The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Labor

Saving Democracy: Why Wages Have Declined for 20 Years, Labor Needs Equal Role With Capital

(Saving Democracy Series:  this post focuses on what factors are causing labor to lose it rightful position as an equal partner with capital in the US economy and concludes with ideas on how to bring labor back into an equal role; from new institutions like a Federal Reserve for Labor, to corporate law reform, ending stock buybacks, and training with a powerful apprenticeship program)

Labor has been viewed as a cost for hundreds of years. Somehow the early accountants working for Middle Age Venetian families invented double entry accounting systems with debits and credits, These accountants called credited assets like money, land and equipment while labor was a debit labeled as an expense. Labor is viewed as an expense to this day because the owner-entrepreneur has to pay employees to work – in effect ‘renting labor’..  Workers have had the ‘cost’ yoke around their necks ever since.  Yet, are employees really a cost?  The staff are the ones doing the work, creating the product or service and solving the problems – money does not create the product or service only people do. CEOs are often heard to say that employees ‘are our most important asset’ but then treats them like second class citizens in making policies for the company, gaining a fair share of the profits or enjoying job hours flexibility. Today, Wall Street applauds wages being stagnant for the 80 % while profits go up while wealth accumulates for The Elite.

Over the past 20 years in particular, workers have seen their ‘economic position’ continue to deteriorate.  Labor sovereignty continues to decline on multiple fronts: wages, benefits, standard of living, job negotiating clout, choice of companies and the constant sword of Diogenes held over their job by automation.  For example over the past fifteen years wages for workers have been stagnating.  However, this declining wage trend is not new, it has been happening since the early 1980s, when President Reagan took office and ‘trickle down economics’ was promised as a way to give workers a fair share of the economic pie.  Workers have lost their wage share of business sector income ever since.

Sources: The Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 5/3/19

Labor’s share of business sector income has dropped by 15 % since 1950.  While, this labor share statistic uses wage employment data and estimates for self- employment, some observers think the decline is largely due under estimates of the size of the ‘gig economy’.  However, separate wage data supports the declining wage trend:

Source: Global Technical Analysis – 5/3/19

When real wages calculated after inflation are allocated across all employed workers the decline is most apparent, a 34 % decrease since 1983.  The softening wage trend is not getting better, Bankrate surveyed 1,000 workers last year and found that only 27 % received a wage increase.

Why have wages continued to fall the past 50 plus years?  There are multiple factors combining to put workers at the lowest point of wage negotiating power in recent times.  Automation is one of the prime reasons for the loss in wage bargaining power.

Sources: FiveThirtyEight, The Federal Reserve, Bureau of Labor Statistics – 3/2016

Almost 5 million manufacturing jobs have disappeared since 2000, yet over the past 9 years factories have been coming back to the US by increasing employment by 5 %, but with far fewer workers. Yet, the US is taking the No. 2 position in worldwide manufacturing output with a 20 % increase in output

The reduction of manufacturing jobs in the US, automation has been a key factor weakening the worker wage bargaining position. A recent Ball State University study found that over 88 % of lost manufacturing jobs were due to automation and productivity increases not offshoring.

Automation started decades ago, as IT applications deployed in offices and manufacturing plants in the 1970s and 80s displaced thousands of workers performing repetitive manual tasks such as data gathering and reporting, answering phone calls, editing and copying documents, sending and receiving status reports, manufacturing reporting and others that were easily automated by software.  By 1995, the Internet began to impact the workplace, networking software applications so that jobs once requiring local support or data could be performed overseas for far less.  In Silicon Valley, an entry level software engineer would be paid $65 – 75 @hr., while an engineer in India was paid $20 @hr. or less. Thus, most business processes for ‘non-core’ functions like accounting, IT, customer support and benefits processing were moved offshore to reduce costs by 50 – 75 %.

In addition, major corporations have been outsourcing non-core services to US contracting companies to the detriment of worker’s pay security or benefits.  For example, in Silicon Valley starting in the 1980s until present – many core IT functions were outsourced with ‘facilities management’ agreements, where IT workers are fired, and rehired by outsourcing companies at 30 – 40 % less in salary with no benefits or health insurance. The workers were faced with no good choice – look for another job or take a pay and benefits cut for the job they had before.  In the Bay Area,  H1-B visas are often used to keep wages low by offering a worker from India 40 % of the local prevailing wage for a software engineer. The present GOP Administration has significantly reduced H1-B visas by a ratio 1 accepted of every 4 applications the lowest rate in 10 years.

