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I’m glad to see people mentioning this passage: “In the popular imagination workers’ share of the economic pie has room to grow at the expense of profits. But

by nstart 5y ago

I’m glad to see people mentioning this passage: “In the popular imagination workers’ share of the economic pie has room to grow at the expense of profits. But recent research suggests that labour’s share of the value created by firms has in fact been fairly stable in most rich countries during recent decades“ That entire piece needs some citation. What do they define as labor here? Are they analyzing all job categories? Are they lumping in highly paid software engineers from FAANG with people working at a retail outlet? Regardless of source material, that part also misses the point entirely of the workforce category that’s demanding wage increases. Workers in this category are saying “stop hoarding y’all profits and pay us more so we run with less profits and bonuses for the high levels”. The article is suggesting that if wages are increased, prices will need to increase which will in turn devalue the wage increase. But it fails to discuss if the chunky profit margin can be sacrificed without raising prices too. Honestly, I like a lot of the economist but this particular article in this weeks edition had me shaking my head hard.

pedrosorio 5y ago
> suggesting that if wages are increased, prices will need to increase (...) fails to discuss if the chunky profit margin can be sacrificed without raising prices too Even if companies were to choose to sacrifice the "chunky profit margin", wouldn't an increase in salaries (and therefore demand for consumption) lead to an increase in prices anyway?
- legulere 5y ago
  In a lot of cases no: if the wage increases are eaten up by the energy price increases. If the wage increases go to the upper middle and upper class, which don’t know what their money on. If the demand goes into mass producible goods, where higher demand leads to lower prices.
  - s1artibartfast 5y ago
    Higher demand only leads to cost reduction if goods are produced more cheaply with increased scale, which is not given. There is a point where diminishing returns bring saving at scale to 0
- simiones 5y ago
  Only if supply is highly inelastic. Otherwise, increased demand can just mean increased supply at the same price point. Also, a lot of goods have their current price points because of price gouging and monopolistic practices. These can also be attacked, though that's a different matter.
leroman 5y ago
It does seem the cost of living around tech hubs is higher
nly 5y ago
Attitudes to wages vary so much. A German ex-colleague of mine here in London is convinced we (SWE's) are all underpaid. An Estonian ex-colleague on the other hand offhandedly described our profession as overpaid. I mention nationalities because I think it is a factor in their attitudes. Interestingly the latter ex-colleague was on 20% less TC than me despite doing the exact same job, and having 5 years seniority. More formal seniority levels and wage transparency would help workers a great deal in my view. SWE salaries in London seem to be booming
- DeathArrow 5y ago
  Can you kindly explain what SWE and TC mean?
  - smcl 5y ago
    SWE = Software Engineer TC = Total Compensation
  - deleted 5y ago
    [deleted]
  - tupshin 5y ago
    Software engineer and total compensation, respectively.
- nvarsj 5y ago
  I think it’s because of the government moves that have effectively shut down a huge swath of prior contracting gigs (where SWEs got paid decently, albeit as freelancers). These experienced engineers are not going to work for 70k/year like suckers, er perms, were doing 5 years ago. Combined with rising TCs at FAANG, and a shortage of experienced engineers, overall wages have gone up significantly in the last 2-3 years.
- smcl 5y ago
  I think that nationality angle is interesting but I believe it's only incidental. For example I tend to sympathise with this idea that in some cases IT workers are overpaid compared to other professions, but I'm from a relatively wealthy country (Scotland). When you have lived somewhere that has lower wages overall, but you have worked in a highly paid profession in a wealthy country then you're going to be quite keenly aware of the gap in compensation. So if you've seen the wages a janitor, shopkeeper, cleaner or even schoolteacher in Estonia makes and reflect on the fact that Facebook, Google devs in London will likely be on over $100k/year then yeah it's not unreasonable to conclude that we are overpaid. London and Estonia are much different places with different salary expectations and living costs so you can't really expect them to be identical (not least across different jobs) but I think it's unavoidable that anyone with experience of both will make the comparison. Sorry for picking on London and Estonia here, it wasn't personal :) I the same would apply to San Francisco vs Budapest or Frankfurt vs Manila or Oslo vs Rosario etc etc
skohan 5y ago
The thing is, it seems like there are multiple factors at play here. What you're talking about is the distribution of funds within an organization. I.e. if company X has a certain total revenue, can they afford to re-distribute a greater percentage of that number & towards employee compensation vs. stock buybacks. From that standpoint, for many successful firms the answer is probably yes. But another factor at play here is market forces, and scarcity in particular. So for instance, amidst the chip shortage, the price of new and used cars increases because it's not possible to produce enough cars to meet demand. So firms that can afford to pay more do so to afford top talent, because working at company X will mean you can afford to have the lifestyle you want. This incentivizes company Y, which can not simply redistribute profits toward wages, to increase prices so they can afford to compete in the labour market, which farther contributes to the increase in demand for higher-wage jobs, contributing to the cycle of inflation. So I don't think it's as simple as having super profitable companies take a haircut to increase wages. In an environment of greater-than-average scarcity, the market should perform its role in price discovery of scarce goods. But in an environment where capital itself is not scarce, you risk that price discovery mechanism being broken, and prices just increasing indefinitely. Disclaimer: I'm not an economist, I'm just someone who's been thinking about inflation a lot lately, so I am happy to be corrected.
