A Piece of the Pie

by Kieran Healy on June 22, 2004

Via Nathan Newman, Kevin Drum links to an EPI graphic showing differences in the growth of corporate profits, labor compensation and private salary income between the current business cycle and the average of the last eight recoveries. This time round, Kevin summarizes, “workers have gotten almost nothing while corporate profits have skyrocketed.” Then he asks,

But how can anyone defend this? Easy. The free market extremists at the top of the modern Republican party argue that economic growth is caused by the risk-taking executives of Fortune 5000 companies, and therefore they deserve the benefits of that growth. Worker bees don’t make any contribution — they just work — so why should they get anything?
Treating labor like a commodity is a morally bankrupt policy, but it’s one that’s become an epidemic in the Republican party …

The thing is, the “free market extremists” Kevin complains about have it backwards. Treating labor like a commodity is a way to transfer the burden of risk away from businesses and on to workers. In general, CEOs of big corporations do not engage in the kind of risk taking that they typically ascribe to themselves. Or more precisely, there is plenty of evidence that they do not have to suffer the consequences of the risks they take. The United States has always been ahead of other advanced capitalist democracies in this department, because it offers less in the way of social insurance than its counterparts. (Instead of a welfare state it has a prison system.) But much of what got called “downsizing” in the early ‘90s and the New Economy a few years later can be seen as a new round of risk-redistribution noticeable in even the U.S.’s nominally unregulated labor market. The stuff you see these days in the Business Section of Barnes & Noble about the brave new “Free Agent Nation” and its creative class is the optimistic spin the disappearance of defined-benefit pension funds, the decline of decent health benefits, the rise of temp work, and other changes in the employment bargain that push more of the risk onto workers.

{ 40 comments }

1

brayden 06.22.04 at 5:52 am

Don’t executives take risks though by putting their careers on the line when making big decisions? I’m pretty sure that the former executives of AOL/Time-Warner wished they hadn’t taken the risk of merging their two companies. Of course, it’s all relative. The former execs are still millionaries, just slightly less rich than they would have been (aka relatively deprived).

2

paul 06.22.04 at 6:23 am

Speaking as an alum of the Time Warner merger (and having survived the Turner Broadcasting/Time Warner merger of a couple of years prior), I’m not sure what “risk” the executives were taking on. If it worked out, they made even more money and had bragging rights for having pulled it off: if it tanked (as seems to be the consensus on the TWX/AOL marriage), they made less and could easily find ways to shift the blame to their peers, superiors and subordinates for the miscues and bad judgments.

And at the end of the day, what we call wages or a paycheck, they call “compensation” as if their burden were so much heavier . . .

3

Motoko Kusanagi 06.22.04 at 7:26 am

Let me bother you once again with some Zizek:

“Asked about the German concentration camps in occupied Poland, ‘Concentration Camp’ Erhardt (in Lubitsch’s To Be or Not to Be) snaps back: ‘We do the concentrating, and the Poles do the camping.’ A similar distinction applies to the Enron bankruptcy, which can be seen as an ironic comment on the notion of a risk society. Thousands of employees who lost their jobs and savings were certainly exposed to a risk, but without having any real choice: what was risk to those in the know was blind fate to them. Those who did have a sense of the risks, the top managers, also had a chance to intervene in the situation, but chose instead to minimise the risk to themselves by cashing in their stocks and options before the bankruptcy – actual risks and choices were thus nicely distributed. In the risk society, in other words, some (the Enron managers) have the choices, while others (the employees) take the risks.”

4

Jack 06.22.04 at 9:52 am

Brayden,
Firstly it was a great deal from teh AOL point of view. Some of the executives involved did eventually lose their jobs but got very large severance packages. The worst that could happen is that they would have to spend more time with their families.

Bernie Ebbers might prove an exception because he had borrowed hundreds of millions secured against his WorldCom stock and did go bust but the risks he was taking were personal, not business related in that he didn’t have to borrow the money to do his job well.

