The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Corporate Power (Page 1 of 4)

Only 27 % of Workers Received Raises in Past Year

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: fortune.com

Last month, Bankrate.com completed a survey of 1,000 workers from all income levels across the U.S. and found that only 27 % of existing full time and part time workers had received wage increases. For all the recent news about wage inflation, from the worker perspective they just aren’t seeing the wage increases.  The wage inflation reported by government surveys is an average and does not take into account income levels.  The higher paid workers are getting the raises so the average moves up.

Sources: Bankrate.com, Marketwatch – 12/14/18

If a worker changed jobs then the pay raise figure rises by 5 %, though from our perspective that still seems low.  When  workers change jobs shouldn’t they be receiving a raise in this tight labor market?  This trend seems to indicate that wage leverage for workers is still quite low compared to the power businesses have over wage increases.  As we have noted in the past businesses enjoy leverage over workers by automating jobs, Internet access to hundreds of candidates nationwide and outsourcing of non-core functions.  Plus, executive power is increasingly concentrated with mergers and acquisitions cutting down the number of competitors that workers can chose to work.

Pew Research reports most pay raises going to the top 10 %,while non-supervisory and production workers barely received any wage increases.

Sources: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Real wages (taking into account inflation) have risen 4.3 % since 2000 for the lower quarter in income. Yet, for the top 10 % wages have increased by 15.7 % or $2,112 per year. Some of the pressure employers feel is from increased health insurance costs and adding non-wage benefits to keep pace with competitors.  The reality is that wages are what workers have to use to make the majority of their payments for housing, food, and necessities.  Plus, wages for the top 10 % keep going up anyway, so why don’t workers get the same rate of wage increases?

Wage stagnation has been happening for years.  Since 1964 an analysis of wages for production and non – supervisory workers by Pew Research shows that today’s wages have just not kept up with inflation.

Source: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Next Steps:

For all the discussion in the financial media about a wage inflation spiral the reality is that structurally workers in the lower 80 % income bracket are not getting their fair share of the economic pie. While, there have been federal laws proposed for limiting CEO pay Portland, Oregon has passed a law with a limit for executives at 150 % of worker pay or tax penalties are paid. Regulating pay in this way seems to be micro managing pay scales. However, we have a fundamental issue with pure capitalism of the American economy not delivering wealth to the vast majority of workers. In the 1970s, 1980s workers were receiving wage increases at 6 %, 7 % and sometimes 8 %.  After the Great Recession workers are just averaging 2 % to 2.5 % in wage increases.  Globalization caused outsourcing of manufacturing jobs held by the working class which hallowed out good paying lower education jobs. Millions of manufacturing job have been lost and not replaced.  Our economy is 70 % services based with highly educated knowledge workers receiving most of the benefits. Ending stock buybacks would certainly put more cash into corporate coffers to distribute to workers – but will executives raise wages?  Raising wages is an expense on the corporate ledger, and executives are paid to increase profits not reduce them. Executives are at the pinnacle of their power. Yet, as a society we have to fundamentally rethink how we make the economy work for all not just the few at the top of the corporate pyramid.

GM: Case Study to End Share Buy Backs

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: GM Lordstown plant to be closed – gmauthority.com

Yesterday, GM announced a series of plant closings and layoffs of 15,000 workers in North America.  GM attributed the need to shift its focus to electric car development, trucks and SUVs that consumers were buying, as sedan sales are falling.  Actually, auto sales worldwide have been dropping for the past year.

Source: Bloomberg – 11/27/18

Jesse Colombo, analyst at Clarity Financial notes that while GM’s announcement focused on electric car development the plant shutdowns and layoffs really were driven by of slowing auto sales.  The auto market has been shifting rapidly with the development of driverless cars, ride sharing reducing the need to own a car, and urbanization causing policy makers to fund more public transit. The auto maker announced that it will end production of the Chevy Volt electric sedan with sales falling short of targets. GM has targeted gig economy drivers for ride sharing companies like Uber and Lyft by offering an on demand service for the Chevy Volt at $225 per week in Austin.  It is not clear what will happen with this on demand service marketing beta test with Volt production being halted.  GM has partnered with Lyft, and made a $500 million dollar investment in the ride sharing company 2 years ago.  Thus, GM has made some investments in key new markets and technologies, yet is behind in adjusting to sedan sales which fell by 11 % in third quarter.