- rjtavares 5y ago
  All costs boil down to: Natural Resources, Labour, and Capital. If Capital is not scarce, Labour is scarce, and there isn't a change in natural resources (there may be in some cases, but I don't think that changed a lot), then capital should become cheaper and labour should become more expensive. That's how a well functioning market economy should work. Inflation is largely irrelevant in the discussion, since the real output of the economy doesn't change with inflation (of course, hyperinflation and deflation can destabilize an economy, but we're definitely not there).
  - skohan 5y ago
    I don't really understand this: why should capital availability increase in the face of a labor shortage? Making capital doesn't actually create more labor, so wouldn't this just re-allocate labour towards those with more access to cheap capital?
grecy 5y ago
> But it fails to discuss if the chunky profit margin can be sacrificed without raising prices too In recent years the mere suggestion of lowering profits is utterly taboo in American society, and is usually received about as well as if you were talking about selling beer to kids, or weddings for children. I honestly believe a ton of people have been brainwashed (or maybe just tricked) into believing that McDonald's actually needs to make $10B [1] in profit per year, and that literally everything would fall apart if it didn't. Nobody wants to admit that McD's could increase wages for tens of thousands of front line workers who need it most, keep prices identical and still make, oh I don't know, a hefty $2B profit each and every year. Instead they just recommend employees get a second job to make ends meet [2] I can only assume the topic being so utterly taboo is because that would mean the wealth of the rich would increase slower than it is today (but of course, it would still increase) (I'm using McD's as the example here, though I think it applies equally to every large and wildly profitable company) [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros... [2] https://www.motherjones.com/food/2013/07/mcdonalds-budget-mcwrap/ https://www.motherjones.com/food/2013/07/mcdonalds-budget-mc...
- refurb 5y ago
  McDonald’s Corporation doesn’t hire the workers in the stores, those are franchises.
  - brightlancer 5y ago
    Last I checked, approximately half of McDonald's stores were franchises and half were corporate-owned.
    - refurb 5y ago
      Nope. https://corporate.mcdonalds.com/corpmcd/franchising-overview.html https://corporate.mcdonalds.com/corpmcd/franchising-overview... Approximately 93% Of McDonald’s restaurants worldwide are owned and operated by independent local business owners.
thow-58d4e8b 5y ago
Labor share of income in the developed countries is at the lowest it's been in decades (1). In the US, if all workers received a 13% pay hike, this would just bring the labor share to where it was in 1990. Profit margins are at record highs (2). It took me two minutes of googling, yet somehow people writing for one of the most prestigious econ-related magazine in the world are incapable or unwilling (more likely) to mention it. In addition, this figure also includes the "labor share" of top-level management. People focus too much on CEO pay, and neglect the fact it's also C-suites, vice-presidents, board members, and most of the direct and indirect perks they receive. I wouldn't be surprised if the labor share of income to this new nobility increased from low single-digit to double-digit percentage (1) - https://www.oecd.org/g20/topics/employment-and-social-policy/The-Labour-Share-in-G20-Economies.pdf https://www.oecd.org/g20/topics/employment-and-social-policy... (2) - https://www.axios.com/profit-margins-record-high-rising-inflation-e48151ba-139b-475a-a611-b81a0ead39ba.html https://www.axios.com/profit-margins-record-high-rising-infl...
- prox 5y ago
  And worse, the marriage of capital and politics is wrecking havoc. People are represented less and less vs special interest who never had it this good. Making a u-turn becomes harder and harder as time goes by.
  - ChuckNorris89 5y ago
    To be fair here, capital and politics have always been married and wrecked havoc, for the last few thousand years, which is why the history of humanity is full with slavery, serfdom and bloody wars. There's no way around that, power and money corrupts and concentrates in the hands of a few who fight tooth and nail to further entrench their power and wealth at the expense of everyone else. Our major break came from having two devastating world wars that affected the ruling class as well, and broke the traditional wealthy feudal powers, right before an industrial boom that gave the working class a leg up never before seen in our society, to which everyone looks back fondly as that situation will never happen again (at leat not until the next violent global war/revolution). But now, during a prolonged period of relative peace and stability, our situation is reverting back to the feudalism of lords and serfs, haves and have-nots, exactly how our civilization has always been like. The difference is that now, instead of being the serf of a lord for food and shelter, you're the serf of a giant megacorp for employment(food) and to a giant real-estate conglomerate or a giant bank for shelter, and with a much longer life expectancy and higher standard of living.

