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Corporate Profits Soar as Workers’ Incomes Slump

There is yet more evidence that our economy has become a zero-sum affair, where the growth of corporate profits (and by extension the coffers of the elites) come at the expense of average workers.

With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

These factors, along with the Federal Reserve’s efforts to keep interest rates ultralow and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.

While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home.

And why not? There is plenty of money to go around. Companies can well afford to hire new workers and pay their current ones better, and still have plenty of profits left over for their CEOs and shareholders.

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.

 

The problem is simple: corporations don’t want to to pay their workers better because their standards of sufficient wealthiness are getting ever higher. Business elites are finding their growing appetites for money ever more difficult to satiate. It used to be that making a million or so dollars was more than sufficient —  but nowadays, it seems every executive wants tens of millions, if not hundreds of millions, and their shareholders and board members are no better.

When a handful of people want more and more money, the natural consequence is to make cuts (e.g. layoffs, benefits, hours) and withhold investment (e.g. raises and benefits). Otherwise, where else will all this money come from? Consider the following  case in point:

“Right now, C.E.O.’s are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ ” said Robert E. Moritz, chairman of the accounting giant PricewaterhouseCoopers.

At 218,300 employees, United Technologies’ work force is virtually unchanged from seven years ago, even though annual revenue soared to $57.7 billion in 2012 from $42.7 billion in 2005.

The relentless focus on maintaining margins continues, even though profit and revenue have never been higher; four days after the company’s shares soared past $90 to a record high last month, United Technologies confirmed it would eliminate an additional 3,000 workers this year, on top of 4,000 let go in 2012 as part a broader restructuring effort.

“There’s no doubt we will continue to drive productivity year after year,” Mr. Chenevert said. “Ultimately, we compete globally.”

And that last sentence denotes a bit part of the problem: even if a company’s executive or board wants to be ethical and pay their workers better, they’ll come under relentless pressure by investors and shareholders to provide a bigger return on investment. Competition is cutthroat and no-holds-barred, and this country’s particular hyper-individualism and dog-eat-dog mentality only makes it worse. There is no sense of social obligation — it’s all about the bottom line and how much one can make for themselves, regardless of the costs to others, the environment, or society as a whole.

Our culture and attitudes need to change. How to do so is a different story altogether.

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Using Google Maps to Show Inequality Within Major US Cities

By combining Google Maps with Census Data about household income, one can see a very vivid picture of what inequality looks like from a satellite view. Click the title link to see some of the sample cities – if you don’t see your own check out Rich Blocks, Poor Blocks to find it.

Executives vs. Workers

 

The data in question can be seen here. I understand that the Economic Policy Institute (EPI) is considered a left-leaning think tank, but regardless of its slant, I’ve yet to see this data disputed. From what I’ve read, the raw data pretty much confirms what most people are observing anecdotally: that our once widely-perceived meritocratic and classless society is becoming socioeconomically stratified like never before. Even the tax-heavy social democracies we regard as anti-business and “socialist” offer greater opportunities for upward mobility (as I discussed in a previous post).

A HuffPo piece that cites the article adds further detail (emphasis mine):

Income inequality between CEOs and workers has consequently exploded, with CEOs last year earning 209.4 times more than workers, compared to just 26.5 times more in 1978 — meaning CEOs are taking home a larger percentage of company gains.

That trend comes despite workers nearly doubling their productivity during the same time period, when compensation barely rose. Worker productivity spiked 93 percent between 1978 and 2011 on a per-hour basis, and 85 percent on a per-person basis, according to the Federal Reserve Bank of St. Louis.

Meanwhile, workers saw their inflation-adjusted wages fall in recent years as corporations postponed giving raises while adding to their record corporate profits.

Certainly, there are many reasons why our economy is faltering, but it seems that a major factor is the increasingly greedy and predatory nature of America’s business culture. Profits for most companies are at record highs, yet so too is unemployment.America has one of the lowest minimum wages in the developed world, while also having the highest proportion of its workforce employed in low-wage jobs, yet still many businesses – often the most profitable ones – continue to cut benefits, freeze wages, and work their employees harder. Companies are no longer investing in their workers.

These same self-entitled business elites crow for small government and the free-market; but in essence, they’re undermining their own ideology. If they want low taxes and less state involvement in the economy, then they must step up their social responsibility. If people got paid better, they wouldn’t need to rack up private debt or fall back on government programs to get buy. East Asian countries can get away with low taxes and low public spending partly because their communitarian societies, for the most part, take care of each other. It’s not a perfect arrangement, obviously, but it’s something to consider.

Whatever the case may be, this arrangement cannot lot. As history has shown time and again, a society cannot sustain such vast inequities – and the social dysfunctions that emerge as a result – for very long.