At the same time the auto market is undergoing rapid change, GM executives have been taking care of themselves as a first priority.  Wolf Richter, editor of the Wolf Report blog reports that GM spent $13.9 billion in stock buy backs since 2014.

Sources: Wolf Richter, Wolfstreet.com, Y- Charts, Marketwatch – 11/27/18

GM stock purchases took shares off the market to reduce supply, while expecting stock demand would move the share price up.  However, as Richter notes GM share price has actually fallen 10 % in that four year period. So, much for boosting the price of shares to pad the executive stock compensation plan.  Instead of investing in new technologies, research, new plants, employee training, increasing wages and other key transition programs GM completely wasted $13.9 billion dollars.  Poor management judgement is now causing 15,000 workers to lose their jobs in the U.S. and Canada.  While we will not know over the last four years if good business investments would have prevented all the layoffs it is certain the economic damage to Midwest and Canadian communities could have been significantly mitigated.

Next Steps:

Goldman Sachs estimates that S & P 500 corporations will complete $1.0 trillion dollars in stock buybacks this year.  One trillion dollars will be wasted by U.S. corporations as productivity investments have lagged over the past 5 years, and average real wages have been stagnant for the 80 % in income since the Great Recession.  As the GM example demonstrates, besides hurting employee wages, making U.S. companies less competitive and inflating stock prices now workers are losing jobs due to executive mismanagement and myopia on stock price.

Prior to 1982, the Securities Act of 1934 held that stock buybacks were a form of ‘stock price manipulation’ and were not allowed by the SEC.  This policy was overturned by an E.F. Hutton executive, John Shad as SEC Chairman appointed by President Reagan.  He created a ‘safe harbor’ policy where corporations could purchase their own stock, only a certain times during the trading day, with disclosure quarterly and blackout periods prior to earnings reports. Corporations have used buy backs since then but stock buy backs took off in 2015 to $695 billion and almost doubled to $1 trillion for 2018.

We recommend an end to the stock buyback safe harbor provisions and a return to the pre-1982 policy, management in many corporations has lost their bearings on why the company exists – first priorities being workers, their families, customer communities, society and the nation not their own compensation plan. Making the corporation profitable and valuable to shareholders is a means to achieving our societal goals of a decent wage, quality housing, and the ability of families to support their children.  In October, we posted an analysis on how major corporations like Boeing, GE and American Airlines underfunded their pension plans while executing  billions of dollars in stock buy backs. Executives need to take responsibility for full funding of all pensions not wasting money on stock buy backs. It  is time with so many middle class and economic investment needs that corporations receive a direct SEC policy shift to end stock buy backs.

Truth Has Lost It’s Most Important Defender – POTUS

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: spjla.org

Just before Thanksgiving, the FBI briefed the president on what actually happened to Washington Post columnist Jama Khosshoggi, that the Crown Prince of Saudi Arabia had to know and give the order for his murder in the Saudi Turkish Consulate.

Instead of defending the constitutional right of freedom of speech and the press and those that work so diligently at revealing and publishing the truth – POTUS defended the brutal killing of Khosshogi.  In a wholly greedy, self-serving, money grabbing (as Dickens would put it) way he talked about how important Saudi oil was to the U.S and for the kingdom to keep buying U.S. arms – killing thousands of innocent Yemeni people along the way.

The Truth lost its most important defender today.  We all lost out to geo politics and power in its most naked way.  The message being sent by our President is: “as long as you keep paying us and buying our stuff you can kill anybody you want and we will look the other way, including journalists”.  Historians will look back on this event as the low point for Truth in this country and the defense of the Press.

Our founding  fathers knew that a strong press was crucial to keep government in check from overreaching with its power over the people.  Jefferson and Madison believed in the American experiment that a well-informed citizenry will in the end make wise decisions about who and how they should be governed.

This president with all his demagoguery, scapegoating, bullying and no respect for the truth has taken the moral level of our country to a new low – in our eyes and the eyes of the world. He passed the 5,000 mark in falsehoods, misleading statements and just plain lies as recorded by the Washington Post this past September.  He has actually increased the number of falsehoods as he was campaigning for candidates he backed to an average of 32 per day from 8 per day up to his 601st day in office.

Journalists are under attack around the world, in the first 6 months of 2018 there has been 47 journalists killed worldwide almost the same number as for all of 2017.

Source: Statista – 2018

With nearly double the number of deaths through June 2018 journalists have a target on their backs.  Our POTUS did not help the situation by sending the message that dictators can kill journalists and there is no consequence.  When worldwide we a renewed focus on the truth, instead we are giving a green light to the creation of lie after lie.