Automation investments continue as software firms develop applications that automate many business activities previously thought to be difficult to automate:

Source: McKinsey Global Institute – 2/28/17

Jobs requiring skills from sensory perception fine motor activity or navigation are going to be automated over the next 30 – 50 years. All this investment in automation results in less competition for employers to find employees to do the work they need – a machine will do it.  The machine shows up on time, requires no vacation, is not absent, and does not sue the company for management miscues.  Plus, the added benefit is in well implemented automation projects costs are driven down, profits up so executives see their compensation increase.

Corporate Oligopoly

Another way corporations limit worker job options is by merging with other companies and then laying off workers in the newly combined firm.  Since 1997 the average market share for the top four firms in most of 893 industry sectors has increased from 26 % to 34 %.  For a tenth of these sectors where the top four firms have 33 % to 66 % market share their revenues have increased by 37 %!

Sources: Census Bureau, The Economist – 3/2016

The antitrust section of the Department of Justice has been asleep the past two decades. In the airline industry, there are now 4 airlines that own 80 % of the business.  In finance, just 5 banks have   50 % of $15 trillion in total assets. In the information search sector – the top 4 companies have 98.5 % of the search industry market. The wireless communications industry is dominated by the top 4 companies control 94.7 % of the market between them – Verizon, AT &T, Sprint and T-Mobile. In the tire manufacturing sector, the 4 top firms dominate the US market with a total market share of 90.1 %.  In 2012, entertainment, media and distribution markets were concentrated in 6 conglomerates with a total of 90 % market share. In 1983, 90 % of entertainment and related markets was distributed over 50 corporations, this chart sho concentration in the fastest growing streaming markets:

Sources: The Wall Street Journal, The Daily Shot – 4/22/19

The advertising industry has consolidated into a two Internet behemoths – Google (Alphabet) has nearly 50 % market share and Facebook with 16 %:

Caption: Bloomberg, Zenith Media, The Wall Street Journal, The Daily Shot – 9/25/17

From 1997 to 2017, the number of publicly listed corporations has declined by 50 % overall.  Fewer corporations for job candidates translates into fewer corporations offering good paying jobs with high quality benefits. Plus, an analysis of corporate concentration in the five year period of 2007  to 2012  in the services sector, found that where corporations control markets and reduce the number of workers to support sales wages are likely to decline.

Sources: The Wall Street Journal, The Daily Shot – 6/27/17
Sources: David Autor, Professor oF Economics, MIT et al, The Wall Street Journal, The Daily Shot – 7/23/19

Gig Economy

The ‘gig economy’ of freelancing and independent contractors has ballooned to about one-third of our workforce or 56 million workers in 2016 according to the McKinsey Global Institute.  A survey by Gallup indicates the types of gig jobs; full-time gig job, part-time gig job, two part-time gig jobs, one traditional job and one gig, or where the first job is a gig and the second job is a traditional job for 36 % of the the total workforce:

Sources: Gallup, The Wall Street Journal, The Daily Shot – 9/5/19

Workers in the bottom 80 % in income have seen their wages actually decline over the past 10 years. So, it is no surprise middle class workers need to hold at least two jobs to maintain their standard of living.  The number of workers holding multiple jobs has skyrocketed in the past few years to the highest level since 2008 (note the recessions at the peaks of multiple jobs).

Sources: Deutsche Ban, The Wall Street Journal, The Daily Shot – 9/5/19

When major corporations experience a slowdown in sales, as has occurred in the last quarter, temporary and gig workers are the first to be laid off or see their contracts cut back along with rates.

The growth of ‘shared economy’ companies like Uber, Lyft, Lime, Airbnb, VRBO and many others have provided these gig workers new flexible income opportunities without the financial safety net of traditional employer jobs.  Gig economy workers often have limited or no access to worker’s compensation, unemployment insurance, 401K retirement plans, disability insurance or health insurance. Independent workers are required to pay both the worker and company portion of Social Security taxes and worker portion of Medicare each year on their income. In the Gig Economy, 33 % of our national workforce is not organized into a union or any bargaining unit. These contract workers are at the mercy of corporations or businesses that set the terms of a work contract, and if there is a problem they quickly find another contractor with no obligation to the contract worker. Uber, and Lyft dominate the ride sharing market, pushing out taxi cab firms, car companies and shuttle businesses – many with full time employees including benefits.  While the cost of rides maybe going down for the passenger, workers are seeing their wages held steady or reduced (Uber reduced driver share of fares by 20 % a year ago) with estimates of an hourly wage ranging between $8.55 to $10.00 per/hr by Stanford researcher, Stephen Zoepf. Drivers receive no compensation for gas costs, auto depreciation, car insurance, Medicare and Social Security – paying both personal and self employment, car repairs and or financial protections. Uber and Lyft receive fees ranging from 25% to 39 % of fare totals. Drivers do receive tips. Financial protection for gig economy workers is in the infant stage, where companies are holding off any meaningful changes until class action suits are brought against them. Last March, Uber settled a suit filed by drivers from California and Massachusetts to be declared employees. The suit settled for $20 million to the drivers, without changing their employment status which stays independent yet they will be given more transparency on driver deactivation and a chance to purchase shares in Uber’s  coming IPO.

