It’s one metric: revenue per employee. In a more capital expensive market, such as our current one, this metric is the one corporate managers are focusing on.
Ultimately it’s about something called austerity, which is taught in mba-jargon filled economic theory as a way to keep the working classes inline. Since the 1920s, western countries have used a cycle of expansion and contraction to crush the working people’s power in the interest of controlling inflation (which is really largely the direct result of excess government money printing as a result of imbalanced spending), all the while consolidating more-and-more wealth in smaller and smaller circles of people. It’s an absolutely psychotic way to run a business cycle, and it kills a great many people directly:
The latest deleveraging of worker cries and demands for better conditions and pay comes as workers are asking for more work-at-home and flexibility, a more balanced work/life balance, and focus on similar health and wellness goals, as well as demands for salary raises to keep up with the ongoing inflation.
For three decades worker pay has been dropping. The gap between the growth of productivity and that of a typical worker’s pay has grown quite extreme, and continues to grow through the application of austerity principle:
While it looks like “inflation and interest rates are causing the problems,” it remains easily predictable economic theory that we would find ourselves here. People may not realize it, but since 2020, the US has printed nearly 80% of ALL US Dollars in circulation. To put that in perspective, at the start of 2020 we had ~$4 trillion in circulation. Now, there is nearly $19 TRILLION in circulation, a 375% jump in 3 years.
This of course causes “inflation,” which is in no small part what the news likes to call “excess corporate profits.” Basically inflation benefits those that hold real assets and are closest to the money printers, while crushing those who don’t and are the furthest (often the most marginalized).
Consider that the market rewards these companies handsomely for their layoffs:
- Amazon had $2.8 million in earnings (before interest, taxes, depreciation, and amortization – or EBITDA) for every staff member they laid off in January.
- Meta had $3.9 million in earnings for each of the 11,000 staff members they laid off in November. In response to Meta’s cost-cutting strategy, its stock price increased by 19 percent.
- Tech giant Microsoft had an EBITDA of $98.8 billion in 2022. This means they earned $9.8 million for each person they laid off in January 2023.
- Other companies’ layoffs weren’t as difficult to understand: WeWork ended 2022 with an EBITDA of -$824 million, and Spotify ended its fiscal year with an EBITDA of -$290 million.
So it’s unfortunately financially rewarding to lay people off, and it’s a measurable economic impact you can show the board and your investors…
Meanwhile there are some CEOs who have figured out how to keep everyone employed, and it points to the fact that this model isn’t the only possible way for businesses to operate:
There will come a day when the current management ethos becomes unfashionable and mass layoffs become a sign of failure and poor executive management, but unfortunately the market rewards it right now, and ultimately products and employee quality of life are secondary concerns to our rather sociopathic business cycle.
Forgive my diatribe. I have developed quite a passion for this issue over the years, as my training taught me all about layoffs and how to do them, but after running companies for a long while, I’ve become quite unhappy with “business as usual.” This system sucks, and it’s causing massive breakdowns in trust between employees and employers that ultimately cause irreversible harm to actual global competitiveness. The system people live and work in has to be in those people’s best interests to proliferate and ultimately needs to align profit with the best interests of society.
In my mind, the long term concequences of the current system’s breakdown of trust is devastating to everyone involved and counterproductive to lasting global competitiveness (which requires cooperation, teamwork and a growth mindset these adversarial conditions cannot foster), and yet we happily pedal along as if everything is fine.
This points to what I was going to say. The whole point of efficiency gains in a company is to pay less for your resources (in this case labor) for a given amount of output. Ideally what we would see, however, is a reduction in prices as a result that more than compensates for the reduction in pay. Thus, across the economy, the general theme would be more output for a given amount of work. I have no idea how that metric tracks, though, but the cheeseburger and shake I guess is one way of asking that question.
The metric in question might be "labour share of income" and it has indeed been decreasing for a long time.
But it's not obvious that incentives in individual jobs are affecting overall productivity (can one factory worker really make the conveyor belt move faster?). A plausible explanation could be that it's becoming easier (and profitable) to hire more low-wage workers than systematically increasing productivity.