Last I heard Bob Pittman, who gave away half of TimeWarner for nothing, was buying a market research company for tens of millions of dollars with his own money. A bit of a comedown maybe but hardly life or death.

5

des von bladet 06.22.04 at 10:32 am

Motoko: One can never have too much Zizek, for sure. (Everyone else: here’s the some more this came from.)

6

gavin 06.22.04 at 10:50 am

It certainly is a curious economic recovery, but I really don’t think that it is all down to greedy executives and the Republican party. The current recovery has been unusual in it has been largely a ‘jobless’ recovery – firms have managed to raise output spectactularly without needing to hire more workers. In that context, a rising profit share is not all that surprising. If the recovery continues for some time, and as the labour market tightens, the profit share should fall somewhat.

Also, contra to Kieran’s post claiming that health benefits are declining, the EPI post explicitly says that health care and pension benefits are rising (in nominal, if not in real terms).

But if I was looking for (partial) culprits for the current poor state of corporate governance in the US, the rise of profit-related pay, the abolition of the Glass-Steagall act, and the way that auditors have been allowed to diversify into consulting would all be high on my list.

Btw, I don’t think that treating labour as a commodity necessarily entails that labour bears more risk. One important aspect of commodities is that they are elastically supplied, and it is harder to make things that are elastically supplied bear risk than things that are inelastically supplied. One way of putting this in English is to say that if the labour market is fairly tight, workers can always move to other firms, which may not be entirely true at the moment.

7

q 06.22.04 at 11:29 am

Many tricky definitions surround RISK here. We can divide the “labour” income into 4 key risk categories:

“Labour”
1. Labour – main category – 50,000K incomes
2. Executive Labour – 500,000K incomes
“Menu labour” – calculating return
3. Pension investment – investing workers savings
4. Millionaire investment

Only in the last of these categories “Millionaire investment”, can risk discussions be made on a purely financial return basis.

Risk can be analysed in two ways:
1. The risk in terms of possible options for payback as in a bet, and the consequences of outcomes of risk. That is, the risk of investing 1000 dollars in the stock market for a multi-millionaire only consist in questions about return: Did I my investment turn 1000 dollars into 1800 dollars or 200 dollars?

2. At the other extreme, a poor family who invests its time in a job that turns out to be a dead-end job, is likely to endanger many knife-edge life-decisions: can I afford a place to live, to have a baby etc. On any utilitarian basis, that is a much more critical risk.

The trend shown might indicate that more pressure is being put on the basic labour categories and hence be increasing the total amount of critical risk (knife-edge) cases in the economy. Knife-edge cases tend to affect the flexibility people have in their life generally. If this is the case, then you may be talking about a net decrease in social utility. If it also means a decline in social mobility, then most non-wealthy people would see this as a problem too.

Two cases of risk in point:
– a friend possibly about to lose his $$$$$$ job, might have difficulty maintaining his million dollar house in Colorado,
– a friend living on handouts who in a recent court case was told that she could have joint custody of their daughter if the she could find a place to live

I have sympathy for them both, but risk analysis is very different.

8

Matt 06.22.04 at 12:30 pm

“the EPI post explicitly says that health care and pension benefits are rising (in nominal, if not in real terms)” Err… can someone explain to me why it’s an improvement if something gets better in “nominal” but not “real” terms? Maybe the terms are being used in a way I don’t understand, but I’d take this to mean that, while it looks like they are improving from looking at them alone, when you take them as part of a whole, they are not in fact improving at all. Should we be encouraged by that, or do I have it wrong?

9

RD 06.22.04 at 12:35 pm

As usual, a shaky premise initiates a sharp debate. Not all that bad in retrospect. The graphic at least admits to be a snapshot. It’s like most lazy studies these days, especially those created to prove a pre-existing viewpoint, they leap to conclusions not even supported by the graphic. The statistics, love them statistics, measure growth percentages from some established base. Isn’t it just as prudent to establish that profits had sunk recessionally low from the fall of the high tech house of cards and whatever impact 911 had on impacted industries. And where did wages from established and surviving industries go at that time? Did they drop? I don’t think so. They remained steady throughout the whole period. Are executive salaries too high? Maybe. There are market forces there also. Throwing statistics around is like eating and drinking. It’s ok if used in moderation.