Big Business, Corporate Profits, and Low Wages

This past summer, the National Employment Law Project (NELP) had published a report that reached some rather disquieting (though sadly unnoticed) conclusions. It found that the majority of America’s lowest-paid workers – whose numbers are growing quickly – are employed by large corporations, not, as it is widely believed, by small businesses. Furthermore, most of the largest low-wage employers have recovered from the recession and are in a strong financial position.

The main findings are as follows:

The majority (66 per cent) of low-wage workers are not employed by small businesses, but rather by large corporations with over 100 employees;

The 50 largest employers of low-wage workers have largely recovered from the recession and most are in strong financial positions: 92 per cent were profitable last year; 78 percent have been profitable for the last three years; 75 per cent have higher revenues now than before the recession; 73 per cent have higher cash holdings; and 63 per cent have higher operating margins (a measure of profitability).

Top executive compensation averaged $9.4m last year at these firms, and they have returned $174.8bn to shareholders in dividends or share buybacks over the past five years.

In other words, these can well-afford to pay their workers better, but are shifting most of their profits to their executives and shareholders instead. It’s not a lack of capital that’s the problem, but the way that capital is distributed – disproportionately to those at the top. As the report concludes:

Three years after the official end of the Great Recession, the US continues to face a dual-crisis of stagnant wages and sluggish job growth. Critics argue that a higher minimum wage will discourage companies from hiring, and that most low-wage employers are small businesses that are still struggling in a weak economy. In fact, this report demonstrates that the majority of low-wage workers are employed by large corporations, most of which are enjoying strong profits.

To make matters worse, the Bureau of Labour Statistics found that the top two fast-growing jobs are low-paying, paying less than the minimum wage did in 1968, once adjusted for inflation. Furthermore, these accounted for more than half the gains of the entire list of 30 fastest-growing jobs. In other words, more and more people can only find work in fields that pay less and less, and data gathered from the NELP show that most gains have been in insecure, low-paying work that often lack benefits.

So while there are many problems with our economy, it seems clear that an underlying weakness is this hierarchical class structure that is helping to entrench inequality. The more profits go to the folks at the top, the fewer resources for the rest of us; subsequently, more people either fall back onto (meager) government programs – which these same robber barons seek to cut – or are forced to take on more debt in order to sustain themselves.

Workers need to get a bigger slice of the pie. There’s nothing unfair or radical about that. Companies can still be profitable, and executives and shareholders can still be paid very well, while ensuring their workforce receives a living wage. It’s not a zero-sum game, except for those who feel the need to make more and more millions a year at the expense of a growing number of people – and the economy as a whole.

Al-Jazeera English has an excellent piece on the subject, which cites some of the same sources.

Karl Heinrich Ulrichs – The “Father of Gay Rights”

Karl Heinrich Ulrichs, born in Germany in the 19th century, is considered the father of gay rights, as well as the first recorded person to publicly “come out” as a homosexual. Ulrichs recalled that as a young child he wore girls’ clothes, preferred playing with girls, and wanted to be a girl. He had his first homosexual experience at age 14 with a riding instructor, and subsequently struggled with the loneliness and guilt of his “deviancy.” Indeed, he was dismissed from his job as a legal adviser to a state court because of his homosexuality.

In 1862, a time when non-heterosexuality was very much tabooo, Ulrichs took the momentous step of telling his family and friends that he was, in his own words, an Urning, a term he coined to describe men who love other men. He began writing under the pseudonym of “Numa Numantius,” and his first five essays, “Researches on the Riddle of Male-Male Love,” explained such love as natural and biological, summed up with the Latin phrase anima muliebris virili corpore inclusa – “a female psyche confined in a male body.”

Throughout his life, Ulrichs continued to move around Germany (which was gradually unifying), continuing to write and publish, and getting into legal trouble for it. His books were confiscated and banned by police in Saxony and Berlin, and his works were eventually banned throughout Prussia.

Ulrichs stated: “Until my dying day I will look back with pride that I found the courage to come face to face in battle against the specter which for time immemorial has been injecting poison into me and into men of my nature. Many have been driven to suicide because all their happiness in life was tainted. Indeed, I am proud that I found the courage to deal the initial blow to the hydra of public contempt.”

How the Justice System Extorts the Poor

It’s already well-established that minorities, especially blacks and Hispanics, fare disproportionately worse in the criminal justice system than whites: they are more likely to be searched by the police, incarcerated, and to receive harsher punishments. But the justice system also has a class problem: those on the lower end of the socioeconomic strata, regardless of race or ethnicity, are more likely to be victimized as well.

While it’s well-known that having more money gives one an edge in legal matters (for example, being able to afford the best lawyers around), there are many other insidious and lesser-known ways that poor people lose out in the justice system. Indeed, they’re not only lacking an advantage: they’re being directly preyed upon. As The Nation reports:

Lenders, including major credit companies as well as payday lenders, have taken over the traditional role of the street-corner loan shark, charging the poor insanely high rates of interest. When supplemented with late fees (themselves subject to interest), the resulting effective interest rate can be as high as 600 percent a year, which is perfectly legal in many states.

