Is this what happens when someone reads a sell side report for the first time? The author is having a fit merely over choice of words in the GS report. The GS analysts aren't passing a moral judgement as to whether rising wages are a good thing or a bad thing. They are merely pointing out that current stock market valuations are baking in a corporate profit margin that may not hold in the face of rising wages. That's it.
This was my take away too. Objectively, a decreasing gap between wages and productivity probably is a threat to corporate profits. Reasonable people can disagree about the importance of that threat vs the well being of American workers, but the writer seemed to miss that that was not the point of the Goldman report.
"Does Goldman Sachs value a small sliver of profit over the opportunity to create a sustainable economy that works for everyone?"
Duh! Not just Goldman but pretty much every corporate entity out there. The irony is that corporations like Goldman Sachs do not have to exist. The sad part is that our society not only allows them to exist, but encourages them at the expense of real people's lives. One day, people might be smart enough to realize we have a choice, that we don't have to let these amoral entities dictate our lives. Oh, who am I kidding? People are too stupid for them to see what's literally happening in front of their eyes.
I've been watching the series "Taboo" recently (really enjoying, great series).
East India Tea Company is a major feature of the show. While watching I kind of wondered if it would fair to think of Goldman Sachs as sort of a modern incarnation of East India Tea Company (minus the actual trading in hard goods of course).
It's such a short term, zero-sum view. Higher salaries increase the velocity of money in the system (each iteration of which is an opportunity for you to do some cream-skimming, Goldman Sachs) and improving the total operational efficiency of the system is what yields profit, so providing workers with better benefits does, in aggregate, improve output. All of which analysts would know if the industry tried to hire analysts with operational experience!
If I understand this correctly it would be better for GS to lower it employees wages 3% yoy so the profits will go up. What about lowering the bonuses will that help with the profits too?
If all of your revenue is from sales to your own employees, fueled by the wages that you're paying them, then your business is, by definition, not incurring a profit.
Maybe that's fine if you're like a farming coop or something, but it certainly isn't going to get anyone to invest in your enterprise.
People can the afraid of different things - the worry in the article would seem to be that stock prices will fall as margins go down which seems quite possible. At the same time life in general may be just fine.
a) Productivity is measured as roughly GDP/hours worked (with some tweaking)
b) The biggest chunk of the gap is income inequality. The graph that gets used is for average non-supervisory worker in the private sector. The graph looking at all workers is much closer.
c) The second biggest is that consumer goods are more expensive relative to what workers are producing. The term of art seems to be "terms of trade"
d) The third biggest is more returns to capital, ergo profits, was the smallest, only contributing 8.9% of the difference; they note that this part is hard to measure, but the sources of error they describe are unlikely to bump this up beyond 10%
===
At the end of the paper they rebut some common arguments and a section I found particularly interesting was titled "Individuals’ productivity cannot be inferred from industry trends" about why using industry-level productivity statistics is a bad idea. Which pretty much argues that actual productivity is not important because worker's salaries will not rise in more productive industries.
They bring up Baumol’s law/cost disease to explain why there is a decorrelation between sector productivity and pay, and I guess this also ties into the "terms of trade" issue. Your barber is no more productive than he would have been 100 years ago, but now he needs to be compensated at a level that makes it worthwhile for him to do it.
===
Looking at this, I don't really come away more convinced that what economists call productivity is what lay people would call productivity. Or that measuring "average productivity" in this way makes particular sense, rather than just being a convenient and available metric.
I also find the graph they use misleading since what that graph is largely (implicitly) showing is that wage gains have not been evenly distributed, but it implies something different.
===
They have a whole other paper on what they see as policy issues that lead to this (globalization, minimum wage stagnation, fall of unions, economic rents to CEOs) and their recommendations: http://www.epi.org/publication/raising-americas-pay/
Hard to take article seriously with such a misleading comparison between graphs: productivity was shown on a log scale, and corporate profits on a linear scale...
[+] [-] throwaway_srb|8 years ago|reply
[+] [-] cmonfeat|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] mcphage|8 years ago|reply
[deleted]
[+] [-] mnm1|8 years ago|reply
Duh! Not just Goldman but pretty much every corporate entity out there. The irony is that corporations like Goldman Sachs do not have to exist. The sad part is that our society not only allows them to exist, but encourages them at the expense of real people's lives. One day, people might be smart enough to realize we have a choice, that we don't have to let these amoral entities dictate our lives. Oh, who am I kidding? People are too stupid for them to see what's literally happening in front of their eyes.
[+] [-] mythrwy|8 years ago|reply
East India Tea Company is a major feature of the show. While watching I kind of wondered if it would fair to think of Goldman Sachs as sort of a modern incarnation of East India Tea Company (minus the actual trading in hard goods of course).
[+] [-] devoply|8 years ago|reply
[+] [-] gumby|8 years ago|reply
[+] [-] wdb|8 years ago|reply
[+] [-] traek|8 years ago|reply
[+] [-] crimsonalucard|8 years ago|reply
It's counter intuitive, but there is a simple logic behind why this type of mindless quest for profit is actually self destructive:
Businesses can not thrive when they pay the middle class a salary that does not allow them to buy stuff from said businesses.
[+] [-] mac01021|8 years ago|reply
If all of your revenue is from sales to your own employees, fueled by the wages that you're paying them, then your business is, by definition, not incurring a profit.
Maybe that's fine if you're like a farming coop or something, but it certainly isn't going to get anyone to invest in your enterprise.
[+] [-] tim333|8 years ago|reply
[+] [-] segmondy|8 years ago|reply
"Labor is being paid first again" - citi
http://www.salon.com/2017/04/28/labor-is-being-paid-first-ag...
[+] [-] Eridrus|8 years ago|reply
A few things were interesting:
a) Productivity is measured as roughly GDP/hours worked (with some tweaking)
b) The biggest chunk of the gap is income inequality. The graph that gets used is for average non-supervisory worker in the private sector. The graph looking at all workers is much closer.
c) The second biggest is that consumer goods are more expensive relative to what workers are producing. The term of art seems to be "terms of trade"
d) The third biggest is more returns to capital, ergo profits, was the smallest, only contributing 8.9% of the difference; they note that this part is hard to measure, but the sources of error they describe are unlikely to bump this up beyond 10%
===
At the end of the paper they rebut some common arguments and a section I found particularly interesting was titled "Individuals’ productivity cannot be inferred from industry trends" about why using industry-level productivity statistics is a bad idea. Which pretty much argues that actual productivity is not important because worker's salaries will not rise in more productive industries.
They bring up Baumol’s law/cost disease to explain why there is a decorrelation between sector productivity and pay, and I guess this also ties into the "terms of trade" issue. Your barber is no more productive than he would have been 100 years ago, but now he needs to be compensated at a level that makes it worthwhile for him to do it.
===
Looking at this, I don't really come away more convinced that what economists call productivity is what lay people would call productivity. Or that measuring "average productivity" in this way makes particular sense, rather than just being a convenient and available metric.
I also find the graph they use misleading since what that graph is largely (implicitly) showing is that wage gains have not been evenly distributed, but it implies something different.
===
They have a whole other paper on what they see as policy issues that lead to this (globalization, minimum wage stagnation, fall of unions, economic rents to CEOs) and their recommendations: http://www.epi.org/publication/raising-americas-pay/
[+] [-] BoiledCabbage|8 years ago|reply
Out of curiosity, could you explain more on how you found that one graph misleading? I didn't see it that way - but didn't follow your reasoning.
[+] [-] robocat|8 years ago|reply
[+] [-] allan_golds|8 years ago|reply