10

Sam 06.22.04 at 12:45 pm

I think that the EPI figures, while accurate, are somewhat misleading. The 1997-2001 economic boom was really a bubble, and thus many economic measures were atypical. Corporate profits in 2001 were extremely low by historic standards (think of all the profitless dot-coms), and wages were relatively higher than they had been since the early 1970’s. Thus, as wages, prices, and profits return to a “normal” equilibrium, one would expect profits to rise more rapidly than wages.

11

dsquared 06.22.04 at 12:46 pm

Isn’t it just as prudent to establish that profits had sunk recessionally low from the fall of the high tech house of cards and whatever impact 911 had on impacted industries

The graphic measures growth from the first quarter of 2001. I invite you to consider the significance of the “9” in “9/11” and reconsider your remark.

12

karl 06.22.04 at 12:53 pm

“The free market extremists at the top of the modern Republican party argue that economic growth is caused by the risk-taking executives of Fortune 5000 companies, and therefore they deserve the benefits of that growth. Worker bees don’t make any contribution — they just work — so why should they get anything?”

Really? Sounds like the cartoon version to me. Anyone got any citations for that?

13

Jack 06.22.04 at 12:58 pm

rd and Sam, you have apoint as far as it goes. There are attenuating circumstances and these statistics do not prove the point by themselves. However do you actually disagree with the conclusion?

Every statistic I have seen on the subject suggests a similar conclusion so it would be good to see eveidence supporting an alternative interpretation.

14

Arthur Wouk 06.22.04 at 1:06 pm

I’m glad to see some understanding of the modern labor market here. The academic blogosphere is full of self-pity – all the sorrow about people who can’t get tenure-track jobs and complaining about the work load – as if academics are disadvantaged compared to people in the business world. And there was even a comment by one of the CrookedTimberites – I forget which – that university tenure is no big deal because at least 100 times as many people as college professors effectively have tenure – their jobs are secure.

Wake up and smell the office coffee.

15

rea 06.22.04 at 1:36 pm

“[T]he mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God”–Thomas jefferson, 1826

If only he knew!

16

McDuff 06.22.04 at 2:00 pm

“Throwing statistics around is like eating and drinking. It’s ok if used in moderation.” – rd

“These are of course only statistics as well, which is why the skepticism and anxiety of people across the country is probably the best measure of the problems in the economy. But if you need to fight stats with stats, the graph above is a good place to start.” – Newman, in the original article

17

gavin 06.22.04 at 3:14 pm

Matt, of course you’re right to say that we should only really care about things in real terms, not nominal ones. But since the whole chart is in nominal terms, and since labour compensation includes non-wage benefits such as pensions and health-benefits, I was just trying to make the point that health-benefits are not ‘disappearing and declining’ as Kieran said in the original post. As the EPI said:
Rapidly rising health care costs and pension funding requirements imply that these higher benefit payments are not translating into increased living standards for workers, but are rather just covering the higher costs of health care and pension funding.
I’m not saying that ‘just covering the higher costs..’ is good, but it does strictly exclude ‘declining and disappearing’.

18

roger 06.22.04 at 3:35 pm

Roger Lowenstein’s Origins of the Crash has an elegant chapter about the end of risk and the beginning of ballooning upper management wealth in the late eighties, when the mantra was: pay your CEO like a bureaucrat and he’ll act like a bureaucrat. Unfortunately,t he corollary turned out to be: pay him like a pirate and he’ll act like a pirate.

Back in the ‘socialist’ days of Ronnie Reagan, however, even paragons of conservative thinking like Peter Drucker claimed that the CEO should only make about 20 times more than the average worker. Which is the J.P. Morgan standard — from the Robber Baron era.

