Two remarkable figures to keep in mind re HRC economics speech today

July 13th, 2015 at 10:33 am

And not just re her speech, of course, but these figures represent critical themes she and the other candidates have and will continue to hit on.

First (h/t: Larry Mishel), here is something I suspect you haven’t seen, because these compensation data (wages + benefits) are not as well known as they should be. They are high quality, firm-level data on both wages and the full-spate of employer-provided benefits, including shift premiums, health and pension coverage, vacation pay, and more (see the underlying article for details).

comp_bls

Source: BLS

Between 2007 and 2014, real wages and compensation fell up to about the 80th percentile for comp and the 90th for wages. Interestingly, the very low-end has done a bit better, perhaps due to minimum wage increases. Also, the inequality pattern is clear, as beginning around the 20th percentile, real pay falls less or starts rising as you go up the pay scale.

Also notably, compensation inequality outpaces wage inequality, as employer provided benefits have grown faster than wages for higher paid workers, who are much more likely to get such benefits in the first place.

The next figure is just as dramatic. It’s from an important new report by Bill Galston and Elaine Kamarck, documenting the sharp increase in both “financialization” (the growing share of the financial sector in GDP) and “short-termism” in financial markets, with an emphasis on dividend payouts and share buybacks versus using retained profits to reinvest in productive capital.

The figure shows the sharp divergence of these two trends–shareholder payouts and business investment–starting in the 2000s. Obviously, there’s a lot more going on here than two variables can reveal, but I found the report plenty convincing that as the emphasis on short-term returns has grown, in part due to its role in executive compensation, investment has suffered.

share_bbfig

Source: Galston and Kamarck

The authors recommend ways to disincentivize impatient capital, including changing some SEC rules that a) I believe would help and b) does not need legislation, I’m told.

Unfortunately, they ignore another potentially good idea in this space: a financial transaction tax, of which I’ll have more to say about later this week.

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2 comments in reply to "Two remarkable figures to keep in mind re HRC economics speech today"

  1. mitakeet says:

    The mantra in business school is if your company can’t invest its profits at a greater return than the share holders can then it should return profits as dividends, share buybacks, etc. (though I am not sold on share buybacks; personally I think all that does is inflate the options of senior management and doesn’t do a damn thing for the company or shareholders). My gut feeling on the current economy is it continues to be fragile and given the massive uncertainty regarding regulation, etc. with our highly dysfunctional government I feel there is a strong reluctance to engage in long-term thinking. Of course, for decades the cultural environment in our corporations has been where ‘long-term’ is 4 quarters out, which means ‘short-term’ is now quarterly or even shorter.

    Thus, to me the real ‘crime’ isn’t that they are paying dividends, etc., but that they aren’t making the slightest effort to reward any but the most highly placed executives.


  2. Stewart Kaplan says:

    Jared,
    Please help…I’m not understanding this. Politico published an article: “‘Hillarynomics’: A sneak preview.” The sixth paragraph says: “Clinton’s aide said she will discuss some of the structural forces conspiring against sustainable wage growth, such as globalization, automation, and even consumer-friendly “sharing economy” firms like Uber and Airbnb that are creating new relationships between management and labor (and which now employ many Obama administration alumni). But she will argue that policy choices have contributed to the problem, and that she can fix it.”

    So, are “globalization, automation, and …“sharing economy” firms” causing wages to remain low? If so, then is her fix to put more restrictions on international trade, automation and “sharing economies”? Is she wanting to restrict for example, automated processes and robotics in factories or restrict the amount acrerage a farmer could cultivate using machinery (tractors, etc) will result in a need for more labor…or take away Fed Ex’s delivery vans and make them deliver packages by bicycle?
    Does she think it’d be a good idea to restrict consumer choice to just products produced within the borders of the US? Will she want to make things like time share vacation condos illegal? What exactly does she plan to do to “fix” the automation “problem” of being able to produce better products faster and cheaper assuming that it is a “structural force conspiring against sustainable wage growth”? Does she want to bring back elevator operators? People to churn butter? People to read the news in the town square? What the heck is she talking about?


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