Source: Marketwatch.com

Uber’s public stock offering demonstrates the gross inequality of income and wealth, as the drivers are providing the service, yet only a few drivers were offered stock options and the founders made billions of dollars from the public offering. The IPO is a good microcosm of how the Silicon Valley economy works rewarding a few while others providing the services or making products gain very little compensation in comparison.

Productivity

In 2018, Goldman Sachs estimates S & P 500 corporations will spend over $1 trillion in stock buybacks, and they forecast a similar figure for 2019.  None of these funds are being invested in the business to develop new technology, processes, training or systems to increase productivity or cut costs. Business executives are using stock buybacks to goose the price of their stock artificially adding to their compensation packages and the stock returns of shareholders most of which are in the top 1 % in income. Essentially, management is robbing workers of increases in future wages due to the nearsighted allocation of funds to take care of them themselves and pander to the wealthy.

When productivity is anemic, offering wage increases to workers cuts into profits.  Executives are compensated well based on hitting profit targets, so wage increases are not going to happen other than low inflation level 1 – 2 % increases. Over the past nineteen years manufacturing productivity has dropped from 8.0 % to 1.0 % this past year. 

Source: Bureau of Labor Statistics – 5/2/19

Most of our economy is services based, and productivity improvements in the services sector have been slow in coming compared to the goods based sector. For example in social assistance, education, and healthcare there has actually been a reduction in productivity by about 9% since the 1980s.  Plus, hiring has centered on our services sectors so productivity increases are likely to be limited into the future. Our fastest growing sectors in the economy are among the least productive.  Artificial intelligence and software services may change this trend, but the results are still to be seen.

Sources: Brookings Institution, The Wall Street Journal – 10/30/16

Job changes are the lowest in the least productive services sectors, indicating work to be done to automate or implement productivity systems in these services sectors.

Sources: The Brookings Institution, The Wall Street Journal – 10/30/16

Executive Pay

Today, executive compensation at S & P 500 corporations is on average 300 times the average pay of their workers! Senior management enjoys a combination of high salaries, executive healthcare, house low cost loans, stock options and bonuses for achieving earnings targets (hyped by stock buybacks).  In 1975 CEO pay to mean employee pay was 25:1, in 1995 112: 1 and in 2017 312:1.

Sources: Adam Grant, Professor at Wharton, Compustat, Bureau of Labor Statistics – 9/27/18

Note the ratio of CEO to worker pay soars in the 1990s as a result of the the de-regulation, trickle-down and stock buyback allowance policy of the Reagan – Bush administrations. Extreme executive compensation is taking wages from workers who would otherwise receive their fair share wage. Corporations have committed over $1 trillion to stock buybacks, according to Goldman Sachs in 2018 which only go to increase their stock compensation plans and the top 1 % who own most stocks.  That trillion dollars could be better allocated to increasing worker wages so the economy works for the 80 % in income.

Worker Compensation

One aspect of worker compensation that has increased by 12 % since 2006 is total worker compensation in the form of benefits.  While wages have increased by just 4 % in the same period.  Paid leave, health and other benefits have grown faster than wages, except in a few months. Wages as a percentage of total compensation have dropped from 70 % in 2006 to 68.3 % in 2017.

Sources: Labor Department, The Wall Street Journal – 6/9/19

The health component is somewhat misleading, while corporations have seen increased costs for medical coverage, they have reduced those costs by moving the majority of cost increases over to employees.  Corporations have done this by increasing the deductibles covered, reducing the number of plans and increasing premiums.  Worker households are caught in a cash squeeze by having to pay more for the health care coverage they had previously while corporations are holding their costs in line with inflation or slightly more.

Federal minimum wage laws are not keeping up even with inflation. Some states are making up the difference, by requiring higher minimum wages than the federal minimum wage (dark blue, blue and light blue).  Other states offer the same minimum wage (yellow) and yet in the South many states don’t have any (dark grey) wage minimum laws with others (light grey) below federal minimum wage rates like Georgia and Wyoming. Note many foreign car manufacturers have deployed plants in no minimum wage states like Tennessee, Alabama and South Carolina.