by nstart 5y ago

pedrosorio 5y ago

> suggesting that if wages are increased, prices will need to increase (...) fails to discuss if the chunky profit margin can be sacrificed without raising prices too Even if companies were to choose to sacrifice the "chunky profit margin", wouldn't an increase in salaries (and therefore demand for consumption) lead to an increase in prices anyway?

legulere 5y ago
In a lot of cases no: if the wage increases are eaten up by the energy price increases. If the wage increases go to the upper middle and upper class, which don’t know what their money on. If the demand goes into mass producible goods, where higher demand leads to lower prices.
- s1artibartfast 5y ago
  Higher demand only leads to cost reduction if goods are produced more cheaply with increased scale, which is not given. There is a point where diminishing returns bring saving at scale to 0
simiones 5y ago
Only if supply is highly inelastic. Otherwise, increased demand can just mean increased supply at the same price point. Also, a lot of goods have their current price points because of price gouging and monopolistic practices. These can also be attacked, though that's a different matter.

leroman 5y ago

It does seem the cost of living around tech hubs is higher

nly 5y ago

Attitudes to wages vary so much. A German ex-colleague of mine here in London is convinced we (SWE's) are all underpaid. An Estonian ex-colleague on the other hand offhandedly described our profession as overpaid. I mention nationalities because I think it is a factor in their attitudes. Interestingly the latter ex-colleague was on 20% less TC than me despite doing the exact same job, and having 5 years seniority. More formal seniority levels and wage transparency would help workers a great deal in my view. SWE salaries in London seem to be booming

DeathArrow 5y ago
Can you kindly explain what SWE and TC mean?
- smcl 5y ago
  SWE = Software Engineer TC = Total Compensation
- deleted 5y ago
  [deleted]
- tupshin 5y ago
  Software engineer and total compensation, respectively.
nvarsj 5y ago
I think it’s because of the government moves that have effectively shut down a huge swath of prior contracting gigs (where SWEs got paid decently, albeit as freelancers). These experienced engineers are not going to work for 70k/year like suckers, er perms, were doing 5 years ago. Combined with rising TCs at FAANG, and a shortage of experienced engineers, overall wages have gone up significantly in the last 2-3 years.
smcl 5y ago
I think that nationality angle is interesting but I believe it's only incidental. For example I tend to sympathise with this idea that in some cases IT workers are overpaid compared to other professions, but I'm from a relatively wealthy country (Scotland). When you have lived somewhere that has lower wages overall, but you have worked in a highly paid profession in a wealthy country then you're going to be quite keenly aware of the gap in compensation. So if you've seen the wages a janitor, shopkeeper, cleaner or even schoolteacher in Estonia makes and reflect on the fact that Facebook, Google devs in London will likely be on over $100k/year then yeah it's not unreasonable to conclude that we are overpaid. London and Estonia are much different places with different salary expectations and living costs so you can't really expect them to be identical (not least across different jobs) but I think it's unavoidable that anyone with experience of both will make the comparison. Sorry for picking on London and Estonia here, it wasn't personal :) I the same would apply to San Francisco vs Budapest or Frankfurt vs Manila or Oslo vs Rosario etc etc

skohan 5y ago

The thing is, it seems like there are multiple factors at play here. What you're talking about is the distribution of funds within an organization. I.e. if company X has a certain total revenue, can they afford to re-distribute a greater percentage of that number & towards employee compensation vs. stock buybacks. From that standpoint, for many successful firms the answer is probably yes. But another factor at play here is market forces, and scarcity in particular. So for instance, amidst the chip shortage, the price of new and used cars increases because it's not possible to produce enough cars to meet demand. So firms that can afford to pay more do so to afford top talent, because working at company X will mean you can afford to have the lifestyle you want. This incentivizes company Y, which can not simply redistribute profits toward wages, to increase prices so they can afford to compete in the labour market, which farther contributes to the increase in demand for higher-wage jobs, contributing to the cycle of inflation. So I don't think it's as simple as having super profitable companies take a haircut to increase wages. In an environment of greater-than-average scarcity, the market should perform its role in price discovery of scarce goods. But in an environment where capital itself is not scarce, you risk that price discovery mechanism being broken, and prices just increasing indefinitely. Disclaimer: I'm not an economist, I'm just someone who's been thinking about inflation a lot lately, so I am happy to be corrected.

