The recent HN article on meritocracy comes to mind.
I had never considered it this way in the past, but in the 70’s, productivity started decoupling massively from productivity gains.
I.e. the best people at finance (meritocracy) figured out how to capture all the new earnings relative to the workers (who didn’t know this game was going on).
This has snowballed into a situation where the financial meritocracy is competing with itself and could now never imagine a situation where non-finance people are being paid more in proportion with their value relative to baseline productivity gains.
This article would fit that narrative as a symptom of one-upmanship gone amuck.
How do we exit this brutal cycle? It requires a generation of new blood that is actually concerned about societal stability and recognizes the connection between instability and leaving 99% of folks behind as games are fought in ‘the ivory cloud’.
Will this be dealt with sans revolution? Who knows...
Blaming bankers and proposing revolution is one of those explanations that sounds satisfying but doesn’t really match the evidence. In some ways, as markets have become more efficient and transparent it becomes harder, not easier, for finance people to simply squeeze money out of the systems through financial tricks. We’re also living in a world where interest rates are at historical lows, making the cost of capital almost negligible for anyone with a good idea. The downside to taking this capital is that you’re giving away upside, but that’s not exactly a secret.
The bigger factor is that per-worker productivity is amplified immensely by technology. Historically, businesses needed to scale their employee base nearly linearly with the number of customers. If you were in the business of building houses or growing produce, your economies of scale topped out early. If you want to serve more customers, you have to hire more people to do the work.
In the technology era, the marginal cost of additional customers is minuscule. Netflix has to pay marginally more for bandwidth and licensing fees with each additional customer, but the number of employees necessary to support a growing customer base is minuscule. Even physical goods can have automated production as they scale up, so physical workers are less and less necessary as scale grows.
For the jobs that remain, supply and demand still dominates the equation. Engineer salaries have been pushed upward because demand for engineering work exceeds supply. Factory worker salaries have been flat or gone down because demand for [domestic] manual labor is decreasing, meaning more people are willing to work for lower compensation just to take those jobs.
Try as they might, the financial people can’t simply break the laws of supply and demand. If they try to keep so much of the profits that their wages fall below other companies, employees will simply leave for higher paying jobs. If the company raises wages so much that they need to charge customers more, their customers will simply leave for lower cost competitors.
This behavior is more intuitive when you put yourself in the shoes of the decision makers. If you called a plumbing company to fix your drain and they quote you a price 2X that of the competitor but claim that it’s because they pay their plumbers more, are you going to gladly take it? Or would you just call any number of alternatives that will charge you market rate costs? (If you are among the few who would gladly pay more for the same service, ask yourself how the general population would behave)
Something is driving down wealth at the low end while driving it up at the high end. It seems unlikely in the extreme that this a reflection of actual value produced by people at the high end relative to those at the low end. Much more likely is that this is a reflection of some kind of structural problem in the system that is being perpetuated by the people at the high end using the political power that being at the high end affords them. Whether those people are "bankers" or are better described by some other label is kind of irrelevant. It's the overall dynamic that matters.
I think it is more accurate to say that wealth growth at the low end is not as rapid as wealth growth at the high end.
Nothing is driving wealth down. Wealth is increasing for everyone, generally speaking. This observation is important because it recognizes that wealth is created, not allocated. This is not a zero-sum game.
You say it seems unlikely that actual value is increasing at the high end but I do not think this opinion holds up to scrutiny. I think it is very likely that value at the high end has increased by multiples -- white collar jobs have become vastly more productive with the introduction of technology. Correspondingly, low value work has not. In fact, many of our most common low value jobs (retail, driving) risk going the way of the switchboard operator. There was no conspiracy to devalue the work of the switchboard operator; rather, so called "high value" tech jobs made this type of lower value work entirely obsolete.
I think it is unsurprising that high end work is rising in relative value while low end work is falling. I don't see any basis for imagining political or economic conspiracies: What we see in terms of value is exactly what we ought to expect.
and note that the net worth of the top 1% has been increasing more or less monotonically for the last 30 years, with only a very small dip in 2008-2012.