Our national leaders need to be defending journalists throughout the world and in the U.S in particular because they are the investigators, researchers and messengers of truth.  Truth is the fresh air of democracy.  Our democracy cannot survive as a representative government when the truth and those who find and express the truth are under attack.

Congress and our national leaders need to take action to show the Saudi government that we want a relationship with the nation, not their present brutal leader, and the Saudi people.  We must defend the Truth, Liberty and Freedom wherever it is under attack in the world.

Ignorance Over the Common Good? Blind Governance is Dangerous!

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: washingtonpost.com

Something’s not right.  My grandson is not playing soccer and POTUS nominates a coal lobbyist to lead the EPA?

We all feel it.  Right in the pit of our stomach, here in Northern California, while we are being hurt by the effects climate change.  While not completely to blame, the Butte County fire storm was compounded by global greenhouse gas effects and as a possible cause a spark from an electricity wire.

Something is not right.  As we experience in the Bay Area our eighth day of unhealthy air from the Camp Fire in the Sierra foothills. Those with lung diseases are shut away in their homes, people are not going out. Businesses that depend on foot traffic are seeing losses of 10 – 20 %. Football games like the Big Game, between Stanford and California are being rescheduled to December 1st – the first time that game has been rescheduled since the assassination of President Kennedy in 1963. Local universities and colleges are closed for classes: Stanford, University of California, Santa Clara University, De Anza College and many secondary school districts.

Yet, our President nominates a coal lobbyist to head up EPA?  The mission is in the name Environment Protection Agency, Not Environmental Destruction Agency.  Coal is a fossil fuel contributing to massive amounts of gas emissions warming our earth. Heating the planet every day.  Here is the path we are on toward 1.5  degrees C and eventual extinction of the human race:

Sources: The Wall Street Journal, The Daily Shot – 11/15/18

My grandson’s soccer game was cancelled last Saturday and will be cancelled again tomorrow due to unhealthy smoke in the air.  Is this the new normal?  We don’t have to support this heresy destroying our environment, our families and our lives anymore!

Why in the world is a coal lobbyist heading up EPA?  Something is very wrong with this picture. Maybe the House Progressive Caucus has it right to camp out at Nancy Pelosi’s office the other day demanding climate change legislation.

We have accepted the status quo too long on climate change.  Industry priorities must come second to clean air, water and the planet period.

The sheer ignorance, lack of wisdom and understanding of science is killing our people, making life a struggle for thousands, shortening life expectancies and reducing the sales of legitimate businesses – all so coal companies that should be shifting their business from fossil fuels to renewables have not made the transition.  We should not be paying for coal company executive mistakes.

We need to be asking at what cost do we keep coal? It is clear the cost is too great.  We need to quit accepting the platitude  ‘it saves jobs’ and replace it with we want ‘live saving jobs’ for all. We can’t accept this environmental spiral downward for the ourselves and our planet. We must return to the Paris Climate Change agreement, renew investments in renewables, focus on clean jobs training and development.  Get on with it now, future generations and our planet are depending on us to make sound decisions and not accept blind governance one day longer.

Memo To CEOs: Invest in the Company, Not Yourself

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: wikipedia.org

To: CEOs – S & P – 500

From: The Progressive Ensign

Subject: Stock Buybacks Are Out of Control

Date: November 5, 2018

Congratulations, this past quarter you knocked earnings out of the park, profits were higher in particular, though revenues lower and you did well by raising stock prices to new highs in September via stock buybacks.

Source: Standard & Poors – 11/4/18

Ok, you did well on stock compensation too with soaring stock prices.  You can take that trip to Cancun, buy a boat and a villa for extended stays.  You have worked hard, your team has gone all out to make your companies successful, and worked harder.  Remember, while you were traveling and making decisions on sales, financing, product development and marketing they are actually designing, building, shipping, selling and supporting your products and services.

Sources: The Labor Department, The Wall Street Journal, The Daily Shot – 11/5/18

Next, you have not been making the investments in capital equipment , R & D and innovation to move companies along and be prepared for more overseas competition or increase productivity. Thanks for moving wages higher for less than high school educated workers recently they still aren’t enough to keep up with inflation though. If you can increase productivity we can give workers raises without it hitting the bottom line an increasing cost, and earning would be stabilized or even get better. You wouldn’t need to use financial gimmicks like stock buy backs to take stock off the market, and goose the price so earnings look better on a per share basis.  Between 2010 and 2017 S & P companies spent 51 % of their operating earnings on stock buy backs.  That’s money just hyping stock nothing else.  Note that business investment is continuing to decline with lower highs and investments flat since 1998.

