Do Businesses Hate Their Workers? (Income Disparity Myths Edition)

In America, it isn’t hard to answer the question in the headline “yes.” The oft recited, “Our employees are our greatest asset” is pure Orwellian prattle; most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible. And this now extends well up into the management ranks, with most people who are still on the corporate meal ticket assigned responsibilities that would have constituted 1.5 to two jobs a decade ago.

And before readers argue that this is a necessary response to globalization, the evidence does not support that view. If companies were simply responding to tougher competition (in this case, lower cost suppliers from overseas), you’d expect to pressure on wages AND profits. Instead, we’ve seen wage stagnation (save at the very top) with (pre bust) record profits.

If you look at past post-war expansion periods, the vast majority of GDP growth went to labor, in the form of increased hiring and higher wages. The post war average (pre the last upturn) was close to 60%; the low was 55%. The jobless recovery lived up to its billing, with under 30% of GDP gains going to workers. By contrast, the portion of GDP growth that went to profits was an all-time record.

Similarly, as any properly-trained MBA will tell you, companies can compete on other axes besides cost: convenience, product features, speed of delivery, other types of service. And US businesses have a huge advantage: physical proximity to the biggest consumer market. Offshoring and outsourcing create considerable rigidity and risk (more coordination required, which increases the odds of snafus) Some evidence supports the idea that outsourcing is a fad that US companies embraced whether or not it fully made sense. Most companies find outsourcing to be overrated as a cost saver. A former senior executive at Ethan Allen told me there was not reason for the US to cede anywhere close to as much furniture manufacturing as it did, particularly given the cost of shipping (often two ways, since much of the raw materials come from North America). But in Ethan Allen’s case, Wall Street wanted to hear they were manufacturing overseas, and they complied.

Moreover, other countries, equally exposed to globalization, have not seen a squeezing down on workers to the benefit of the top 1% to anywhere the degree the US has, nor is the international pattern consistent with globalization (or other common culprits) being the driver. The Luxembourg Income Study (LIS) group put out a working paper by Andrea Brandolini and Timothy Smeeding with some international comparisons on income inequality, titled “Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes”:

National experiences vary during the last four decades and there is no one overarching common story. There was some tendency for the disposable income distribution to narrow until the mid-1970s. Then, income inequality rose sharply in the United Kingdom in the 1980s and in the United States in the 1980s and 1990s (and still continuing), but more moderately in Canada, Sweden, Finland and West Germany in the 1990s. Moreover, the timing and magnitude of the increase differed widely across nations. Inequality did not show any persistent tendency to rise in the Netherlands, France and Italy. Commonality seems to be greater for market income inequality: in five of the six countries for which we have data, we observe an increase in the 1980s and early 1990s and a substantial stability afterwards.

Changing public monetary redistribution appears to be an important determinant of the time pattern of the inequality of disposable incomes. Changes in inequality do not exhibit clear trajectories, but rather irregular movements, with more substantial changes often concentrated in rather short lapses of time. Together with the lack of a common international pattern, this suggests to look at explanations based on the joint working of multiple factors which sometimes balance out, sometimes reinforce each other, rather than to focus on explanations centered on a single cause like deindustrialization, skill-biased technological progress, or globalization. Identifying and characterizing episodes and turning points in the dynamics of inequality may reveal more fruitful than searching for overarching general tendencies.

Other factors are that changes in policy have reduced the bargaining power of workers, and to a much greater degree than most realize. For instance, MIT economists Frank Levy and Peter Temin argued that, “Institutions and norms affect the distribution of economic rewards.” The paper combines some novel analyses with a Depression-to-present-day narrative of evolving labor-business-government relationships (one nice touch is a comparison of starting salaries at Cravath versus that of average graduate degree holders to illustrate the rise of “winner take all” inequalities).

Government also gave signals through tax structures and other mechanisms of their view of the appropriate level of labor compensation. For example, when Kennedy implemented tax cuts, the Council of Economic Advisers announced wage and price guidelines that indicated that labor should share pro rata. The paper describes other ways that the government let businesses know that it expected productivity gains to be shared with workers. Again, these measures took the form of guidance rather than intervention, but also reflected prevailing ideas of fairness.

By contrast, a piece today in Firedoglake (hat tip reader John D) illustrates how much values have changed, first with a graphic, and some scathing commentary:

Friday, a group of Trade Associations ran a full-page ad in the New York Times demonstrating their loathing for the employees of their members:

Expensive new mandates on businesses will result in lost jobs, lower wages, less flexibility and higher health care costs.

Let me translate that from scary talk to plain English. Business will dump every last cent of the costs of health care on employees. No business will give up a single penny of its profits to keep its workers healthy. Anyone who wants health care has to pay for it at whatever price the insurance companies want to charge, and business will cooperate in shifting costs to workers. And there is nothing you can do about it. The profits we suck out of your labor belongs to us, and you don’t get any.

Sound a bit like class warfare? It’s not a surprising reaction when one party keeps cutting itself the an overly large slice of the pie, and then adding insult to injury through spurious rationalizations.