The bottom 50% take a much bigger share of the losses and a much smaller share of the gains. Over the last 30 years the bottom 50% has barely broken even.
These charts aren't showing wealth, they're showing money. Money is not wealth.
For example, suppose you have a car that you paid $20K in cash for this year. That works out to about $10K 30 years ago (I think the Fed charts you showed are in inflation-adjusted dollars, though they don't say so). So as far as monetary vaue is concerned, you have the same net worth in your $20K car today as a person 30 years ago would have in a car that cost $10K then. (Or even a car that cost $20K then, if we aren't adjusting cost for inflation.)
Having owned cars over this entire time period, however, I can tell you that the wealth contained in that $20K car today is quite a bit greater than the wealth contained in a car that cost $10K 30 years ago. A $20K car today will be more reliable, get better gas mileage and give better average performance, have numerous safety features that didn't even exist 30 years ago, and have more bells and whistles in general. So in terms of wealth, I'm quite a bit more wealthy with $20K worth of car today than a person 30 years ago would be with the same inflation-adjusted monetary value of car.
And cars are actually a pretty poor example as compared with, say, computers or phones.
You may be surprised to hear that economists are well aware that consumer goods have improved over time, and even explicitly adjust for it when calculating inflation [1].
They do this in the Consumer Price Index, yes. But that's not the same as doing it in all the analyses that are claimed to show wealth inequality. Not all sources define "inflation" the way the CPI does.
Also, even in the CPI, they don't do "hedonic adjustments", which is what you are describing, for all goods. For example, I mentioned cars and computers; the only adjustments made for those items are "cost based adjustments". And many items don't even get those.
Then there's the question of whether the methodology they are using for making "hedonic adjustments" where they are making them actually captures what it claims to capture, which is, to say the least, not something everyone agrees on.
Yes, cars and computers have gotten cheaper relative to their quality. So what? Health care and education have gotten more expensive. Inflation-adjusted money is a pretty good proxy for wealth. What else is there?
> Health care and education have gotten more expensive.
I think this depends on where you get your health care and education, but I agree that in many cases quality vs. price is certainly not where it should be.
> Inflation-adjusted money is a pretty good proxy for wealth. What else is there?
Not trying to centrally plan an entire country's economy based on faulty proxies for something that cannot be reliably measured [1]. Central planning just makes it easier for the rich to siphon more wealth from everyone else while disguising it as "helping".
For example, if we take your observation about quality vs. price for health care and education as true, and compare it to my observation about cars and computers, the general pattern is that the areas where quality vs. price is worst are the areas that are the most centrally planned, and the areas where quality vs. price is best are the areas that are least centrally planned.
([1] - The reason wealth cannot be reliably measured is that it's subjective; the value of a good or service depends on who has it and what use they can make of it. This is the only reason wealth can be increased by specialization and trade in the firt place.)
"Health care and education have gotten more expensive. "
I apologize because I don't mean to only present disagreements but I don't think this is true, either.
I think that like-for-like health care has largely fallen in cost. The catch with health care is that we've developed better (and much more expensive) methods. Spending has increased dramatically. My grandparents grew up on a farm and when they broke a bone they set it at home. They saw a doctor on very rare occasions and when they did, treatment was limited. Their health care spending was very small, but so was the scope of their treatment. When my grandparents got cancer, they died. There were not nearly so many expensive options available for end of life ailments.
It's possible to live with the same kind of spartan health care today, but almost no one would because we are fantastically more wealthy than past generations.
Willingness to buy more is exactly what we would expect to see if wealth has risen over time, as I am arguing. The status quo rises dramatically as overall wealth increases.
Education is tricky as it's largely a fashion product at this point. Knowledge itself is often freely available in ways impossible to imagine decades ago. It's the prestige and pedigree that cost money. Fashionable limited-quantity things get wildly expensive as wealth increases.