Sources: The Wall Street Journal, The Daily Shot – 11/5/18

Your joy ride on $1 trillion of stock buybacks needs to end.  We want to see a plan by the end of the month on how you will use that $1 trillion dollars in meaningful long term ways such as raising wages, job training, purchasing new equipment and systems, and innovating new products.  You are basically taking away the future of your workers and the country for your short term gain. Show by quarter how you will implement the plan and get your businesses actually growing again (in real dollars not financial gimmicks), workers supporting their families in sustainable lifestyle and making America stronger.

P.S. By the way, it is time to end your constant borrowing, rates are going up, and you spent most of the money on stock buybacks or other goodies not investing in the company.  You are mortgaging the future of the business by taking on a record amount of debt.  Please submit a plan for retiring this debt as part of your financial plan for investing in the company by the end of the month.

P.P.S.  For those of you ( a minority) who are not doing stock buybacks, thank you, and you who are spending on capex and raising wages thanks a lot!  Just submit a set of graphs showing your investments so we can show the other CEOs how it is done – as a best practice.

Wall Street Expects A Cash Return, Leaving Employees Out

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: wikipedia.org

Today, employees don’t share in the profits or success financially the way they did the past. Forty years ago, Sears offered their sales staff commissions, bonuses and retirement plans enough for many of them to retire on $1 million in today’s equivalent dollars. Amazon recently announced raising all workers to $15 @hr, yet they are eliminating stock and bonus plans.  Hourly staff will be left with little for retirement except what little they can save.

What is driving management to not share company financial success with employees, or increase investments in productivity which would support a raise in wages?  One factor is Wall Street expectations of corporate management to keep the cash machine cranking full speed.

Sources: The Daily Shot, The Wall Street Journal – 10/25/18

Companies that invested in capital equipment to increase productivity or R & D to innovate were penalized by Wall Street investors driving their stock price down.  Note that on the lower chart the relative performance of investment focused on capex companies versus cash return in buybacks and dividends is 6 % less and has been falling since a year ago. Executives quite often receive as much as 80 % of their compensation in stock options based on stock performance and earnings targets.  Spending money on expenses by increasing wages, capital equipment purchases or innovative research reduces profits and does not provide more funding for stock purchases to drive the stock price up.

Next Steps:

Our post this past Labor Day notes how Wall Street wields power over the economy, and drives executive decisions on allocation of resources.

Wall Street, the citadel of capital,  wields supreme power focused on profit throughout our economy and control of our government. Corporations pander to financial leaders with ever higher profits manipulated by stock buybacks juicing the value of share prices. Management ensures investors are pleased with financial results using loose financial gimmicks and laying on record debt. While workers have seen their wages stagnate for 30 years since the 1980s.

Yet, Wall Street is beginning to change with major leaders beginning to recognize the need to invest in corporations that take social responsibility and worker value as core principles.

We need to require corporations to report on how they are building employees as assets and worker contribution to increasing company value.  The next step is for Wall Street to recognize social responsibility in their investments as Blackrock, CEO Larry Fink, has in a letter to CEOs of companies in their portfolio that he will be looking beyond profit, for implementation of policies by management in sustainability and worker advancement.

Harry Truman had the right perspective:

Our most productive asset is our labor force.”

Housing Has Not Recovered From the Great Recession

Image: 15146affordablehousing.weebly.com

As a percentage of GDP housing has not recovered from 2008.  Particularly, in two key categories: (1)  Furniture, Repairs & Maintenance and (2) Construction.  Additionally we know that appliance sales have been lagging as well due to tariffs and price versus worker wages being stagnant.

Sources: BEA, John Burns Real Estate, The Wall Street Journal, The Daily Shot – 10/18/18

Housing has not recovered from the Great Recession downturn from sub-prime mortgages and loose lending practices.  As part of the recovery, banks were made whole with billions of TARP funds, but homeowners who tried to write down their principal loss on their homes to reduce mortgage payments were not allowed in court.  Banks paid a small pittance of $50 million in homeowner relief that was distributed in a hazard manner.  Millions of homeowners lost their homes and more importantly lost their equity.  They could not replace their homes when the economy turned around, they had to take ‘make do’ jobs when they did finally find a job and are now left with little wealth to retire on except for Social Security.

