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Companies Need To Pay People More. [email protected]


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Henry Blodget writes:

It's economically stupid to pay employees as little as possible. Those "costs" you are minimizing (employees) are also current and prospective customers for your company and other companies. And the less money they have, the fewer products and services they are going to buy.

Obviously, the folks who own and run America's big corporations want to do as well as they can for themselves. But the key point is this:

It is not a law that they pay their employees as little as possible.

It is a choice.

It is a choice made by senior managers and owners who want to keep the highest possible percentage of a company's wealth for themselves.

It is, in other words, a selfish choice.

It is a choice that reveals that, regardless of what they say about how much they value their employees, regardless of what euphemism they use to describe their employees ("associate," "partner," "representative," "team-member"), they, in fact, don't give a damn about their employees.

These senior managers and owners, after all, are earning record profits while choosing to pay their employees so little in many cases that the employees have to live in poverty.

And the senior managers and owners add insult to injury by blaming the employees for this: "If they want to get paid more, they should start their own company. Or get a better job."

It is no mystery why America's senior managers and owners describe the decision to pay employees as little as possible as a "law of capitalism": Because doing this masks the fact that they are making a choice.

But it is a choice.

Importantly, if big American companies were struggling to earn money, as they were in the early 1980s, we would not be having this conversation. Even if big American companies were only earning average profits, this wouldn't be an issue. But the "efficiency" and "shareholder-value" drive that began in the 1980s has now gone too far the other way. Just look at these charts...

CHART ONE: Corporate profits and profit margins are at an all-time high. American companies are making more money and more per dollar of sales than they ever have before. Full stop. This means that the companies have oceans of cash to invest. But they're not investing it. Because they're too risk averse, profit-obsessed, and short-term greedy.

Corporate profits as a percent of GDP

CHART TWO: Wages as a percent of the economy are at an all-time low.Why are corporate profits so high? One reason is that companies are paying employees less than they ever have as a share of GDP. And that, in turn, is another reason the economy is so weak. Those "wages" represent spending power for American consumers. American consumer spending is revenue for other companies. So the profit maximization obsession of American corporations is actually starving the rest of the economy of revenue growth.

Profits as a percent of GDP

CHART THREE: Fewer Americans are employed than at any time in the past three decades. Another reason corporations are so profitable is that they don't employ as many Americans as they used to. This is in part because companies today regard employees as "costs" instead of human beings who are dedicating their lives to the organizations that, in turn, are supporting them and their families. (Symbiosis! Imagine that!) As a result of frantic firing in the name of "efficiency"  and "return on capital," the U.S. employment-to-population ratio has collapsed. We're back at 1970s-1980s levels now. 

Employment as a percent of the population

CHART FOUR: The share of our national income that American corporations are sharing with the people who do the work  ("labor") is at an all-time low.  The rest of our national income, naturally, is going to owners and senior managers ("capital"), who have it better today than they have ever had it before.

Labor share of income

In short, the obsession with "maximizing short-term profits" that has developed in America over the past 30 years has created a business culture in which executives dance to the tune of short-term traders and quarterly earnings reports, instead of balancing the value created for employees, customers, and long-term owners.

I disagree with this jump of a conclusion: They are risk averse due to the confusing political and legal climate with unknown and uncertain costs coming down the road.  In the face of that, your only strategy for ensuring the proper safeguards in the company are to conserve cash and wait for clarity.   This has nothing to do with greed nor profit.  It has to do with fiduciary duty. 

Corporate profits and profit margins are at an all-time high. American companies are making more money and more per dollar of sales than they ever have before. Full stop. This means that the companies have oceans of cash to invest. But they're not investing it. Because they're too risk averse, profit-obsessed, and short-term greedy.

Great Analysis!!! But, how do we keep these Sr. Managers from longer term "cutting their own throats" ?

Regular, consistent feedback. 

Most companies have now perfected the art and science of milking end consumers for more money.And these firms are duly supported by Political Systems which survive on their donations. I will say rather than increasing salaries, if these organizations become less corrupt, less polluting and less greedy, than it will serve our planet better

I concur!

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