No, I don't think that it does. The bottom 50% generally do not have savings and investments - they invest their wealth in tangibles: Housing, food, belongings.
It is not meaningful to look at investments or savings as a measure of wealth when most people near the bottom do not and have never had those things. It's necessary to look at what does signify wealth in this class: Consumption and physical belongings.
For example, when we look at the average square footage of a home for the bottom 50% we see dramatic increases over the last century -- because wealth in the bottom 50% has had a dramatic increase.
I think we're seeing two conflicting trends at work. People have better and better consumables in their lives: always-connected pocket computers, cars with amazing safety systems that last much longer than before, and bigger rental apartments with amenities like air conditioning, cable TV and WiFi. At the same time, they are more and more likely to be living paycheck to paycheck with no savings, and no hope of owning their residence. The working class is simultaneously wealthier than ever before (pocket computers !) and poorer than ever before (can't afford to see a doctor !). What's undoubtedly true is that income inequality has grown dramatically in the US.
But they are not more likely to be living paycheck to paycheck. That likelihood has not increased. That is simply how most people live, and how they have AFAICT always lived.
Income is not the dominant factor in whether or not someone lives paycheck to paycheck. People live this way with startlingly high incomes.
I wouldn't dismiss so quickly that it's impossible for some people to create orders of magnitude more value than others, or for that distribution to change dramatically with time. In farming, for example, increased mechanization has allowed a ~100x increase in per-worker production, and unless literally every other occupation had the same change over the same time period, that should lead to dramatic productivity differences.
The real difficulty is in deciding who "gets credit" for producing a given thing. Is the person driving the tractor really more productive, or is the tractor itself responsible for producing most of the value (return on capital)? Maybe the bank that provided the loan for the tractor is creating value? Without any of those components, the food wouldn't be grown, so there's not an obvious way to divide it into the sum of individual contributions.
> The real difficulty is in deciding who "gets credit" for producing a given thing.
Exactly. The situation we currently have is that the people who are getting the most "credit" as you put it are by and large the same small group of people who make the rules for who gets the credit. "Bankers" is a convenient popular label for those people even though most of them don't actually work at banks.
I am reminded of Sagan's standard "Extraordinary claims require extraordinary evidence"
Has been there been any detailed breakdown of how much more effective the median CEO in 2020 is over the median executive in 1970? I am certain they are doing things better, have more data, etc but what scale are we really looking at here?
Because, just thinking out loud here, the bulk of the workforce in the United States is more educated and has more hard skills than their predecessors did in 1970s. Firms demanded technology skills, for which they provided little or no training, and their workforce was able to acquire the necessary skills.. and yet the "upside" was nothing more than possibly being able to keep their job.
First demonstrate that it's an extraordinary claim.
Effectiveness isn't the measure, exactly, it's how replaceable the CEO is, and the same is true of any employee. If everyone is more educated (and education may be nothing to do with what's required, incidentally), then people are still just as replaceable.
I have no good answers, as I definitely think there are pros and cons to modern executive teams, but it starts with replaceability.
You're in luck! This study has been done[0]... repeatedly. CEOs since 1978 have been found lacking. Think about it. CEO compensation has gone up 970% since then.[1]
The key takeaway is that that boards set the compensation based on the average compensation CEOs at peer companies, but performance isn't equally distributed. Essentially, the highest performing CEOs pull up the mean, and so the average and below average CEO compensation goes up.
It's not the CEO that became more effective tho, it's the money.
You can't do a Tesla without PayPal exit level of money, you can't do a PayPal without zip2 exit money and you can't make a zip2 without a real estate agent footing the initial bills
You could just punch income inequality into Google Scholar or Google Books and learn at least 100 ways capital concentration or poverty is perpetuated, via the natural experiments of many rich western countries and US states.
Don't read too much into this analogy, but if I search for Flat Earth I'll get a load of stuff that talks about how the Earth is flat, and not much else.
