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The idea that pay raises come from some sort of collective negotiation with a bunch of executives is just bizarre on its own. Executives do not get to decide th

The idea that pay raises come from some sort of collective negotiation with a bunch of executives is just bizarre on its own. Executives do not get to decide the pay level of employees. The point of the tax law was to lower the cost of employment and investment in the US (specifically, the cost of repatriating foreign profits to pay US salaries and buy US-based infrastructure). The hope being that lower costs cause companies to value US labor more, which tightens the labor market. A tight labor market causes the raises: companies will continue to offer what they want to offer, and they will be unable to replace attrition because the would-be new hire can do better. The employer is either forced to offer more wages directly, lower their standards to poach employees from lower-paying employers, or do without and leave profit on the table. But none of that involves buttering up CEOs and getting them to pinky-swear that they're going to give out raises just because they can. The wage level is always "as low as they can get away with"

ChrisLTD 8y ago
"The point of the tax law was to lower the cost of employment and investment in the US. [...] The hope being that lower costs cause companies to value US labor more, which tightens the labor market." The point of the tax cut was to get more money in the hands of owners of corporations. And, so far, it's working quite well. We won't see much wage growth for one big reason, the Fed has and will continue to raise interest rates at the slightest sign of inflation.
- darawk 8y ago
  Actually the point of the tax cut was to harmonize our corporate tax rates with the rest of the world, and take steps to eliminate the domicile arbitrage and general loopholing that creates an enormous amount of deadweight loss in our economy.
  - s73v3r_ 8y ago
    No, it wasn't. Corporate tax rates were fine, and absolutely nothing in the bill put an end to any of the other stuff.
    - darawk 8y ago
      'fine' is subjective. What they were definitely not though is harmonized with the rest of the world.
      - s73v3r_ 8y ago
        I don't see that as an issue, especially not one that justified adding a trillion dollars to the deficit for barely any benefit to most people.
        darawk 8y ago
        It's an issue because it does two things: 1. Favors certain types of businesses that can more readily arbitrage their domicile (e.g. Apple, Google). 2. Creates an incentive for companies to pay accountants and lawyers a large amount of money to find ways to engage in #1. All of this money is, in economic terms, deadweight loss. If you look at the effective tax rates companies were paying before this change, they were more or less harmonized with the rest of the world[1]. What was not harmonized was the statutory rate. What this meant in practice is that big companies with the resources to exploit the loophole paid the low rates, and companies without those resources paid the high rates. And the resources that were expended by the companies to accomplish this were 100% unproductive. Harmonizing the statutory rate makes things fair, and eliminates the need to waste money on those types of accountants. [1] https://www.cbo.gov/publication/52419 https://www.cbo.gov/publication/52419
        s73v3r_ 8y ago
        "2. Creates an incentive for companies to pay accountants and lawyers a large amount of money to find ways to engage in #1. All of this money is, in economic terms, deadweight loss." I would argue that is not an issue because that happens anyway. There is not, nor will there ever be a tax point where these huge companies don't attempt to get out of paying taxes.
        darawk 8y ago
- asdfman123 8y ago
  I thought this too, but it does appear that most economists believe that you should have no/very low corporate taxes. You should tax things you want to discourage, and you don't want to discourage business investment. However, like everything else in our country -- what's superficially a good idea gets cut to pieces by private interests and it ends up benefiting them. In a perfect world a corporate tax cut would be offset by hefty consumption taxes for the rich, and estate taxes. But that of course did not happen, and will not happen in a republican-controlled government.
awinder 8y ago
Is there any verifiable time in history when such a complicated multi-actor system actually did increase wages? Or is this the cold fusion of government policy?
- dahdum 8y ago
  It’s my limited understanding that full employment / tight labor market is intrinsically linked to wage growth, and then by extension, inflation.
  - ucaetano 8y ago
    > intrinsically linked to wage growth, and then by extension, inflation. Not necessarily. While it is linked to wage growth, the increase in employment (and consumption) doesn't necessarily lead to overall inflation. It depends on the economy's capacity to absorb the extra consumption. It might be the case that the additional consumption, particularly after a bust cycle with excess capacity, might lead to lower per-unit costs due to the utilization of fully depreciated assets and no need for additional capital investments. This is usually captured in the NAIRU: non-accelerating inflation rate of unemployment. Or the minimum level of unemployment that does not cause inflation to increase.
- dnomad 8y ago
  No, not at all. There is no evidence that tax cuts lead to higher wages or economic growth. It's been studied and debunked to death but it never dies.
  - eschevarria 8y ago
    Deadweight losses from taxes have most certainly not been debunked.
    - mfringel 8y ago
      Yes, and distribution of the benefits from deadweight loss reduction has also been a matter of study, and that's the topic on the table.
eiji 8y ago
>> A tight labor market causes the raises Different economic theories can provide different explanations and the statement above is over-simplifying the situation (It should say 'can cause' raises). I'm not an economist. The labor theory of value (LTV) and other systems of thought would have a different take on this. Wages are not going up because various industries are bumping against hard systemic boundaries. I believe those are hard to see and not much appreciated or studied because they are not merely driven by supply and demand economics. Truckers are not being paid more because if they were, the rate-of-profit in that industry would not be sustainable anymore. But raising prices for logistics is not really an option for that industry, because as soon as you do that, other factors start to depress demand. What you end up with are maxed out industries where you either keep pay at todays levels, or go home and close shop. It's complicated, but just 'A tight labor market causes the raises' does not even start to capture the situation. And it's not just greedy bankers that keep wages depressed. A tight labor market is not going to help increase wages. Not gonna happen because it's not seeing the whole picture.
- dahdum 8y ago
  "Truckers are not being paid more because if they were, the rate-of-profit in that industry would not be sustainable anymore. But raising prices for logistics is not really an option for that industry, because as soon as you do that, other factors start to depress demand." I don't fully understand this, even if the rate-of-profit were sky high and could support higher wages, there is no incentive to do so without a tight labor market. Once the labor market is tight enough wages are forced up. It's then up to the business to eat that cost or pass it along immediately. If overall logistics demand shrinks due to the higher cost, wages will still remain up unless the labor market shifts.
- bcoates 8y ago
  The labor theory of value doesn't have any explanatory value, it's just a traditional belief that kept being rediscovered because it seems reasonable and value theories were hard. There really isn't any reason to "teach the controversy": marginal substitution is the only correct theory of value and it is fundamentally incompatible with other intrinsic-value theories like the LTV. It's certainly possible that raising labor prices can make a whole industry nonviable, depressing wages and eventually leading to cost-disease extinction, but there's no reason to think trucking is anything like that -- logistics generates an enormous amount of economic value to its customers and if the labor costs of shipping went up, they'd fork out. You can already see this happen when fuel prices change: everyone adds a fuel surcharge and the customers suck it up.
blfr 8y ago
tight labor market causes the raises Exactly. Trump's immigration policy has a much better chance of increasing wages than any tax reform which will barely make a difference at the margins. Not coincidentally, it's also much less popular with the corporate politicians.
s73v3r_ 8y ago
"Executives do not get to decide the pay level of employees." No, but they get to set the payroll budget for different departments, and they get to put other incentives in place, like bonuses for managers that keep payroll down. "A tight labor market causes the raises" We already had a tight labor market. The conventional wisdom that tight labor markets lead to raises is being bucked. Economists have been pretty stumped at the fact that wages have not been rising. "But none of that involves buttering up CEOs and getting them to pinky-swear that they're going to give out raises just because they can. The wage level is always "as low as they can get away with"" See, this is complete horseshit. Why the fuck did we give them the tax break, then? Why the fuck do we just take them on their word that they'll do something and give them tax breaks, and then tell workers that they have to beg and plead with their employers to actually fucking get it?