Young prospective home buyers face a daunting affordability crisis as the inventory of affordable homes is low as builders focus on wealthy buyers, who buy high margin homes.

Sources: Scotiabank Economics, NAR, Haver Analytics, The Wall Street Journal, The Daily Shot – 10/17/18

In all regions of the country affordability continues to fall after reaching a peak in 2012.  Mortgage rates are at the highest level since the Great Recession, the inventory of middle class housing continues to decline and the commitment to homeownership is waning.  We hear more and more about how ‘renting is really ok’ – for who?  The wealthy landlords who continue to raise rents while raking in the cash.  What about families who want yards for their kids to play in, or to gain ‘sweat equity’ by upgrading the home they live in or landscaping the yard.  It is clear just looking at most neighborhood which homes are owned and maintained and which ones are rentals owned by an off premise landlord.

Next Steps:

Dropping the national commitment to home ownership is not the solution to the problem.  We need to ensure that the 80 % who do the heavy lifting in the economy can afford to buy a home on their incomes.  Corporations need to be increasing wages for workers at least as fast as their executives and more to ‘catch up’ to the raises and stock plans of the executive team receiving high compensation from stock and stock buybacks.

Reducing student debt, now at $1.5 trillion is critical so that prospective home buyers do not have student debt right at time they are starting families and purchasing a home.  We have proposed a far reaching program building on existing student debt forgiveness programs to more comprehensive service for debt forgiveness programs.

Builders need incentives to build lower margin homes middle class homes in new developments.  Local and state governments need to take on the charter of ensuring that affordable housing is a priority for zoning near commercial and business centers.

Fannie Mae and Freddie Mac need to be committed to focusing on first time buyers and lower income prospective buyers innovating ways to get them into homes while at the same time being financially responsible.  The Federal government needs to provide more funding for the two housing agencies to bring down rates to an affordable level.  Working in cooperation with groups like Operation Hope, banks need to make a new effort to make mid and lower income buyers financially literate and help them move into homes.  Think what a huge difference it would make for our cities and rural communities if people owned their homes and made improvements to their home and yards.

Workers Exercise Power Through Pensions on Corporate Policies

Photo: commondreams.org

Toys R Us was saddled with billions of dollars of debt by private buyout firms like Kohlberg Kravis Roberts.  Pension funds provide firms like KKR with funds to invest expecting higher returns than stock market rates. When the workers at Toys R Us petitioned the Minnesota Pension Fund that they had been denied a severance the fund suspended making investments with KKR.  About 35 % of all private equity funding comes from public pension investors.

The New Jersey pension fund has listened to its pensioners on issues like not foreclosing on Puerto Rico residents who are recovering from Hurricane Harvey and an investment in a payday lender.  Adam Liebtag, the acting chairman of the New Jersey State Investment Council, told the New York Times,  “They are paying closer attention. They are following the money.”

Pension funds provide about 35 % of all private equity funding. providing a good channel of leverage for activist groups.  The deals that pensions do with private equity firms continues to rise as well.

Source: Prequin Private Equity Spotlight, Value Walk – 10/2014

Sarah Bloom Raskin, a fellow at Duke University and a deputy Treasury secretary in the Obama administration, observed, “Workers don’t want their pension money invested in ways that hurt other workers”.  Workers are waking up to the fact they have financial power to get private equity firms to listen to their concerns that private equity policies are hurting some workers as in the Toys R Us case, heavily loaded with $5 billion in debt from a private buyout.

Next Steps:

We see the pension leverage option on private equity firms as a model to build on.  Why not require pensions to listen to their investor – workers by having a set of investor – workers on their board, participating in the investment decisions the board makes to begin with.  Workers should be constantly polled for their concerns to ensure adherence to investment policies that are moving the lives of workers better in any company where the pension is invested.  Workers are mainly left out of the financial decisions that manage their lives while working for a company, at least after retiring the money they have saved in a pensions fund should speak for them and their concerns in building a better life for all employees.

Resetting the Web’s Balance of Power

Internet pioneer, Tim Berners-Lee has an audacious yet powerful goal for his latest startup Inrupt.  He wants to “reset the balance of power on the web and reignite its true potential.” Building work with other Internet activists at MIT he is developing a decentralized personal web based platform called Solid.  He is introducing a ‘Netscape’ browser front end that gives the user control of all his own content. During a demo he shows a fundamental set of tabs with a To-Do List, Calendar, Chat Address Book and eMail.  Yet, this screen hides from the user one basic difference, all his data is stored in a POD or Personal Online Data store. All the content he creates or uses is stored in a POD, not some corporate server like Google, or Facebook.