For example, you may not get the following explanation much, even though it requires no conspiracies and explains the outcomes: income is disproportionate because risk and capital are more important to a business' success than any particular individual's labour, and so they are correspondingly rewarded more as well.
Even if all bias were removed from life, any free meritocracy would still perpetuate it. People can choose to make less, and some people can't add as much value as others.
> Although the economy is a complex system and it's dangerous to try to over-simplify, my personal opinion is that there are two main and intertwined causes:
1) the cost to participate in the US court system.
2) the abuse of copyright, patent, trademark, and contract[1] law to divorce workers from their experience and treat employee knowledge as company property.
The time and money involved in both pursuing and defending court cases favors larger entities with armies of lawyers and large war chests. Intellectual "property" cases take especially vast amounts of resources because of the fuzziness involved. Meanwhile, treating workers as fungible producers of ideas that can be bought and sold both reduces the bargaining power of individual workers while empowering companies that can amass large portfolios of patents, etc. to use in litigation.
Not sure about reforms for the court system, but patent and copyright reform, combined with restrictions on unfair employment contracts, would go a long way to improving the situation.
The increasing share of GDP going to finance & tech makes sense if you posit that the economically rational thing to do is to destroy the economy and rebuild it. Tech is the industry focused on rebuilding it; finance is the industry focused on redirecting resources away from the old economy and into the new one.
Most humans have an aversion to death and destruction: we get attached to people, institutions, ideas, employers, basically things that we can count on existing. Economics doesn't care though. If a new way of doing things is more efficient than the old, the market will select for the new way, regardless of the human suffering it causes. And since most humans are averse to causing suffering, they won't be willing to capitalize on this opportunity, which leaves large opportunities available to those who say "To hell with institutions, there's a more efficient way and I'm going to bring it to the masses." They (and the SWEs, SREs, UX, data scientists, etc. who help them) then reap large windfalls as they cannibalize large portions of the economy and throw the now-useless workers out of work.
This model explains nearly everything about the past decade. The downside is that it suggests that "revolution" - rather than being an angry but illogical reaction of a few disgruntled workers - is actually an inevitable consequence of the destruction of the old society. Political systems are embedded in the economic realities that birthed them; change economic reality and the economically rational outcome is for those political systems to fall. The same thing happened as industrialization destroyed feudal empires and ushered in the era of nationalism.
I agree it doesn't make sense to blame bankers for exploiting the legal system that allows them to enrich the rich at the expense of the poor for a commission, other than the revolving doors between government and industry and lobbying efforts to maintain our broken society the way it is.
There are numerous financial products and services available to only the wealthy that reduce tax burden and increase wealth and income that are inaccessible to anyone else, create little value, and are predicated on the concentration of wealth in the hands of a few.
Just a random example, if you can afford to buy a home in cash, you shouldn't because the mortgage terms the banks will offer you are too good to pass up - you'll come out ahead just by taking on low interest debt and accounting for the rise in the home's value plus the more lucrative investments you can make with the cash.
In other words, the people who get the most help are the ones who need it the least. That is the travesty of contemporary finance.
When the critique of the financial system is made its not in place of supply and demand for labor but the fact it creates very little besides disparity. The god of liquidity should not be worshipped so much.
> There are numerous financial products and services available to only the wealthy that reduce tax burden and increase wealth and income that are inaccessible to anyone else, create little value, and are predicated on the concentration of wealth in the hands of a few.
There is also additional pressure at the low end: Being poor is expensive, especially in a society with low solidarity.
Besides debt being a potential burden, there are many things that you don't have access to. You can't buy in bulk, you can't buy quality gear, a season ticket, a home, You simply cannot invest, even if that made sense in the long term for you, your community, society etc.
Credit cards are a ~2% tax on the economy. I think they're squeezing quite well still, but as has been historically shown, the number and depth of those sorts of opportunities declines with time.
I’d say they’re more of a regressive tax since people at the middle to higher-end cash make great use of credit card benefits and people at the low-end often get caught up in the trap of high interest rates.