ChrisLTD 8y ago

"The point of the tax law was to lower the cost of employment and investment in the US. [...] The hope being that lower costs cause companies to value US labor more, which tightens the labor market." The point of the tax cut was to get more money in the hands of owners of corporations. And, so far, it's working quite well. We won't see much wage growth for one big reason, the Fed has and will continue to raise interest rates at the slightest sign of inflation.

darawk 8y ago
Actually the point of the tax cut was to harmonize our corporate tax rates with the rest of the world, and take steps to eliminate the domicile arbitrage and general loopholing that creates an enormous amount of deadweight loss in our economy.
- s73v3r_ 8y ago
  No, it wasn't. Corporate tax rates were fine, and absolutely nothing in the bill put an end to any of the other stuff.
  - darawk 8y ago
    'fine' is subjective. What they were definitely not though is harmonized with the rest of the world.
    - s73v3r_ 8y ago
      I don't see that as an issue, especially not one that justified adding a trillion dollars to the deficit for barely any benefit to most people.
      - darawk 8y ago
        It's an issue because it does two things: 1. Favors certain types of businesses that can more readily arbitrage their domicile (e.g. Apple, Google). 2. Creates an incentive for companies to pay accountants and lawyers a large amount of money to find ways to engage in #1. All of this money is, in economic terms, deadweight loss. If you look at the effective tax rates companies were paying before this change, they were more or less harmonized with the rest of the world[1]. What was not harmonized was the statutory rate. What this meant in practice is that big companies with the resources to exploit the loophole paid the low rates, and companies without those resources paid the high rates. And the resources that were expended by the companies to accomplish this were 100% unproductive. Harmonizing the statutory rate makes things fair, and eliminates the need to waste money on those types of accountants. [1] https://www.cbo.gov/publication/52419 https://www.cbo.gov/publication/52419
        s73v3r_ 8y ago
        "2. Creates an incentive for companies to pay accountants and lawyers a large amount of money to find ways to engage in #1. All of this money is, in economic terms, deadweight loss." I would argue that is not an issue because that happens anyway. There is not, nor will there ever be a tax point where these huge companies don't attempt to get out of paying taxes.
        darawk 8y ago
asdfman123 8y ago
I thought this too, but it does appear that most economists believe that you should have no/very low corporate taxes. You should tax things you want to discourage, and you don't want to discourage business investment. However, like everything else in our country -- what's superficially a good idea gets cut to pieces by private interests and it ends up benefiting them. In a perfect world a corporate tax cut would be offset by hefty consumption taxes for the rich, and estate taxes. But that of course did not happen, and will not happen in a republican-controlled government.