Nowadays, a CEO who adhered to that would be roundly derided by his fellow buccaneers as an arrant sucker.

19

q 06.22.04 at 3:54 pm

Three things to note:
1. the profits of the corporations could have come from increased activity abroad – hiring and investment in outsourcing countries like Mexico, Philipines, India, China, Taiwan, and so on. In this case, American workers are losing out to foreign ones, as in the example of transferring furniture-making from the USA to China. China’s growth is export-linked.
2. The trade weighted value of the dollar has slipped maybe 15-20% so that profits earned in foreign currency would be worth more. In this case, the devaluation of the dollar means everyone is losing out, but American workers lose out the most.
3. Selling off and reducing inventories can be a highly profitable activity, so production would have to be seen in that context. A good example would be selling and using military supplies.

A wise millionnaire investor would take his goodies from the last three years out of the USA and disappear around the back of a Swiss mountain until 2012. A rising Swiss Franc is on the cards.

20

gavin 06.22.04 at 4:38 pm

q, none of those three explanations are big enough empirically to account for the rising profit share in the USA.

An obvious way to see that is to look at what has happened to GDP and GNP over the period – they have risen at almost exactly the same rate, implying the earnings of the US abroad have not risen faster than US output itself.

In fact, BEA data show that income receipts from the rest of the world were slightly lower in 2003 than in 2001. This really rules out the first two explanations.

As for the third, BEA data show that inventories have fallen by about one half of one percent of GDP over the period 2001 to 2003. That is about 55 billion dollars. In contrast, corporate profits were 300 billion higher in 2003 than in 2001. So the extent of the sell-off of inventories is just not big enough either.

The bottom line is that US growth since 2001 has been driven almost entirely by higher profits being made on current domestic output, not profits made on the output of US affiliates abroad or on inventories.

21

John Doe 06.22.04 at 5:05 pm

Welfare does not reduce crime, it increases it. I cannot take seriously anyone who doesn’t understand that by now.

CEOs don’t steal from workers, they steal from shareholders.

22

q 06.22.04 at 5:18 pm

gavin-
Thanks for the details. I understand from the BEA data that the US balance of trade this year is likely to be in excess of USD 100bn worse than 2 years ago. Could this not also be skewing the figures?

23

q 06.22.04 at 5:49 pm

In fact. between 2001 and 2003, automotive and consumer goods imports rose in value from 480bn to 550bn dollars/year, ie 70bn/year. If much of that was funnelled through existing outlets with high markups, you could imagine why not much extra labour was required, especially if the extra value represented an increases in value instead of bulk.

24

q 06.22.04 at 6:18 pm

Interesting (inflammatory) article on Walmart which is growing rapidly with Revenue USD 260 billion/year, Gross Profit 60 billion/year and Net Income 9 billion/year:

Seattle Times: Wal-Mart nation: the race to the bottom

_As jobs in America are lost to foreign sweatshops to feed the Wal-Mart engine, American workers are forced to accept jobs at lower pay, with bad working conditions. They are funneled to Wal-Mart’s promise of cheap goods, in effect patronizing the very companies that caused their economic misery._

25

gavin 06.22.04 at 6:34 pm

q, the trade deficit per se doesn’t make any difference to the GDP numbers since GDP is gross domestic product (i.e. output produced within the USA). So, if US GDP is rising, it can’t be due to a rising trade deficit as such. However, a rise of 70bn in US imports of automobiles and consumer goods will make some difference indirectly to GDP since, as you say, retailers will make profits on those sales, and retailers profits are part of GDP. But again, that 70bn rise in US imports doesn’t seem likely to account for a 300bn rise in profits, unless the profit margins for those retailers are astonishingly high.