I don't buy this explanation. Very few employees are paid in any financially complex way. Wages dropping overall must have a different explanation, which I suspect is an increase in labor supply due to women entering the labor force and illegal immigration combined with a decrease in demand due to automation.
>> I don't buy this explanation. Very few employees are paid in any financially complex way.
It depends on the class of workers. I'd agree with you w/r/t most wage earners being paid in transparent manner. But I think the GP comment was referring to technology workers (given the context of HN.) In the case of tech workers, many are paid in very complex ways.
If you have illiquid stock options in a private company, and especially if you have taken a below-market salary as many startup employees have, your compensation is about as complex as a CDO. Just like a CDO there are multiple tiers above you that need to be paid out before you ever get paid.
Unlike a CDO, where you can actually pull up the details on the tiers above you (tranches), at startups as employees, you dont get to see the cap table, so the whole maze is invisible too!
Worse, unlike a CDO where you can sell at any time, here you have to exercise and hold stock for some far-away liquidity event that usually doesnt happen. So you have an invisible maze, and then a pot of gold at the end, perhaps. Or not.
> if you have taken a below-market salary as many startup employees have
I think this is part of the startup mythos. At the three startups I've worked at (~10 people), none of us had to sacrifice competitive salaries for stock options. The options were on top to incentivize staying at the company longer.
I wonder how common it actually is for people to take significant paycuts in 2020 for a startup opportunity (founders aside)
The confusing part is that salary and stock get mixed up, but in a public company the stocks effectively cash and can basically be considered salary, unlike illiquid equity.
I don’t know where you’re from, but in SF amongst my circles, senior engineer market rate is about 300-500k but most startups will only pay 150-225k salary so that’s a huge pay cut. However, the base salaries are same, but you can pay your rent, mortgage, or student loans with the public company RSUs.
That’s why it’s bullshit when employees get told they get common shares while investors get preferred because employees take salary and therefore less risk. If you’re walking away from 200k per year of public stock that you could instantly sell on the public market and buy real estate with, you are in fact taking a huge risk and a pay cut. Trying to pretend like you’re not and that the startup is paying a “competitive salary” is a sleight of hand used in 2020 to fool naive engineers.
1. Level up your career / role flexibility.
2. Big companies suck (but [big] startups can suck too).
3. Burning idea you want to get done / tech is interesting.
4. Lottery tickets (options).
This is definitely going to be a debate depending on what market you're looking at. But I don't think it's up for debate that if someone is leaving a FAANG position to join a start up, or debating between the two options, that they are taking a non-trivial pay-cut for the start-up.
Maybe at super early stage startups where you get at least one percent of the company (if not more). At older startups you should see base salaries that are reasonably competitive with public company salaries: not everyone makes Google money, but you shouldn’t have much trouble getting what you’re worth elsewhere until you cross $200k or so.
The big difference is that the publicly traded companies can pay RSUs worth money NOW.
At this moment in time, $200k total comp at a Bay Area FAANG is roughly... an engineer 1-2 year out of university.
Given that so many of the hot startups are in the Bay, I'd say only fresh college grads are looking at remotely similar comp between the two. Everyone else is playing the options lottery.
>none of us had to sacrifice competitive salaries for stock options.
Does this map to reality? Are you saying that if you were at Google making 250K in TC the Startups were paying you 250K Base salary + stock options? That seems ludicrous.
> ...at startups as employees, you dont get to see the cap table, so the whole maze is invisible too!
I've never heard it adequately explained why employees should accept this state of affairs. Not only is the cap table invisible, but the fully-diluted cap table and terms of dilution and many other terms and conditions are also hidden from non-founders/investors at most startups I've read about. I've heard so many stories of shares getting diluted right out from under employees immediately before a liquidity event that it has become a trope. IMHO that's not investing into a startup; that's buying a lottery ticket.
What am I missing here about typical startup stock options where the same terms and conditions founders and investors see are not accessible to employees?