Sources: National Conference of State Legislators, Bloomberg, Quick Take – 2018

Job Market Automation

LinkedIn was designed for corporate recruiters with the features and services they wanted to speed the recruiting process.  The edge to recruiters is obvious in the design of the service. For example job seekers cannot have multiple resumes or experience sets styled toward different jobs.  Unless the candidate – user is adept at settings updates to profiles are immediately sent out to all people in their network.  Recruiters have dashboards with filtered candidate lists around search preferences and locations.  The majority of LinkedIn’s revenue is from the corporate recruiting market – candidates are promoted to meet the needs of recruiters.  The use of LinkedIn, Monster, Indeed and other Internet job search services create and sustain a powerful recruiting edge for corporations.  Businesses can identify hundreds of high quality resumes and candidates quickly from all over the world in just a few hours or less. 

Source: Zety.com – 4/7/19

Resume scanning programs (recruiting bots)  further refine the candidate list, filtering content by keywords, phrases or other text targets.  Candidates are left with the challenge of figuring out what keyword ‘hits’ the bot is looking for and entering them into their resume so their resume will have the most ‘hits’ and rise to the top of the list of 250 plus candidates. Job seeking workers try to promote their job skills and experience with workers via social media sites, but are caught between being too public in their search with their boss finding out, or tipping off other candidates to the job they are seeking. Employers use their vast recruiting power in salary negotiations (‘we can always go to plenty of other qualified candidates’) and even after hiring keep all those candidate resumes online to fill the position if the new worker does not meet expectations. Only executives get promoted by an executive recruiter paid by corporate HR departments for find the right executive for an open position, once again the executives get a powerful edge over all other workers.

HR departments often hide behind Internet screens, offer no phone contact numbers and provide few ways for candidates to follow up with key staff.  Often, the trend now is to interview a candidate and not get back to them after the interview if they aren’t interested – sending a de facto message of ‘if we were interested we would send you a message or call’. Without an inside contact, a candidate is left to be a cog in the corporate recruiting machine.

Unions

When the manufacturing sector had the majority of American jobs, union power in representing employees was paramount. Unions are still a key bargaining entity for public employees, nurses and teachers. U

Fifty years ago 33 % of all US workers were members of a union, by 2015 membership had declined to just 10 % – a greater than 66 % decline.  The decline was quite pronounced in ‘right to work’ states in many in inland regions and the South:

Source: NPR – 2/23/19 Percentage of Workers – in Unions 2014

Unions played a crucial role in working to raise wages, benefits and ensure that people worked in safe conditions. Due to automation and offshoring the manufacturing sector has lost millions of jobs, thus unions and their role will need to evolve to the new services technology based economy.

In summary, workers are faced with a daunting set of economic forces holding their wages down – diminished bargaining units, the juggernaut of automation, stock buybacks instead of wage increases, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, exorbitant executive pay and corporate control of job markets.

To make our democracy work, labor needs take an equal place in our government, corporate and social structure with capital.  Democracy = capital + labor where capital and labor have an equal political, economic and societal position.

Next Steps:

Federal Reserve Bank of Labor – the Federal Reserve system of Governors represents the nation’s largest banks with the President appointing each Governor.  The system has worked well for the banking system to manage financial crisis’s  and interest rates.  The business community and national policy makers await a continuing stream of reports and the Beige book on the status of business throughout the 12 regions with baited breath. The Federal Reserve made up of 12 governors from regional banks, do not represent workers, or really have the tools, levers or policy role to solve labor problems. The Fed’s real mission is to ensure that banks stay viable and the financial system is sound. Yet, Congress charted the Fed with a dual role of keeping inflation in check and supporting full employment. Using the unemployment rate as an indicator of labor’s health is a mistake. The number does not include the millions of workers who have quit looking for work, those without the skills, or those possible workers who are suffering in the drug epidemic because of despair in part from lack of work. The miss match between the millions unemployed vs job openings is a huge challenge and needs to be undertaken by an organization lead by executives from labor focused organizations.