According to the BEA industry-sector data, it does look as though real GDP in service sector industries has done much better than goods sector industries since 2001 (growth of over 8% versus a fall of over 2%) and retail has done very well (real GDP growth of around 20%), better than any group other than information services. But retail itself is only 9% of GDP, so even 20% growth in retail only raises GDP by 1.8%. The only concrete data I can find suggests that retail contributed one fifth of the rise in US real GDP in 2002.

So, it’s certainly part of the explanation, but not the major part.

Interestingly, BEA data on GDP show a much bigger contribution of rising wages to GDP growth between 2001 and 2003, contrary to the EPI data. Not sure how to explain that – probably because of different time periods.

26

q 06.22.04 at 7:09 pm

Thanks Gavin, that’s very interesting, especially your point about the two sets of figures being different. Despite this variation, we still have labour share of income dropping from 66.1% to 62.9% which seems significant to me, unless everyone owns shares!!! Of course, the accumulation of capital has nowhere to go with real interest rates at close to zero.

Probably a good time to start a company selling luxury goods to all these deep-pocketed millionnaires!

27

abb1 06.22.04 at 8:35 pm

C’mon. I don’t understand how anyone can seriously talk about CEOs taking risk in this day and age. Even if you never actually worked with a CEO, you do know one: George W Bush. He is not an exception. It’s all based on personal connections, insider trading, exchange of favors.

CEOs working hard and taking risk is the greatest hoax perpetrated upon the American public.

I worked with a few of them. They play golf and occasionally bullshit wall street analysts. My job was to provide them with “massaged” data for their bullshit sessions.

28

robbo 06.22.04 at 9:14 pm

This yellow liquid on my leg? I had an idea what it was, but some wise economists, statisticians, and media figures developed a compelling theory that it’s actually the result of some unusual and interesting form of precipitation.

29

Claire 06.22.04 at 10:07 pm

I know several CEOs, and the ones I know are hardworking and honest people. Enron and GlobalCrossing were anomalies; they are not the norm of how corporations are run today, in spite of what many liberals would like everyone to think. The problem is that most liberals really have no idea how business and the free market really work, because most of them are not part of it other than as either consumers or lower-end wage earners. Note that I said most, not all.

No, there is not some big, corporate conspiracy to deprive the little people of all their money. The ‘little people’ do quite well in depriving themselves of it through spending instead of saving, wanting to get something for nothing, or lack of initiative. Not a big deal to spend $5 a week on lottery tickets? Put that same $5 in a money market account and add to it regularly every week instead of buying those lottery tickets, and you’d be surprised where it gets you.

It’s surprising to find that a very large percentage of employees fail to take advantage of 401(k) plans where employers provided 1-for-1 matching funds. Free money, folks! But hey, it’s better to spend that money on a skiing trip this year than do without and put it away for the future. Isn’t it?

I grew up dirt poor. We didn’t go hungry, but we didn’t have much for extras, either. I worked to put myself through college; my folks could only let me live at home and feed me but had nothing to put toward my schooling. I got a couple of degrees and went to work. I bought my first car using a letter of credit from my boss, since I had no credit history. I didn’t go to movies, buy new clothes, go out to eat much, or go out with friends if it cost money for over two years, until my salary caught up enough that I could make the minimum car payments. When I bought my first house, I scrimped and saved for the 2% downpayment, then for two more years I spent a lot of time eating rice and hamburger helper to stretch out $20 for food over 2 weeks so I could not miss a mortgage payment. When I became eligible, I bought every bit of company stock through the employees’ stock purchase plan, since we could buy it at 15% below market. A year of scrimping for a (possible) 15-20% return on investment. I still buy every bit I am eligible for.

Yes, I passed up on all those fun weekends that my coworkers used to have, going skiing, going on cruises, going to Vegas or Cancun. But where my coworkers now have beautiful houses like mine, theirs are often empty because they can’t afford furniture. They have little or nothing in retirement. They still go on expensive vacations every year, and their kids get brand new cars when they get their drivers’ licenses.