It is the same as acting and sports -- people look the handful of winners, ignore the field of dropouts, and think they too can become a winner. They see AirBNB and think their startup is the next AirBNB.
Also much like acting and sports, there are a constant stream of new entrants who have not learned the lessons.
I want to be fair here -- I work at a startup and I love it. But I value my equity at zero and nothing more. I chose to work at a startup because I get to do cross-functional work rather than get stuck into a silo of a silo at a large company. I took a significant paycut from a large company salary and a significant upside cut from when I was a founder in exchange for more accelerated learning and exposure to all parts of the company.
> Also much like acting and sports, there are a constant stream of new entrants who have not learned the lessons.
That sounds like the general software startup industry has built their own version of video game industry goggles; glamorize the startup lifestyle and culture so much millions of kids will compete with each other into a race to the bottom. There's probably some succinct German compound word for this dynamic and if there isn't, I hope some German speakers can suggest some here so I can add it to my lexicon.
To be honest, I don’t think most people that have been working for startups for more than fives years even think much about their stock options unless they are like engineer no 1 or 2. And honestly that is often a minimum 10 year commitment so maybe not even then.
There is always the chance you’ll get super lucky, but investors and founders have become experts at extracting the maximum possible portion of the value created. To the point where there isn’t a whole lot left for anyone else. Workers included.
I think you overestimate how much negotiating power an individual worker has when deciding the price for their labor.
Anecdotally, in the Software field there is a lot of "price anchoring" where a large employer decides that a software engineer makes ~125k, and both smaller/peer employers decide that a software engineer makes 125k +/- 10%.
From past experience the base "going rate" in a given market doesn't seem to change all that much unless a large employer decides to change the going rate because a higher or lower price point better suits their business - other companies will set their salaries to the baseline. Big Tech has recently been dragging wages up across the board by both hiring in volume, and paying more than everyone else.
I'd be curious if anyone has a formal study on price anchoring in wage negotiations.
Coding is basically the one tradeskill where the free market is still working reasonably well. Apple or Google can turn a $500k total compensation package for an employee into $2M/year or more in revenue, so they'll keep snapping up people and dragging wages up. Facebook doesn't even bring people on to a specific team, they know that coders are so valuable that they'll hire as many as they can and just find things for them to do.
Even at the low end, six months of tooling work from a $100k coder can often put a handful of $50k/year white collar employees permanently out of work (or make them twice as productive as before). If one company doesn't realize that, another eventually will. It's not too tough to pull in ~50-100k/year running a SaaS business or freelancing
Things in the USA are really broken in the retail sector. Companies pay the absolute bare minimum that will keep them in business, and make up for a lot of the terrible morale issues that come along with that using Orwellian management systems
I don't think they just pull 125k out of the air. I think that at 90k you are not going to get many great candidates. And at 250k you risk spending a LOT more money and still not being able to successfully recruit people that are much better than the 125k people. It is not like all your 125k people are going to quit when you double salaries to make way for all the FAANG people who are looking to switch jobs for the same salary.
I think that hints to how these pay bands come to be within a company though, it's not a transparent and liquid market with a bid/ask spread and a clearing price. In practice the company decides a band that they think gets people in the door. HR gets involved, and management settles for a 0-2% inflationary increase YoY rather than the marginal rate.
If you combine this with one employer bordering on a monopsony for buying a particular category of labor - then pay won't move in proportion to productivity.
It’s funny how economists never talk about this (women in the workforce). Its adding 50% more people to the workforce. Yes, it’s less because women might work less or part time, buts it’s an insanely high number in terms of market effects.
I wouldn’t be surprised if one of the reasons you simply can’t survive on one person per household working, as in the 60s and 70s, is simply that two people are willing to work now and spend all their free cash on mortgage payments.
No one talks about this. I’d love to hear the debates. I’d love to be proved wrong.