awinder 8y ago

Is there any verifiable time in history when such a complicated multi-actor system actually did increase wages? Or is this the cold fusion of government policy?

dahdum 8y ago
It’s my limited understanding that full employment / tight labor market is intrinsically linked to wage growth, and then by extension, inflation.
- ucaetano 8y ago
  > intrinsically linked to wage growth, and then by extension, inflation. Not necessarily. While it is linked to wage growth, the increase in employment (and consumption) doesn't necessarily lead to overall inflation. It depends on the economy's capacity to absorb the extra consumption. It might be the case that the additional consumption, particularly after a bust cycle with excess capacity, might lead to lower per-unit costs due to the utilization of fully depreciated assets and no need for additional capital investments. This is usually captured in the NAIRU: non-accelerating inflation rate of unemployment. Or the minimum level of unemployment that does not cause inflation to increase.
dnomad 8y ago
No, not at all. There is no evidence that tax cuts lead to higher wages or economic growth. It's been studied and debunked to death but it never dies.
- eschevarria 8y ago
  Deadweight losses from taxes have most certainly not been debunked.
  - mfringel 8y ago
    Yes, and distribution of the benefits from deadweight loss reduction has also been a matter of study, and that's the topic on the table.

eiji 8y ago

>> A tight labor market causes the raises Different economic theories can provide different explanations and the statement above is over-simplifying the situation (It should say 'can cause' raises). I'm not an economist. The labor theory of value (LTV) and other systems of thought would have a different take on this. Wages are not going up because various industries are bumping against hard systemic boundaries. I believe those are hard to see and not much appreciated or studied because they are not merely driven by supply and demand economics. Truckers are not being paid more because if they were, the rate-of-profit in that industry would not be sustainable anymore. But raising prices for logistics is not really an option for that industry, because as soon as you do that, other factors start to depress demand. What you end up with are maxed out industries where you either keep pay at todays levels, or go home and close shop. It's complicated, but just 'A tight labor market causes the raises' does not even start to capture the situation. And it's not just greedy bankers that keep wages depressed. A tight labor market is not going to help increase wages. Not gonna happen because it's not seeing the whole picture.

dahdum 8y ago
"Truckers are not being paid more because if they were, the rate-of-profit in that industry would not be sustainable anymore. But raising prices for logistics is not really an option for that industry, because as soon as you do that, other factors start to depress demand." I don't fully understand this, even if the rate-of-profit were sky high and could support higher wages, there is no incentive to do so without a tight labor market. Once the labor market is tight enough wages are forced up. It's then up to the business to eat that cost or pass it along immediately. If overall logistics demand shrinks due to the higher cost, wages will still remain up unless the labor market shifts.
bcoates 8y ago
The labor theory of value doesn't have any explanatory value, it's just a traditional belief that kept being rediscovered because it seems reasonable and value theories were hard. There really isn't any reason to "teach the controversy": marginal substitution is the only correct theory of value and it is fundamentally incompatible with other intrinsic-value theories like the LTV. It's certainly possible that raising labor prices can make a whole industry nonviable, depressing wages and eventually leading to cost-disease extinction, but there's no reason to think trucking is anything like that -- logistics generates an enormous amount of economic value to its customers and if the labor costs of shipping went up, they'd fork out. You can already see this happen when fuel prices change: everyone adds a fuel surcharge and the customers suck it up.

blfr 8y ago

tight labor market causes the raises Exactly. Trump's immigration policy has a much better chance of increasing wages than any tax reform which will barely make a difference at the margins. Not coincidentally, it's also much less popular with the corporate politicians.

s73v3r_ 8y ago

"Executives do not get to decide the pay level of employees." No, but they get to set the payroll budget for different departments, and they get to put other incentives in place, like bonuses for managers that keep payroll down. "A tight labor market causes the raises" We already had a tight labor market. The conventional wisdom that tight labor markets lead to raises is being bucked. Economists have been pretty stumped at the fact that wages have not been rising. "But none of that involves buttering up CEOs and getting them to pinky-swear that they're going to give out raises just because they can. The wage level is always "as low as they can get away with"" See, this is complete horseshit. Why the fuck did we give them the tax break, then? Why the fuck do we just take them on their word that they'll do something and give them tax breaks, and then tell workers that they have to beg and plead with their employers to actually fucking get it?