with an actuarial value of $20k, the company must put $20k into a separate fund to pay for it.
(Some old pension plans are grandfathered to escape this, however.)
So, lobby the government to enact a law that adds X newly-printed dollars to each pension each year based on the government's own inflation calculation. Then the value of the pension each year would stay the same, and even better, the pension would not need to invest in risky assets. (If you want, mandate that the pension invest in T-bills, and then cover the difference.)
This kind of approach involves no new taxes, and there's absolutely no reason to "borrow" the money from the Federal Reserve either, or future generations, or the general public via T-bills. Literally, you just need to change the amount of money each pension "has" on the books. The banks are regulated, and they'd be forced to except the updated balances by law.
It is also explicitly another prediction Marx made about capitalism: That the most successful (read: surviving) companies eventually by necessity will start to squeeze wages as the barriers to further expansion increases (that is, the population and disposable income does not grow fast enough to provide sufficient increases in profit) - those who don't will be unable to compete with those who do.
Marx believed that the end-stage of capitalism would be when increasingly profit comes by driving wages back down instead of expanding the overall market, and that the result will be a reversal of the gains made by the working classes at the same time as increased production, resulting in increased poverty and overproduction as the working classes can eventually afford fewer products.
I still doubt the theory, but yes, it's valid evidence.
Just don't jump onver a conclusion too fast, because it's still evidence for substitution of production factors (that leads to competition between them), an idea almost completely opost to the labor theory of value. (Did I already tell you that I hate economics?)
The second graph seems to truncate the first 15 years. I wonder if the data exists, or if it didn't actually support the author's point. Also, I think the author oversimplifies this issue.
I just don't see the connection where the direct cause of large corporate profits is low wages. Are the wages adjusted for inflation?
The returns are so paltry as to be laughable. Five percent a year? Yeah, enjoy that retirement.
If you really want to take advantage, start a business. Guess what? There's some cheap fucking labor out there, and you can easily undercut a dinosaur. Share profits with your employees and advertise it. Try to get ahead of a movement that is almost surely coming in favor of companies that treat their employees well.
You could have invested right after the financial crisis like me and others did. We have made more than a 3x return since then. This is in fact a direct result of the observations in the article.
But stock market investment, over the long haul, does give better returns than any other form of savings.
Are you... asking if there is such a thing as a money tree?
Plenty (>90% ?) of people will tell you otherwise, but there's a case to be made that "investment" in public stock is essentially a game of reverse-routlette (i.e., not lose-lose-lose-lose-WIN but the other way around). What does the "anti-DOW" (most horrific deaths rather than strongest surviving) look like?
So, we've done the environmentally-conscientious boycotts. We've done the healthy food boycotts. You know where I'm going with this...
Is there anywhere we can find out whether a company provides its employees meaningful wages and benefits (in relation to its corporate earnings)? Also, if anyone's knowledgeable on this, is it generally more beneficial to just buy from privately-owned companies (vs. publicly traded)? I would love to start buying exclusively from co-ops.
Employees give inside info on their wages and benefits on glassdoor.com and indeed.com. The latter seems to have extensive forums for most companies [1].
I'm not sure about corporate earnings, but there are a bunch of lists on the internet that compare average worker compensation with CEO compensation and CEO compensation usually correlates pretty well with company profits.
"But they’ve still managed to boost profits beyond anything ever seen before because they’ve got away with employing as few workers as possible at as low a rate as possible."
I think there are other factors.
1. US effective corporate tax rate has been declining as corporations have found ways to keep profits in offshore tax havens. This is a huge contributor.
See for example this article about AAPL whose effective tax rate is 14% which is much lower than the US nominal corporate tax rate of 35%.
2. Outsourcing to lower cost centers. This is also contributing to lower US wages; If a company can move the work to India, Brazil, China, etc. at a much cheaper cost, they will do that. This has been going on for decades, but advancements in telecommunications and internet has made outsourcing to far away locations more efficient and cost effective over the past 10-15 years.
3. Federal reserve keeping short term rates at 0% and manipulating other fixed income rates with the QE program, e.g. buying $100BLN worth of MBS and US treasuries every month. This had the effect of creating record-low interest rates for corporate and junk bonds. This lowers interest costs for companies and also increases business demand because more companies are able to borrow $$ than otherwise.
Some of the revenues and profits are increased just because corporate and public debt has increased abnormally.
So another angle on this that I've heard is one of increased efficiency. The economic downturn forced a lot of companies to get more done with less. Once the revenue picks up again, the business realizes that they didn't need all those extra resources in the first place.
That could mean they hire fewer employees. It could mean they hire less skilled employees.
Admittedly speculation, I just wanted to throw it out there as an additional explanation.
That's where my thought was going too. If profits are high while unemployment is also high, then it can't be that employers are far less socially responsible than they used to be. They were never that charitable about hiring workers to begin with. It must just be that they don't really need the workers.
What I feel is missing from their analysis is a breakdown of corporate profits per employee, along with some hard figures, e.g., how much profit these companies make per capita. It might or might not be enough to make a dent (for example, $100 million split among 100k employees only comes to around $1000/year for each of them).
If wages in the US were low, they wouldn't be outsourcing labor to other countries. Reuters must not have realized how many things have "Made in China" stamped on them.
My local supermarket has low prices, and yet sometimes I get things at Costco. Prices are relative. US wages are low relative to historical US wages and wages in comparable countries, yet they are high relative to China et al. There is no contradiction. Otherwise, no country's wages could ever be considered low as long as they were higher than the Central African Republic's.
You do realize that a lot of manufacturing jobs are returning to the US and this is one of the driving factors (along with wage appreciation in China).
If wages are low, does that somewhat signify that many of the corporation's business functions are staffed with skilled workforce that is in oversupply?
Isn't this really a problem of corporate/investment taxes so low (and full of loopholes) and taxes on everyone else so high?
For the average person once you add up federal income tax, state income tax, social security, medicare, medical, sales tax, gas tax and all the other government fees we end up paying its like 50% of your income going to the government.
We could essentially double most of the countries pay overnight which would have a stimulating effect on the economy as a whole creating more consumers for more products and thus more jobs and more returns on investments.
By eliminating all personal taxes? Yeah, easy win ... Unless you like crimes to be punished, fires to be put out, kids to be educated, people not to be dying of poverty, and oh, a couple of other things.
A lot of those are currently funded (in the US) from local taxes: property and sales tax (at least that's how it is where I live, in a California county). School, police and fire departments are locally-funded. Getting rid of income taxes would not impact these. (EDIT: the GP was proposing abolition of all personal taxes, but the one that comes up the most in discussions is the personal income tax; we could just eliminate that one).
For the record, ~10% of California's K-12 budget comes from Federal funds, $5.5 Billion in 2009.[1] The Feds pay hundreds of millions per year in grants to local Police forces[2] and similarly large amounts to firefighters.[3]
The data the article provides does not support the author's claim, to say it nicely. For one to claim there's an association between wages dropping and corporate profit increasing, you'd need an area graph over time of corporate expenditures with with worker wages and other common expenses listed. Neither of the graphs included support his claim, as there's a multitude of other variables that could explain their trends. The second claim the author makes is that this is occurring specifically for US companies. There is no data at all cited for this claim.
I wish people would at least "try" when publishing articles with a political motive. All this article will do is reinforce the belief that wages need to rise for people who already believe it.