The interesting fact is that the loss of labor's share of GDP to capital is less than you'd imagine, and a much bigger reason for stagnant real wage growth has to do with inequality regarding compensation. Automation is real and is taking jobs, but it's executives that have been soaking up the financial gains from productivity.
People are worth more. Look the amount of profits/employee that Google, Apple or Facebook have. GM, Kodak or any other "old" company needed an order of magnitude more employees.
Sure, with the demise of Communism, the capitalists appropriate this increase in productivity.
Can anyone here make the following calculation? How much would be the wage of a Google engineer proportionally to the profit generated by a GM engineer in the 50's.
The issue is that pay hasn't kept up with productivity. As things become more efficient employers are having to pay far less for the same amount of work.
what mystery? pay raises haven't kept up with productivity increases. there's also kinds of macro-econ handwaiving that will attempt to drill down into this issue but at a fundamental level worker pay is at the discretion of their managers. the problem is the management culture that distributes profits with extreme preference to shareholders and almost no regard at all for the workers.
Your analysis misses a fundamental point: workers add value to an organization. The basic argument I have is that they are not sharing adequately (i.e., sustainably) in the rewards for their labor. Rather than dividing up the finite resources of a few ultra-rich, lets try to estimate how the rich have fared in comparison to...basically everyone else.
I'm going to look at 2003-2013 for the somewhat arbitrary reasons that (a) full records are available for all years in question, and (b) a decade is a reasonable and convenient length of time. The effects we'll see are somewhat emphasized from the last 3-5 years, so the effects would be diminished if you looked at, say, the last 30 or 50 years, but the trends would still exist. (That is to say, this isn't a new problem.) I'm also going to use an inflation factor of 1.27 so the analysis can be done in constant calendar year 2013 dollars. (Numbers may not add or work out exactly because of significant figures and rounding error.)
- According to the world bank, US GDP grew 14.7% from 2003 to 2013 from $14.62T to $16.77T. [1]
- The total net worth of the Forbes 400 grew 89% from $1.21T to $2.29T. [2]
- Total payroll tax receipts (which is a good proxy for total wages paid by average folks, since they phase out at higher earning levels) grew 4.6% from $0.905T to $0.947T. [3]
- Meanwhile the total workforce grew 6.1% from 146.5M to 155.4M. [4]
Based on this data, it seems fair to conclude that nearly all of the growth -- i.e., the new value created in the US economy from 2003-2013 -- went to very rich people, and very little (in fact, a negative fraction when adjusted for the growth in the workforce) went to the people actually doing the work of creating that value. Now, there isn't anything inherently wrong about that...but it a) probably isn't sustainable, and b) has created a social burden because delaying the effects requires public assistance to take up the slack -- the number of food stamp recipients rose 214% between 2003-2013.
This type of view of things is extremely hard to maintain considering that the last 20 years where wages have stagnated, yet productivity and profitability has been growing like crazy. Minimum wage earners have actually been dropping in pay due to deflation.
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
It’s funny though, how productivity massively goes up per capita yet pay doesn’t really change much and despite each person today being the equivalent of many multiple people from yesterday, capitalists complain about how they can’t find enough affordable labor in a system known for its profit gouging and corruption. Something’s not right here…
I don't really understand why capitalists think they can continue to pay people the same amount in the context of increased efficiency. Profits are higher than ever but the public doesn't see a dime of it. Surely it will have negative impacts on consumption down the road.
The interesting thing is that wages have remained stagnant as productivity has increased dramatically. Which means that our labor has been valued less over time. What needs to happen is that the work week shortens while the minimum wage increases in kind. Top execs need to be comfortable making less, as they are the only ones profiting off these productivity increases.
the productivity in the US has been stagnating/decreasing for more than a decade already. Tight labor market requires to pay more to employees which in turn requires the businesses to increase productivity and efficiency - i.e. the more expensive the labor the less waste of that labor can the business afford. Add to that the tax cuts which automatically made the employees even more expensive (actual cost of employee = cost paid - tax on profit, i.e. $100 employee salary comes down to just $70 in actual cost with 30% profit tax rate whereis it is $80 with 20% profit tax rate). Even more automation/computerization/robotization/etc. to come.