It’s not just the private sector that’s preying on the poor. Local governments are discovering that they can partially make up for declining tax revenues through fines, fees and other costs imposed on indigent defendants, often for crimes no more dastardly than driving with a suspended license. And if that seems like an inefficient way to make money, given the high cost of locking people up, a growing number of jurisdictions have taken to charging defendants for their court costs and even the price of occupying a jail cell.

The poster case for government persecution of the down-and-out would have to be Edwina Nowlin, a homeless Michigan woman who was jailed in 2009 for failing to pay $104 a month to cover the room-and-board charges for her 16-year-old son’s incarceration. When she received a back paycheck, she thought it would allow her to pay for her son’s jail stay. Instead, it was confiscated and applied to the cost of her own incarceration.

That’s just the tip of the iceberg, as our government is in on the racket as well:

At the local level though, government is increasingly opting to join in the looting. In 2009, a year into the Great Recession, I first started hearing complaints from community organizers about ever more aggressive levels of law enforcement in low-income areas. Flick a cigarette butt and get arrested for littering; empty your pockets for an officer conducting a stop-and-frisk operation and get cuffed for a few flakes of marijuana. Each of these offenses can result, at a minimum, in a three-figure fine.

And the number of possible criminal offenses leading to jail and/or fines has been multiplying recklessly. All across the country—from California and Texas to Pennsylvania—counties and municipalities have been toughening laws against truancy and ratcheting up enforcement, sometimes going so far as to handcuff children found on the streets during school hours. In New York City, it’s now a crime to put your feet up on a subway seat, even if the rest of the car is empty, and a South Carolina woman spent six days in jail when she was unable to pay a $480 fine for the crime of having a “messy yard.” Some cities—most recently, Houston and Philadelphia—have made it a crime to share food with indigent people in public places.

Being poor itself is not yet a crime, but in at least a third of the states, being in debt can now land you in jail. If a creditor like a landlord or credit card company has a court summons issued for you and you fail to show up on your appointed court date, a warrant will be issued for your arrest. And it is easy enough to miss a court summons, which may have been delivered to the wrong address or, in the case of some bottom-feeding bill collectors, simply tossed in the garbage—a practice so common that the industry even has a term for it: “sewer service.” In a sequence that National Public Radio reports is “increasingly common,” a person is stopped for some minor traffic offense—having a noisy muffler, say, or broken brake light—at which point the officer discovers the warrant and the unwitting offender is whisked off to jail.

If you can stomach it, read the rest of the article. It’s hard to believe that the very arbitrator of justice we rely on to enforce law and order in this is often a criminal enterprise itself. If the enforces of justice are unjust…then what?

Thoughts of the Day – 10/2/2012

…there is no total cure for bias, as we’re innately predisposed to prejudice of some kind or another. The only thing that can assist us the critical scrutiny of others. The more we debate, discuss, and learn about one another’s perspectives, the closer we can reach the truth. Science has been successful mostly because of the concept of peer review: a community of individuals reading, challenging, and re-testing each other’s claims for verification. That is why discussion and public debate are so vital, and why we must instill a scientific mindset into our youth.

…whenever I’m reading news articles, particularly those pertaining to other parts of the world, it is easy to forget that they are real. Politics, history, and current events often feel unreal, almost fictional. We’re so psychologically and physically removed from them that we don’t often connect with them on an emotional level, even when we try. I must sometimes reminds myself that these stories are as real my own life – the vast sociopolitical changes, the deaths, the wars, and the drama that unfolds simultaneously around the world. What is mere statistics or datum to me, is something very real to those fellow humans that live through them. The human mind simply wasn’t evolved to fully take in the details of a world full of information.

…this other thought isn’t mine, but I’ve been reflecting on it a lot lately. It comes from blogger Dan Fincke, who has an excellent column over at Freethought Blogs.

Most of our ethical life is about our own flourishing. I think that most of our own flourishing is achieved through actually aiding the flourishing of others since I think that we are at our most powerful when we are empowering other people who then replicate our power and spread it further. In this way, I think that if we tried to truly excel at being powerful, we would be people who empowered others rather than destroyed them for the sake of trinkets like material possessions. In this way, I think it is wise advice to just let people pursue their happiness, to encourage them to maximize their excellences since this is good for them, and to only worry about morality in those cases where it is a matter of turning down short term gains in ways that damage our mutual trust and cooperation with each other, which serve as the preconditions of our prosperity as individuals.