My house is just as nice. It’s filled with good, quality furniture that I bought a bit at a time over the years. We have a good 7-figure nest egg for retirement, and we’ve got most of our daughter’s college money saved before she starts 3rd grade. NOW we go on those nice vacations, too. But we can pay for them in cash and not add them onto large credit card bills like our ‘friends’. We have a mortgage and one new car payment at a time; other than that, we don’t owe a dime to anyone.

What did we do that our friends and coworkers didn’t? Go read the story of the ant and the grasshopper, and I think you can figure it out.

30

Arthur Wouk 06.22.04 at 10:39 pm

Oh, come on Claire, you’re missing the point. Yes, no doubt most CEOs are honest and hard-working, and other corporate leaders are also. And yes, poor people do a lot of stupid things like buy lottery tickets and fail to contribute to their 401k plans. I wish people would save more, and I agree that a lot of people make their own misery.

But that doesn’t mean that there isn’t a growing gap in incomes in our society and that this gap is troublesome. (Yes, some leftists see it as a conspiracy; there are always conspiracy wackos.) There is abundant evidence of a growing disparity of income and wealth. The reasons are likely very complex. But don’t suggest it isn’t happening.

31

Arthur Wouk 06.22.04 at 10:39 pm

Oh, come on Claire, you’re missing the point. Yes, no doubt most CEOs are honest and hard-working, and other corporate leaders are also. And yes, poor people do a lot of stupid things like buy lottery tickets and fail to contribute to their 401k plans. I wish people would save more, and I agree that a lot of people make their own misery.

But that doesn’t mean that there isn’t a growing gap in incomes in our society and that this gap is troublesome. (Yes, some leftists see it as a conspiracy; there are always conspiracy wackos.) There is abundant evidence of a growing disparity of income and wealth. The reasons are likely very complex. But don’t suggest it isn’t happening.

32

Arthur Wouk 06.22.04 at 10:40 pm

Oh, come on Claire, you’re missing the point. Yes, no doubt most CEOs are honest and hard-working, and other corporate leaders are also. And yes, poor people do a lot of stupid things like buy lottery tickets and fail to contribute to their 401k plans. I wish people would save more, and I agree that a lot of people make their own misery.

But that doesn’t mean that there isn’t a growing gap in incomes in our society and that this gap is troublesome. (Yes, some leftists see it as a conspiracy; there are always conspiracy wackos.) There is abundant evidence of a growing disparity of income and wealth. The reasons are likely very complex. But don’t suggest it isn’t happening.

33

Mr. Grasshopper 06.22.04 at 10:40 pm

Thanks to Claire, we can now see that being poor is all your own fault. No one in the USA, especially those hardworking corporate CEOs, would ever lie, cheat, or steal from you.

$50 says Claire is a Republican, and there’s no kind more shrill or mean-spirited than a Houston republican. I know, I grew up around them.

34

q 06.22.04 at 10:44 pm

claire-
Where did you get the skill to put others down so eloquantly? It does not surprise me you did not go on holiday with your coworkers. :)

But, apart from making snide remarks, have you moved the debate on? How do YOU explain the recent changes in the distribution of incomes away from wage incomes? Are you interested?

35

jrv 06.22.04 at 11:12 pm

I think that it’s interesting the degree to which people have had their attention diverted to the CEOs. These persons are inconsequential in the national wealth distribution scheme. Their percentage of GDP is not substantial. What is interesting is who they are working for: INVESTORS. The reward for ‘corporate profits’ goes to investors. Investors are those that put their money at risk rather than consuming it. Insofar as the jobless recovery, part of the blame goes to outsourcing, it’s true. Now, I’m confused as to why this bothers the left. I guess it depends whether we’re referring to the nationalist or internationalist left. It is interesting the explosion in relatively high income jobs in India. Indians can do the same phone banks that are done in the US for a small fraction of the cost. But don’t misinterpet. The PPP of these Indian workers is rather high, given the cost of living in India. This is a mass redistribution of wealth, from relatively costly and inefficient US workers, to a new elite in India, who are helping charge India’s GDP with 8%+ growth rates. Is this bad? There are always winners and losers. But it is always great to see efficiency rise, resources can thus be relocated. And yes, workers are resources, as are the skills we possess.