Source: The Wall Street Journal – October 18, 2018

Labor needs an equal organization to represent labor at the table with capital. The new organization would advocate, collect research, and make decisions to promote the welfare of workers, improve wages and lead efforts to fill U.S. job openings.  The mission of the Federal Reserve Bank of Labor (FRBL) is to ensure the United States has the most competitive, up to date skills in a labor force to fill all positions that US corporations have open. In short, the FRBL is in charge of the Labor Bank. The Federal Reserve of Labor would match the 12 regions of the Fed, would be composed of 12 Governors selected by the President from academia, corporate human resources, unions, government worker groups and worker rights group leaders to guide labor policy and programs for the country.  The Governors would meet monthly, setting minimum wage rates by state in the country, review the results of labor statistics, write a Lavender report on the status of labor in each region, with a focus on putting unemployed workers who are seeking work back into the labor force and target an increase in the national labor force participation rate.  The Governors establish interest rates and the size of allocated loans from a bank of $100 billion in labor development loans which are allocated to corporations, NGOs, Unions, universities and others to drive the development of the labor force. The Governors establish the Federal Minimum Severance rates by industry sector state, executive, manager and worker. A minimum severance rate is the proportion of salary received in severance for example 3 months salary.  The FRBL board drives research into issues like why so many workers are still unemployed even with the unemployment rate being at a 50 year low, and why wages have stagnated over the past 20 years. The FRBL is charged with upgrading our labor indicators to assist policymakers in what is really happening to our labor force by industry, job type, racial group. The Governors are chartered to establish a labor force set of goals that are updated by month to measure the results of labor force development, both qualitative and quantitative. Labor experts in the Fed would move to the FRBL, coordinate surveys and research with Census and Labor departments.  The Federal Bank of Labor Governors meet quarterly with the Fed Governors to coordinate capital and labor development plans and programs. Regional FRBL and Fed Governors meet monthly to coordinate regional programs.

In addition to building the FRBL these policy initiatives need to be implemented or similar:

  1. Place Workers on Boards – as Germany has so effectively setup, engaging management with required representation of workers on Boards, through Worker Councils or Unions if so voted by the majority of workers.
  2. End Outsourcing – corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.
  3. End Low Cost H1-B Visas – the practice of importing inexpensive labor to drive down wages in US markets would be ended
  4. Focus Repatriated Funds on Labor – profits parked in banks overseas are invested in productivity programs, increasing wages of workers (not executives), reducing costs or innovation research. Stock buybacks or dividends would be prohibited
  5. End Stock buybacks – these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases
  6. Breakup Oligopolies – breakup market concentrations in key sectors: information technology, banks and financial services, health insurers, airlines, hospitals and clinics, entertainment, media and distribution and others as deemed in the public interest
  7. Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication
  8. Balance Worker and Executive Pay– Empower Work Councils and labor representatives on Boards to approve all executive pay packages. Work Councils in industry sectors would meet and decide on executive to worker ratios of average salary to enable all companies to remain competitive within an industry yet require labor approval. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives a minimum of  X dollars in proportion to total salary then a worker receives the same portion with a minimum of 50 % of their yearly salary or the Federal Minimum Severance Rate whichever is greater
  9. Fund Worker Training related to Robots and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.  Tax deductions of up to a 50 % credit would be offered on the cost of training and development programs.  For individual workers, if they pay for career development training they would be able to deduct the full cost of their investment in themselves from their taxes.            
  10. Fund Education and Apprenticeship Programs – Representative Ro Khanna has introduced an idea to fund a 21st century Morrell (1862 Land Grant) Act that would grant to 50 rural and urban universities funds to establish a United States Technology Institute where students would gain technology skills needed in a technology based economy.  In addition, our country needs a stem winding apprenticeship program patterned after the German model to bring skills needed for today’s manufacturing without a college degree.  The program would be given the same prestige and recognition as college programs, companies would pay the same wages, benefits and compensation for skills achieved in this program as any college skills program.
  11. Pool Stock at Public Offering to Workers – all drivers at firms like Lyft and Uber, and workers at other new corporations should be able to receive compensation for their hard work in providing service or building a product. While, some key workers receive stock options with a strike price below the IPO price, we propose that all workers receive stock shares in a pool at the time of IPO, they can cash out or keep the stock then they receive a reward as well as founders (workers should not be forced to hold shares longer than management). Stock pool shares can be awarded based on service years, performance ratings or other recognition approach that is objective and fair to all workers. After all, isn’t it worth it to founders to build a workforce that is loyal and excited about the company, by letting go of even 10 % of their billion dollar stock reward or $100 million to workers?

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.

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.

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.

Phoenix Gyms Backed By Koch Brothers Help Addicts Become Sober

(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: npr.org

The opioid crisis is continuing to grow worse with deaths from fatal drug overdoses up 10 % this past year reports the U.S. Centers for Disease Control.  The opioid crisis targets mostly young people in city centers and many rural regions across the country.  The wave of addictions through our working age people is damaging our ability to grow our work force to support a robust economy.