Man, I'd like to see some more info on the whole housing industry in general
It seems to be completely FUBAR to me. In Japan, housing ISN'T a glamorous investment, and I think that helps the house pricing situation a lot.. You can get a nice apartment in the fanciest part of downtown Tokyo for cheaper than a dangerous hole in the wall in San Jose
The housing market in Japan is very different, for better or worse. As a consequence of the fact that houses aren't seen as investments, people...don't invest in their houses. They don't make necessary repairs, so the next owner would rather knock it over and rebuild than risk living in a rotting deathtrap [1]. From a macroscopic level, this is an enormous waste, because society is investing all these resources just to tread water, instead of accumulating wealth and resources over generations.
It's cultural. Americans generally have lower savings rate (when compared to other nations) and a home is one place where 'investing' and spending can overlap in a fairly bespoke way compared to anything else you spend money on.
You can't live in a share of stock, though it may appreciate faster than a house. (You also generally speaking can't use leverage to purchase shares). But even if shares appreciate faster than homes, they don't feed into conspicuous consumption: and that matters to some segment of the population.
Nothing can be both affordable and a good investment. (If it is a good investment, then its value relative to other things increases. If the value relative to other things goes up, then it ceases to be affordable.) Housing programs were a short-term boost to the wealth of the people that could access house lending (see redlining and the impact on Black wealth) but ultimately encouraging private ownership _as primary savings vehicle_ is a failed economic policy, and as things are often the case, the only thing worse than this policy is possibly the repercussions of unwinding it.
The 70's, into the 80's, more or less began the long-term decline of interest rates in general, but also specifically for the 30 year mortgage. With multiple factors influencing what people are willing to pay for a home, I question how much we can separate out the dual-income household effect.
I wouldn't say it has no influence, but it's probably difficult to state with much precision how great the effect is.
Why would you love that? It's 100% a factor. One of the key drivers of house price increases has been two-income households, with the nice double personal tax allowances, that allow much higher offers. Additionally in the UK I think it became illegal for mortgage companies to offer a lower multiplier on the second income, so it's a huge boost.
Are you insinuating it has nothing to do with executive wages ballooning (CEO compensation growing nearly 1,000% since the 1970's) and is instead because women are working?
If you divide the CEO compensation increase by the number of employees in the company you'll see that it itself is not particularly relevant in employee wages.
For example Tim Cook earns 133M/yr which is $976 per employee. ... and this probably massively overstates the figure due to contractors.
Or Sundar Pichai with $86M/yr which is $676 per employee (again... not counting contractors).
Obviously it's more if you include more executives, but the number of top executive companies is basically a constant and at large companies it still ends up being not very large per employee.
This isn't to say that it isn't a concern but I don't see how to justify the belief that the executive compensation at large companies is a major factor in the overall wage market.
I think you are missing the scale and reaching for a political point where one does not need to be made.
There are 500 CEOs in the SP500 and 164 million women in the US. The supply increase of 164 million women will have a far greater impact on the common persons salary than 500 CEOs getting paid more
> an increase in labor supply due to women entering the labor force
In the USA, there has been a (relative) decrease in labor supply due to women leaving the work force. Women's participation in the labor force by percentage has decreased over the past twenty years.
> I don't buy this explanation. Very few employees are paid in any financially complex way.
I don't think the point has anything to do with the complexity of the wages, but how workers are generally hired and paid, and how work is now structured, compared to the 70s, e.g. nowadays there are more contractors than ever, taking a good chunk of the wages as they act as intermediaries between customers and the workers who, otherwise, would have to be hired directly by the customers themselves.
I'm curious though about why would you think that illegal immigration is driving wages down. Undocumented immigrants make barely for 3% of the total US population [1], and that does not account for those who cannot work (elderly, children, disabled, etc.) Same goes for women, as the general issue is that household income is in decline, in relative terms to the economy [2].
Automation should also be making consumer products cheaper and more available, but prices are not going down at the same speed as wages need to go up.