rjtavares 5y ago
All costs boil down to: Natural Resources, Labour, and Capital. If Capital is not scarce, Labour is scarce, and there isn't a change in natural resources (there may be in some cases, but I don't think that changed a lot), then capital should become cheaper and labour should become more expensive. That's how a well functioning market economy should work. Inflation is largely irrelevant in the discussion, since the real output of the economy doesn't change with inflation (of course, hyperinflation and deflation can destabilize an economy, but we're definitely not there).
- skohan 5y ago
  I don't really understand this: why should capital availability increase in the face of a labor shortage? Making capital doesn't actually create more labor, so wouldn't this just re-allocate labour towards those with more access to cheap capital?

grecy 5y ago

> But it fails to discuss if the chunky profit margin can be sacrificed without raising prices too In recent years the mere suggestion of lowering profits is utterly taboo in American society, and is usually received about as well as if you were talking about selling beer to kids, or weddings for children. I honestly believe a ton of people have been brainwashed (or maybe just tricked) into believing that McDonald's actually needs to make $10B [1] in profit per year, and that literally everything would fall apart if it didn't. Nobody wants to admit that McD's could increase wages for tens of thousands of front line workers who need it most, keep prices identical and still make, oh I don't know, a hefty $2B profit each and every year. Instead they just recommend employees get a second job to make ends meet [2] I can only assume the topic being so utterly taboo is because that would mean the wealth of the rich would increase slower than it is today (but of course, it would still increase) (I'm using McD's as the example here, though I think it applies equally to every large and wildly profitable company) [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros... [2] https://www.motherjones.com/food/2013/07/mcdonalds-budget-mcwrap/ https://www.motherjones.com/food/2013/07/mcdonalds-budget-mc...

refurb 5y ago
McDonald’s Corporation doesn’t hire the workers in the stores, those are franchises.
- brightlancer 5y ago
  Last I checked, approximately half of McDonald's stores were franchises and half were corporate-owned.
  - refurb 5y ago
    Nope. https://corporate.mcdonalds.com/corpmcd/franchising-overview.html https://corporate.mcdonalds.com/corpmcd/franchising-overview... Approximately 93% Of McDonald’s restaurants worldwide are owned and operated by independent local business owners.

thow-58d4e8b 5y ago

Labor share of income in the developed countries is at the lowest it's been in decades (1). In the US, if all workers received a 13% pay hike, this would just bring the labor share to where it was in 1990. Profit margins are at record highs (2). It took me two minutes of googling, yet somehow people writing for one of the most prestigious econ-related magazine in the world are incapable or unwilling (more likely) to mention it. In addition, this figure also includes the "labor share" of top-level management. People focus too much on CEO pay, and neglect the fact it's also C-suites, vice-presidents, board members, and most of the direct and indirect perks they receive. I wouldn't be surprised if the labor share of income to this new nobility increased from low single-digit to double-digit percentage (1) - https://www.oecd.org/g20/topics/employment-and-social-policy/The-Labour-Share-in-G20-Economies.pdf https://www.oecd.org/g20/topics/employment-and-social-policy... (2) - https://www.axios.com/profit-margins-record-high-rising-inflation-e48151ba-139b-475a-a611-b81a0ead39ba.html https://www.axios.com/profit-margins-record-high-rising-infl...

prox 5y ago
And worse, the marriage of capital and politics is wrecking havoc. People are represented less and less vs special interest who never had it this good. Making a u-turn becomes harder and harder as time goes by.
- ChuckNorris89 5y ago
  To be fair here, capital and politics have always been married and wrecked havoc, for the last few thousand years, which is why the history of humanity is full with slavery, serfdom and bloody wars. There's no way around that, power and money corrupts and concentrates in the hands of a few who fight tooth and nail to further entrench their power and wealth at the expense of everyone else. Our major break came from having two devastating world wars that affected the ruling class as well, and broke the traditional wealthy feudal powers, right before an industrial boom that gave the working class a leg up never before seen in our society, to which everyone looks back fondly as that situation will never happen again (at leat not until the next violent global war/revolution). But now, during a prolonged period of relative peace and stability, our situation is reverting back to the feudalism of lords and serfs, haves and have-nots, exactly how our civilization has always been like. The difference is that now, instead of being the serf of a lord for food and shelter, you're the serf of a giant megacorp for employment(food) and to a giant real-estate conglomerate or a giant bank for shelter, and with a much longer life expectancy and higher standard of living.