Sources: Deutsche Bank, The Wall Street Journal, The Daily Shot – 9/19/18

The Koch Brothers, known for their backing conservative candidates and policy programs have a foundation arm called Stand Together which has invested $2 million to $3 million in “The Phoenix” gyms of Denver.  Recovering addicts can come to the gym free, to work out, receive coaching and support during their recovery.  Peter Thanos, an addiction researcher at the University of Buffalo, told the Wall Street Journal that persistent exercise has shown to be effective in drug rehabilitation. Drugs hijack the reward system in the brain, Thanos observed. Physical exercise can re direct that reward system.  He commented ‘in theory, you should be able to have an effect on drug-seeking” through exercise.

The political advocacy arm of the Koch network, Americans for Prosperity, is working to cut the funding for Medicaid in Utah and Nebraska.  Yet, Medicaid is the main source of mental health services funding in the U.S.

We applaud the support of the Koch brothers through their foundation of this innovative effort to attack the opioid crisis.  It seems that they need to look at what their advocacy group is doing to undermine the work of the foundation.  Does it not make sense to invest in returning thousands of our young people to become sober, taking jobs, raising families, buying houses and buying or using Koch brothers company products?  Let’s think about the opioid crisis from a long range point of view by investing in addicted people, bringing them back to productive lives.  It does not make sense to hurt this effort, instead we should all be working together to solve all facets of this problem resulting in a higher quality of life and a thriving economy.  We need all the workers we can get to be productive in the declining labor force 25- 55 year age group, otherwise we shall go deeper into debt to support our seniors.

Washington AG Increases Job Mobility for Fast Food Workers

 

Photo: blogs.reuters.com

Washington Attorney General, Bob Ferguson negotiated with seven major fast food franchises including; McDonalds, Arby’s, Carl’s Jr., and Jimmy Johns to delete franchise agreements with parent companies which include a no poach clause.   The no poach clause provided a way for individual franchisee’s to keep managers from other same brand franchisees from hiring their workers.  Two Princeton professors, Krueger and Ashenfelter published a study last year that estimated that no poach clauses affected about 70,000 individual restaurants in the U.S. or about 25 % of all fast food outlets.  The professors noted that the clauses were primarily to keep turnover down, limit competition and job mobility with other same brand franchises.  As a result workers had limited options to negotiate higher wages, work schedules or conditions.

Turnover in the fast food industry ranges from 60 – 70% in up-scale dining restaurants to over 120 % in fast food franchises. Franchisees are faced with constant pressure to raise wages in a low wage industry but face tight profit margins of 3 %:

Source: The Heritage Foundation – 9/4/14

With only 3 % margin to work with it is difficult for a franchise owner to raise wages.  Workers also mention in surveys the need to have more scheduled hours with more notice on the hours they work. With the no poach clauses gone from contracts workers can move to a same brand restaurant and negotiate for better hours and schedules.

We are pleased to see Attorney General Ferguson successfully negotiate with major fast food chains to delete the no poach clause to give workers more negotiating power and flexibility in their job situations.  It seems to us that major chains should have figured out that at least keeping the worker in the same chain was a plus, and the deleting the clause may force owners to treat workers better in order to reduce turnover.  Better managed franchises would rise to the top and have lower turnover rates.  Now on to raising low wages, increasing wages to a livable level is a complex issue that will require all involved; the owners, corporate franchise executives and workers to come up with a plan that will give workers the wages they deserve.

The Elite Makes U.S. A Land of Renters

(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.)

Photo: marketplace.org

Household formations have been trending down over the past 30 years from its peak reached after a continual increase since 1955.  More than a quarter of possible home buyers are unemployed, underemployed, saddled with student debt or living at home with their parents making home buying a challenge. The other possible household formation group is making such low income they are forced into renting as the only budgetary alternative.

Source: Real Investment Advice – 7/13/18

The housing market has shifted drastically toward high end homes for the wealthy, not first time buyers, and multi-unit rental units for investment.  As investors look outside the stock market for high returns rental units have been an excellent income stream with income streams totaling $800 billion per year.

So, while wages for the 80% in income, non – supervisory workers have been stagnant; profits, stock buybacks, executive salaries and other financial gimmicks have provided the top 10 % with 90 % of national income since 2008.  In effect, we have become a nation of renters due to two factors: wages being held down, and inflated assets benefiting the rich.