>> an increase in labor supply due to women entering the labor force
If you were born before between 1935 and 1955, this might have affected your career progression. Maybe. Because the more workers meant a bigger economy and therefore more jobs overall. If you were born before 1925 or after 1975, it had zero effect.
The population has grown from 205 million in 1970 to 330 million today. If you think 50% of the people join the workforce that is an increase of 65 million more people working.
Demand went up with population. This is an absurd argument: demand as kept up with supply (otherwise productivity basically couldn't go up) but mysteriously compensation has not.
I think the damning thing is that it has. Just not for the workers. wages for high level executives for example not only kept up, it's gone so high that they can't even invest their money anymore. they're complaining about the lack of got investment opportunities instead, sitting on their billions which destroys their society even more by keeping the money from circulation.
Stagnating wages for the middle class is a well known problem but most economists currently believe that it’s roots lie in the erosion of labor unions, stagnation of minimum wages and fiscal austerity measures. Illegal immigration specifically has been called out as something not making a big enough effect to warrant attention.
“Most economists” are not quite so overtly political about it like this. There are of course many factors; globalization and trade is a big one affecting both labor and labor union power: competition from overseas, direct or indirect, easily eclipses competition from immigrants. The thing is that trade also has massive benefits to real wages, and has boosted national output substantially. Nuanced discussions will try to examine this tradeoff.
Globalization is a factor too. Doesn't matter if Ford workers are 200% more productive when Mexican workers are 30% of the cost at similar productivity levels.
No problem. I don't usually like to engage in pedantry, but I think that the point you were trying to make is not obvious to many, so worth clarifying.
Or, you get someone very influential (like YC) to start that revolution. Oh, wait: they don't have a strong incentive to do that.
Even if my guess is that YC partners are well intentioned, doing something this radical would make many enemies in the VC ranks, and damage YC in the long run.
I don't know... Perhaps a "revolution", like you're saying.
No. What happened was that in the 70s energy got expensive. As renewables and battery tech get cheaper, we'll see bigger gains across the board. The "evil bankers" stuff is mostly a just so story to explain away the slowing of real growth for the last 40 years.
Evidently my previous guess (in another exchange upthread) that the Fed data was adjusted for inflation was incorrect. Here's an inflation adjusted chart of crude oil prices:
Still nope. What you’ve done is a very elaborate exercise in point missing, not that I’m surprised. Take a look at that chart again and do some thinking. There’s a reason for using nominal prices to illustrate what happened after the oil shock. The flat line that suddenly begins to jump around like a spastic house cat illustrates a very specific point. Anyway, I should know better than to engage with you people.
This comment section is nothing if not predictable.
Which there has been, basically. We effectively double the workforce with women entering the labor supply. H1B ramped up in the 90s, but that's not the same magnitude of change.
The 70s wasn't the first time this had happened. The Industrial Revolution itself was a small number of people extracting most of the new earnings from productivity gains relative to the workers.
The only chance of changing it was that our new emerging industries were supposed to be more equitable. Unfortunately not much of that happened, and the tech boss is the same as the finance boss, meet the new boss, same as the old one.
I’m sorry gig workers, contractors, Amazon warehouse workers, startup workers, but there’s not much to see here. We’ll try to be better later if we get lucky enough to get a whole new industry again.
I had never considered it this way in the past, but in the 70’s, productivity started decoupling massively from productivity gains.
I.e. the best people at finance (meritocracy) figured out how to capture all the new earnings relative to the workers (who didn’t know this game was going on).
This has snowballed into a situation where the financial meritocracy is competing with itself and could now never imagine a situation where non-finance people are being paid more in proportion with their value relative to baseline productivity gains.
This article would fit that narrative as a symptom of one-upmanship gone amuck.
How do we exit this brutal cycle? It requires a generation of new blood that is actually concerned about societal stability and recognizes the connection between instability and leaving 99% of folks behind as games are fought in ‘the ivory cloud’.
Will this be dealt with sans revolution? Who knows...