36

robbo 06.23.04 at 1:24 am

With jrv’s post we seem to be getting to the crux of the issue: the degeneration of Americans’ collective perception of the world as being comprised of completely sovereign nation-states that are obliged to provide a viable “safety net” for their citizens.

I was born a proud American and later found that I was a hardcore Dodgers fan. That was before the Dodgers — like all professional sports teams — became a temporary collection of free-agents out to maximize their incomes. The only form of loyalty left in the system is that management honors its promise to cut regular paychecks for a given year and players agree to show up to games for that year. How many people feel true loyalty to “their team,” the way one could in the years when teams stayed together for more than a year?

Something similar happened to my sense of identification as an American. The Cold War against the USSR was replaced by the abstract and infinitely morphable “war on terror.” George Bush speaks of “Iraqi sovereignty” as if that phrase in any way describes the state of affairs we’ll be seeing there on July 1. An astounding proportion of America’s military functions are now done by private contractors. American jobs become a Indian jobs overnight. Trees cut from America’s public lands are routinely shipped overseas for manufacturing. Our own government is run by folks who hate government and want to drown it in a bathtub, and a considerable proportion of Americans support this course of action. We have declared the U.N. “irrelevant” and find the Geneva Conventions “quaint.”

Let’s face it, we’re all becoming free agents in a global market, if we’re not there already. I vote Democrat, and I support a living wage for workers, but my own response to these trends was to opt out and become self-employed. It hasn’t made me rich, and this isn’t a response available to everyone, but I’ve had more luck answering directly to the cold, calculating market than I did trying to get my old company to fairly compensate me for the value of my work.

37

Lynne 06.23.04 at 2:34 am

I had to call some of those Indian call centers and they suck. I think the outsourcing bubble will burst soon. American companies will lose their customer base in the U.S. Other countries will start supporting their own companies. American companies will lose big time.

38

masaccio 06.23.04 at 3:26 am

The chart shows “total labor compensation”, which includes the salaries and all other compensation to the executive class. These salaries have shown a steady increase over the period in question. I think this kind of compensation ought to considered return to capital when considering the issue at hand. This would show the results for actual workers to be much worse.

39

abb1 06.23.04 at 9:30 am

Not a big deal to spend $5 a week on lottery tickets? Put that same $5 in a money market account and add to it regularly every week instead of buying those lottery tickets, and you’d be surprised where it gets you.

It’ll get you $260 a year. Over your whole 40-year career, it’ll get you, considering the magic of compound interest and adjusting for inflation, oh, say, about 12,000.

But wait – you would certainly win something on some of those lottery tickets, right? Something like 60% of the money spent.

So, your saving $5/week for 40 years will get you ahead by $5,000.

Which is what an average CEO makes in one hour.

40

dave heasman 06.23.04 at 9:43 am

Claire gives us a sobering example of the sacrifices required to get a decent purchase on the corporate treadmill. Obviously we all have our own opinions about the non-economic effect this behaviour has on peoples’ lives and surroundings.
From experience, however, I must counsel against this part of Claire’s success story : – “When I became eligible, I bought every bit of company stock through the employees’ stock purchase plan, since we could buy it at 15% below market”.
For your health’s sake, do not do this unless you are able to sell the company’s stock as soon as you have bought it. As a wage-earner you have more than enough risk invested in working for a company. To compound the risk by buying shares, at a lousy 15% discount, is incredibly dangerous. The company I work for introduced a matching share-purchase scheme in Jan 2002. They’d match the shares we bought. “You’ll only lose if the share price halves” they said. The company is relatively secure, is run honestly, has grown at a nice steady 5% p.a., profits rise smoothly, and guess what? The share price has halved. So if you need the money, don’t. The markets are irrational.

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