Source: Real Investment Advice – 7/13/18

Corporate executives do not make their stock price and profit targets by raising wages resulting in reduced profits.  Wages as a cost cut immediately into profits, which a CEO wants to stay clear of having to explain to the Board or shareholders.  Does it really make sense that workers are not getting wage increases in a job market with the lowest unemployment rate in 10 years? Until workers get enough countervailing power in wage negotiations worker wages are likely to stay stagnant. No, executives are allocating profits, offshore and tax cut funds to benefit themselves and shareholders while workers are left out of the economic feast.

Next steps:

We have outlined multiple reasons for lack of wage increases in earlier posts, the bottom line is executives don’t want to give raises beyond inflation.  Proposals like Senator Cory Booker’s Worker’s Dividend Act to share stock buyback dollars with workers is a good start, yet the sustainable solution lies in corporate governance, where activities shareholders required management to give workers their fair share of profits; for example if executives receive a 5 % cut of the profits workers should receive the same 5 % as well.

To give first time home buyers a boost, we need to reduce student loan debt by re financing their rates to the rates that the Federal Reserve offers bank.  After all we are ‘banking in the future’ of our young people.  Where possible student debt could be forgiven for domestic service corps work or working with corporations who hire graduates to reduce their loans as part of the offer package.  Government mortgage  agencies need to support first time buyers with reduced down payment requirements and other incentives.  To incentivize home builders set asides of homes for first time buyers need to be established to create inventory from which a first time buyer can select their home.

Increasing household formations should be a top priority for policy makers and the wealthy alike.  When household formations are moving ahead, furniture, appliances, home improvement hardware, and thousands of product and services are purchased. Plus, when people own a home they have a piece in the future of their neighborhood, schools and community which will increase property values for all.

The Rich View Our Government as A Trusted Rule Keeper, The Common Man Not So Much

Image: Your Little Planet

Thomas Jefferson and James Madison saw the need to frame a government such that ‘forced compromises’ would push political leaders to focus on the Common Good.  The institutions that maintain our common good include the federal government three estates:  The Supreme Court, Congress and The Executive.  In addition, the Fourth Estate, a Free Press is crucial for our citizens to have access to fair and impartial reporting about the activity of government officials and their policies. We have spotlighted the key role Education, as the Fifth estate, plays in educating our people to make critical decisions and understand comprehensively the information they receive from a Free Press.

Trust in our federal government has been falling since the presidency of Lyndon Johnson in 1965.

Source: Pew Research Center – 12/14/17

We noted in our first post on the Common Good that there were two factors contributing to the decline in trust:

We see two major factors for the lack of trust.  One, is that economic inequality has been increasing over the last 60 years to the point where it is at the worst it has ever been since 1929.  Americans expect their government to be the rule keeper of a fair shot at economic opportunity not a bastion for the rich and powerful.  As wealthy donors have taken over control of both major parties, the influence of the average citizen has been reduced to nearly nothing except at the ballot box – but not in legislative policy.”

The second major factor is the change in information access and news viewing habits of our society.

In the 1950s and 1960s families gathered around the television set to watch Walter Cronkite or Huntley and Brinkley bring them the news for the day.  These news anchors had teams of trained journalists in how to gather news, provide airing of opposing views and investigation to reveal the facts of the story. As cable news programs became popular people drifted away from central network journalist supported news programs toward popular ‘viewpoint news’ programs like Fox News or CNN.  Then, from 1995 until today, the Internet was a catalyst for the growth of blogging, and ‘friend news’ on Facebook which had virtually no formally trained journalists and limited understanding of the difference between facts and opinions.  Opinions spread virally through the Internet often with no foundation in formal fact gathering or fact finding investigation techniques. Today, we even have presidential spokespersons talking about ‘alternative facts’ to justify their policies or opinions.

Trust gaps by income level are increasing around the world with many developed countries showing double digit gaps between the top income quartile and the bottom income quartile and the U.S. with the largest gap:

In the U.S. incomes for the lower 80 % have been largely stagnant for the past three decades since the Reagan years, higher education costs rising to levels never seen before with student loan debt at $1.5 trillion dollars. In short, lower and middle income parents expect their children to have fewer opportunities and to make less money over their lifetime. This growing sense of hopelessness is in part triggering the populist movements we see world-wide. The top quartile trust government institutions the most because they are getting the benefits, tax cuts, relaxed environmental policies to allow their businesses to make as much money as they can, and continued stock buy backs to make even more money instead of increasing worker wages.  Workers see their votes not making a difference as Congress is at the beck and call of Corporate Nation States who make multi-million dollar campaign contributions and the Executive Branch now run by billionaires.