Source: Tim Berners-Lee – 9/29/18

Users of the Inrupt browser and applications are given a Solid identity and access key to personalize security. Berners-Lee envisions an Alexa like persona assistant, he calls Charlie where a user can be comfortable accessing health records, financial accounts and personal memos in POD storage not a Amazon cloud server. He sees global web developers writing appls for Solid and Inrupt to take back the Internet, provide the security and safety of personal identity management and reduce the need for government regulation.

We are excited about the opportunity to finally end the corporate control of user created content which we have always believed is the user’s property not the Internet application provider.  Google, Facebook and Apple have the idea that they own our content, can do anything they want with it, including selling it to partners without our permission.

Solid and Inrupt are revolutionary in scope, technology and return the Internet to its original vision – to empower users and link them together on a peer to peer basis.  Not, a corporate behemoth holding all the content power to a weak end user.  Maybe with technology like Solid we can finally get back to a democracy of entrepreneurs, small business and users controlling their content, its use and distribution!

Amazon Raises Minimum Wage to $15@hr While Eliminating Bonuses, Stock

 

Photo: kansascity.com

Amazon announced the $15 pay raise today in response to criticism by progressive politicians like Sen. Bernie Sanders who recently introduced a bill to tax companies like Amazon 100 % for employees on government assistance.  The company plans to hire over 100,000 seasonal workers this holiday season, the raise will apply to all full – time, part-time and seasonal workers beginning November 1st. The pay move by Amazon comes at a time when retailers are finding it hard to hire clerks and warehouse workers for wages generally under $15 @hr.  Amazon’s move is a challenge to retail firms across the country forcing them to raise wages or lose out in hiring to Amazon.  Sen. Sanders congratulated Amazon in a tweet, noting the raise was a ‘shot heard around the world, certainly for all hourly workers worldwide.

Sources: Amazon, The Wall Street Journal – 10/2/18

While  the $15@hr wage increase made the headlines, the firm took away bonuses and stock awards for warehouse workers.  The company said the wage increase more than makes up for the loss of bonuses and stock awards.  What?  Why is Amazon doing this?  To mitigate the cost of raising wages to $15@hr to bottom line profits.  Amazon needs to think through the message they are sending, do they want the ideas and dedication that bonuses and stock recognize or not?

In addition, the company said it would be lobbying in Washington for a raise of the federal minimum wage which has been stuck at $7.25 for ten years.  Amazon uses a highly profitable server business to provide a cash feed to the retail business while building market share to eliminate competitors.  Amazon raising wages makes it even more difficult for competitors to hire workers and retain them.

Next Steps:

We applaud Amazon for waking up and making this sweeping move to raise hourly wages to a baseline of $15 @ hr.  At the same time we are concerned that with giving the wage increase they are taking away bonuses and stock awards – this policy sends  the wrong message to workers. The wage increase is a strategic move as well, putting its weaker competitors back on their heels and in a worse political position.  Are they going to oppose federal legislation that may come from a Democrat led House to raise the federal minimum wage?  In a mid-term election year where non-supervisory workers have experienced stagnating wages since the 2008 recession Amazon competitors will be hard pressed to make their case to consumers. As politics is more in the spotlight for companies and consumers, brick and mortar retailers’ possible stand against raising wages may hurt sales and hiring.

With Amazon making the first move we agree with Sen. Sanders, who called on other major companies to start paying decent wages to their employees so they support their families, buy cars and purchase a home.

The e-retailer behemoth is in the cross hairs of political criticism in terms of work conditions like few bathroom breaks, to uncertainty with plans to add 40,000 robots over the next five years. The firm’s automation plans will have a significant impact on the workplace for non-college educated workers, we need to be working on a public policy recognizing the impact automation has on worker careers.   Should robots be taxed as some have suggested?  If  so, based on what formula?  How would the funding be used to support retraining and safety net needs for the workers displaced? Amazon has been able to amass a dominant retail position by using revenues from its business to business cloud server profits to mitigate the ecommerce business running at a loss and early development of brick and mortar stores.   We stand by our earlier analysis that the server business – Amazon Web Services (AWS) be spun off from the e-retail business to level the market playing field with other retailers.

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