…In both absolute and per capita terms, the US imprisons more of its population than any other country in the world. At the same time, however, we have one of the lowest rates of psychiatric institutionalization in the developed world. Perhaps there is a connection here: the people that should otherwise be receiving psychological help are instead being locked away, and such treatment only worsens their behavior (hence why we also have a high rate of re-offenders). Imagine how many crimes could be prevented if we had a better mental health infrastructure. Just a thought.

Census Data Results on Poverty and Inequality

As Mother Jones reports, the US Census Bureau not long ago released its annual data on income, poverty,  health insurance coverage, and other metrics of prosperity. As to be expected, the news is pretty grim, with poverty barely budging between 2010 and 2011:

Pay attention to which income brackets actually did see growth.

It gets even worse you break it down to specifics:

Poverty remained flat: 46.2 million people—15 percent of the population—lived on less than $23,021 annually for a family of four.

Child poverty remained flat: 16.1 million children—22 percent of all children—lived in poverty, including over 37 percent of African-American children.

Children under age 5 in poverty: Over 5 million—25 percent of all children under age 5—including over 42 percent of African-American children, and 36 percent of Latino children in that age group.

People who would have been in poverty if not for Social Security: 67.6 million (program kept 21.4 million people out of poverty).

Income inequality: Incomes fell for the bottom four-fifths of US households, rising only for the top one-fifth.

Gender gap, 2011: Women 34 percent more likely to be poor than men.

Gender gap, 2010: Women 29 percent more likely to be poor than women.

Change in average household income, middle 20 percent: -$876, or -1.7 percent

Change in average household income, top 5 percent: +$15,184, or +5.1 percent

Change in median income for full-time, year-round workers: -2.5 percent

Income quintile with largest growth in number of full-time, year-round workers: bottom 20 percent, with a 17.3 percent increase in FTYR workers.

Unemployment insurance (UI) income: fell by $36 billion (25 percent), due in part to benefits declining as Recovery Act provisions expired.

Unemployment insurance, 2010: lifted 3.2 million people out of poverty.

Unemployment insurance, 2011: lifted 2.3 million people out of poverty.

Federal UI benefits scheduled to end entirely, for everybody: December 31, 2012

Number and percentage of uninsured Americans: fell by 1.3 million, from 16.3 percent to 15.7 percent, largest annual improvement since 1999; 40 percent of that decline is attributable to persons ages 19–25, as a result of Affordable Care Act allowing individuals to remain on their parents’ policies until age 26.

Earned Income Tax Credit: would have lifted 5.7 million people—including 3.1 million children—out of poverty if counted in the poverty measure, bringing poverty rate under 13.2 percent.

SNAP (food stamps): would have lifted 3.9 million people—including 1.7 million children—out of poverty if counted in the poverty measure, bringing poverty rate down to 13.7 percent.

Keep in mind, this is census data – hard facts and figures, not leftist propaganda. It’s indisputable that poverty and inequality are becoming problems in this country. Yet the issue is still being discussed largely as if it is rhetorical. What’s it going to take for Americans to realize that these issues need to be confronted and addressed constantly, rather than only when such news first emerges?

The Failure of Private Enterprise

Many companies have slashed benefits (or eliminated them completely), cut back on retirement plans, reduced wages and vacation time, and kept salaries and wages stagnant for decades (even though we’re working more hours and remain as productive as ever).

More audaciously, many of these same businesses are rallying against government programs that have consequently become the only lifeline for people. For example, some Walmart stores are known to give their employees tips on how to get food stamps. Just leave it to the state to sort out the mess and then blame the state for getting “too big” – precisely because you’ve left it to them to sort out the mess.

If private enterprises don’t like big government, why don’t they prove we don’t need it? Why don’t they behave more socially and environmentally responsible? Why don’t they pay people well enough so that they could actually afford to survive with public assistance? Calls for regulation and public services are more often than not a direct response to the failure of businesses to look after workers like they used to.

Seven Profitable Companies That Pay Workers Poorly

Of course, this list is hardly exhaustive. Such inequality is becoming systemic in our economy. There are a few surprises, but a lot of the usual suspects too (not to mention some offenders that aren’t widely known). Warning: if you have a strong sense of justice, this report will deeply anger and/or sadden you.

Let’s be clear: while some level of income inequality is to be expected, the gap of fortune that is present within these companies – and hundreds more – is unjustifiable both ethically and practically (good luck sustaining a healthy economy and society when more and more people are being paid too poorly to get by).

Many of these companies make enough money to pay their workers more while still leaving plenty for their executives. But greed and self-entitlement have reached a level where even a few million dollars won’t satisfy these titans of industry. Meanwhile, most of them work to cut (largely insufficient) government programs, which wouldn’t be so desperately needed in the first if these elitists paid people better.

Don’t like big government or unions? Then why don’t you pay people a living wage so the state isn’t as depended upon? Why don’t you prove that you don’t need regulations to be socially and economically responsible?