Little wonder the Common Good is not embraced by all people, for the rich they are on top of the economic pyramid. The rich get the laws they want and aren’t interested in sharing their wealth or time to build the Common Good.

Here is what will likely happen, in the end the rich will need to see that it is in their interest to build the Common Good, by contributing to our institutions of government and common people or they will lose what they already have and probably a lot more.

Workers Struggling Under Credit Card Debt

Photo: finder.com.au

While consumers did pay down their credit card debt by $40 billion during the first quarter of 2018, they still owe a giant $1.021 trillion in revolving debt.  Credit card debt is at the second highest level since 2008, during the Great Recession.  Consumers piled on another $91.6 billion by the end of 2017, at a run rate of 104 % of the average over the past 10 years.

Sources: Marketwatch, WalletHub – 6/13/18

Adding to consumer woes are interest rates that are rising, adding to the servicing costs of credit card, auto loan, and student loan debts. Below the chart shows debt servicing costs as a percentage of disposable income, while mortgage debt servicing is declining consumer servicing costs are rising.

Sources: Federal Reserve, National Bureau of Economic Research, The Wall Street Journal, The Daily Shot – 6/13/18

Finally, non-supervisory worker’s wages are stuck at 2.5% and when inflation is taken into account are largely flat. As consumers continue to try and maintain their standard of living, they are taking on more revolving debt which is costing more for them to pay. This financial squeeze is sustainable as long as jobs are abundant as they seem to be now, but if the economy turns down and layoffs happen it will be hard times for workers.  A survey published today in the Wall Street Journal blog – The Daily Shot showed executives plan layoffs as the first approach to deal with tightened financial conditions and slow sales.

 Next Steps:

 Workers need to receive a living wage that is not stagnant as wages have been for the past 10 years since the recession. Over 14 % of all workers have not received a raise in the last year versus 11% prior to the recession. Stock buy backs need to end and those funds invested in raising worker wages, increasing productivity and providing job training and development.  Corporations stash over 40 % of their profits in overseas tax sheltered accounts – all those funds need to come back to the US with companies paying their fair share of taxes. Corporations are the beneficiaries of job training and education, and should pick up more responsibility in terms of taxes for apprenticeship programs on par with those in Germany to provide US workers with the advanced skills needed to obtain a good paying job and create a dual track besides college. Today, there are more job openings than candidates available to fill those jobs, we need to invest developing worker’s job skills to close the gap.

Opioids Are Killing Our Young People Reducing Our Labor Force

(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.)

Image: thetab.com

The Opioid Epidemic is devastating for our young people.  The size of the opioid addiction death wave is so high that it is leading to a sharp decrease in the size of the 24 – 54 year old labor force group.

Sources: JAMA Open Network, Marketwarch – 6/7/2018

A paper recently published in the Journal of the American Medi­­cal Association found that 20 % of all Millennials deaths in 2016 were caused by opioid overdoses.  From 2001 to 2016 opioid deaths have increased by 292­­ %.  Experts believe the dip in the size of the 25 – 54 year old group is in part caused by the opioid epidemic compared to other developed countries.

Source: OECD Employment and Labor Market Statistics – 6/7/18

A comparison to OECD countries finds the U.S. labor force in the key mid-career 25 – 54-year-old group at 5 % less, which converts to millions of our young people left out of the labor force. When our labor force is not growing in this key age segment we are in store for a continuing decline in GDP growth, standards of living and few people to support our retired population. The total labor force even with the recovery since 2008 has been dropping to a 10-year low of 63 % overall:

Source: Department of Labor, The Wall Street Journal, The Daily Shot, 6/3/18

Certainly, more than the opioid epidemic is contributing to our low labor force participation rate including: companies automating many jobs so they are not hiring more workers, workers leaving the work force due to not finding work, a skills mismatch between job openings and candidates with the right skill set and the baby boomer population aging into retirement.

Next Steps:

The opioid epidemic strikes hardest in our Heartland as we recommended in an earlier blog on Heartland Development Centers that among other development investments to fund mental health, addiction and counseling services to help our young people in rural regions of the Midwest and South to return to active productive lives. Every day, families are suffering from the drug addiction crisis and our economy is suffering along with our young people.  Our Congress, corporations, non-government organizations, government and health services groups need to establish a partnership to target the problem of drug addiction head on, with a major funding commitment, the latest strategies in drug rehabilitation, and job training programs which include high quality apprenticeship skills development leading to good paying jobs.

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