For example, Google:
https://fourweekmba.com/google-revenue-per-employee/
Ultimately it’s about something called austerity, which is taught in mba-jargon filled economic theory as a way to keep the working classes inline. Since the 1920s, western countries have used a cycle of expansion and contraction to crush the working people’s power in the interest of controlling inflation (which is really largely the direct result of excess government money printing as a result of imbalanced spending), all the while consolidating more-and-more wealth in smaller and smaller circles of people. It’s an absolutely psychotic way to run a business cycle, and it kills a great many people directly:
https://archive-yaleglobal.yale.edu/content/how-austerity-ki...
The latest deleveraging of worker cries and demands for better conditions and pay comes as workers are asking for more work-at-home and flexibility, a more balanced work/life balance, and focus on similar health and wellness goals, as well as demands for salary raises to keep up with the ongoing inflation.
For three decades worker pay has been dropping. The gap between the growth of productivity and that of a typical worker’s pay has grown quite extreme, and continues to grow through the application of austerity principle:
https://www.epi.org/publication/charting-wage-stagnation/
While it looks like “inflation and interest rates are causing the problems,” it remains easily predictable economic theory that we would find ourselves here. People may not realize it, but since 2020, the US has printed nearly 80% of ALL US Dollars in circulation. To put that in perspective, at the start of 2020 we had ~$4 trillion in circulation. Now, there is nearly $19 TRILLION in circulation, a 375% jump in 3 years.
This of course causes “inflation,” which is in no small part what the news likes to call “excess corporate profits.” Basically inflation benefits those that hold real assets and are closest to the money printers, while crushing those who don’t and are the furthest (often the most marginalized).
And again, austerity is applauded:
https://fortune.com/2023/03/02/marc-benioff-salesforce-earni...
Consider that the market rewards these companies handsomely for their layoffs:
- Amazon had $2.8 million in earnings (before interest, taxes, depreciation, and amortization – or EBITDA) for every staff member they laid off in January.
- Meta had $3.9 million in earnings for each of the 11,000 staff members they laid off in November. In response to Meta’s cost-cutting strategy, its stock price increased by 19 percent.
- Tech giant Microsoft had an EBITDA of $98.8 billion in 2022. This means they earned $9.8 million for each person they laid off in January 2023.
- Other companies’ layoffs weren’t as difficult to understand: WeWork ended 2022 with an EBITDA of -$824 million, and Spotify ended its fiscal year with an EBITDA of -$290 million.
https://www.business.com/finance/big-tech-earnings-and-layof...
So it’s unfortunately financially rewarding to lay people off, and it’s a measurable economic impact you can show the board and your investors…
Meanwhile there are some CEOs who have figured out how to keep everyone employed, and it points to the fact that this model isn’t the only possible way for businesses to operate:
https://www.benefitnews.com/news/a-tech-ceo-avoided-mass-lay...
There will come a day when the current management ethos becomes unfashionable and mass layoffs become a sign of failure and poor executive management, but unfortunately the market rewards it right now, and ultimately products and employee quality of life are secondary concerns to our rather sociopathic business cycle.
Forgive my diatribe. I have developed quite a passion for this issue over the years, as my training taught me all about layoffs and how to do them, but after running companies for a long while, I’ve become quite unhappy with “business as usual.” This system sucks, and it’s causing massive breakdowns in trust between employees and employers that ultimately cause irreversible harm to actual global competitiveness. The system people live and work in has to be in those people’s best interests to proliferate and ultimately needs to align profit with the best interests of society.
In my mind, the long term concequences of the current system’s breakdown of trust is devastating to everyone involved and counterproductive to lasting global competitiveness (which requires cooperation, teamwork and a growth mindset these adversarial conditions cannot foster), and yet we happily pedal along as if everything is fine.
It’s not.
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