I’ve variously argued that to the extent imbalances in the labor market are the result of generous federal unemployment benefits, it wouldn’t be the worst thing in the world.
A popular narrative among GOPers (and also among market commentators who, lacking the kind of writing proficiency needed to engage an audience in an honest way, are compelled to resort to demagoguery to captivate readers), is that enhanced benefits render the jobless “lazy” and create a nation of “freeloaders” who live off the tax dollars of the nation’s “real earners.”
In reality that applies to capital, not labor. If anyone in America is a “lazy freeloader,” it’s the super-managers and rentier class who (quite literally) live off the labor of the poor and the tax dollars of the middle- and upper-middle class.
In 2019, CEOs earned, on average, around 300 times as much as a typical worker (figure below).
Clearly, what you see in that chart is in no way, shape or form a reflection of the value a CEO adds relative to the value added by an average worker.
In fact, it’s entirely possible to suggest (note that “suggest” is something different from “assert”) that for many companies, the average worker adds far more value than the CEO and other top executives. As a collective, workers are by definition more valuable than the C-suite because without the workers, there are no cars, lattes, sneakers, burgers or widgets.
By contrast, there’s absolutely nothing that says a company can’t produce goods and services without a ridiculous corporate hierarchy. Sure, you need foremen, shift managers, regional coordinators, accountants and white collar positions. And yes, it will make sense to have varying pay rates commensurate with skill levels. But where is it written in stone that corporate structures must have an upper crust comprised of a handful of people whose job descriptions essentially entail signing off on decisions other people made and taking credit for things other people did?
Sure, once every decade (or two or three) the C-suite is compelled to step up and confront some existential crisis facing the business (or even the entire economy), but that’s surely a good tradeoff: Most of the time, you pretend to strategize while raking in obscene sums of money, and once in a blue moon you have to shoulder the weight of the world. Plus, if you screw up in that latter capacity, about the worst that can happen is you get replaced, and you exit with your fortune in tow.
And please, spare me the bit about the fabled janitor who, through hard work and perseverance, becomes CEO one day. That’s a myth in the modern economy. No janitor at JPMorgan will ever be Jamie Dimon. And no maid for a hedge fund manager is ever going to run the fund. Such things aren’t just implausible in modern America, they are impossible.
Have you ever watched that silly show “Undercover Boss”? I have. Inadvertently at first. And then on purpose because, if you can get past the overt goofiness, shoddy production and shameless attempts to make viewers cry, it’s an accidentally profound show. The idea is to showcase how benevolent capitalism (and, specifically, CEOs) can be, but ironically, the real takeaway from almost every episode is that at some companies, not only are CEOs less capable than their lowest-paid employees when it comes to producing goods and services, they aren’t even as capable as those employees when it comes to understanding the operational and organizational nuances that make the company run! The employees (and they’re treated more like contestants in a game show or circus animals during filming) end up getting free vacations and college scholarships. Based on the half-dozen (or so) episodes I’ve seen, they should probably get board seats instead.
Of course, rising CEO compensation has quite a bit to do with the structure of that compensation, which is inextricably bound up with share prices (figure below). That, in turn, creates perverse incentives.
It makes little sense (from a selfish perspective) to invest in workers when you could buy back shares and artificially inflate the bottom line.
The argument that plowing money into buybacks and engaging in financial engineering (e.g., borrowing for what may as well be nothing and using the proceeds to repurchase stock) is excusable because corporate management also spends huge sums on capex, M&A and R&D is, frankly, irrelevant to the average worker. That business investment is strong, that deals are getting done and that research is producing technological miracles is all small comfort to people who haven’t seen any wage growth in four decades. Something like this: “Oh, the economy is expanding and the new iPhone has a better camera? That’s great, but I’m still living paycheck to paycheck.”
Note also that, as the Economic Policy Institute wrote last summer, “CEOs enjoyed outsized gains in compensation even relative to other very-high-wage earners.” Specifically, the ratio of CEO pay to the top 0.1% rose to 6 in 2018, nearly double what it was 40 years ago (figure below).
Think about that ratio (CEO pay versus the top 0.1% of earners) and what it implies about CEOs and the value they add. While quantifying this is impossible (in part because, at these levels of annual compensation, qualitative factors are often cited to excuse princely pay packages), it seems ridiculous to suggest that, on average, CEOs are six times as capable as other members of the top 0.1%, who are likely to be highly educated.
Don’t worry too much about the 0.1%, though, because, as the same study rather dryly noted, “other very-high-wage earners aren’t suffering: Their earnings grew 337% between 1978 and 2018 [and] CEO pay growth has had spillover effects, pulling up the pay of other executives and managers, who constitute more than 40% of all top 1.0% and 0.1% earners.”
But not the pay of workers. The “pulling up” effect seems to short circuit somewhere along the way before it has a chance to “trickle down” to Main Street.
Needless to say, this entire conjuncture is exacerbated at the societal level by the concentration of equities in the hands of the same wealth cohorts. The “missing link” between “America, nation of super-managers,” and the rentier societies of yore, is the fact that the super-managers are incentivized to inflate the value of the assets owned by the rentier class which, I think, you can roughly proxy in modern America by reference to hedge funds and other enterprises which pretend to add value but, in reality, do less good for the world than inmate litter crews.
Obviously, monetary policy has played an outsized role in perpetuating inequality in America over the last several decades. For anyone who reads this but doesn’t otherwise frequent the site, just note that monetary policy is something I cover exhaustively on a daily basis. So, it’s not that I’m omitting it in an effort to sweep the Fed’s culpability under the rug. Rather, I’m assuming the reader is intimately familiar with that part of the equation.
Coming full circle, something has to break this cycle in America. One way to view enhanced unemployment benefits, record-high quit rates and labor shortages, is that the government has (accidentally or otherwise) put its finger on the scales in favor of labor, restoring some of the bargaining power workers enjoyed in a bygone era.
The fact is, the narrative Americans force-feed themselves from elementary school forward has it mostly backwards.
The “lazy freeloaders” aren’t the poor who, after decades of degradation, have finally given up on the idea that it’s somehow more dignified to be employed and destitute than unemployed and destitute.
And they surely aren’t the middle class who are indoctrinated to believe the “meritocracy” myth which tells them the $75,000 they earn is “fair” and somehow commensurate with their “capabilities” and work ethic.
And they damn sure aren’t the upper-middle class, who carry on under the woefully misguided notion that one day, they too will have a fine art collection and a Bentley, when in reality all they’ll ever do is shoulder a disproportionate tax burden while the wealthiest Americans (the ones who actually bid on fine art) pay next to nothing.
Who does that leave in the “lazy freeloader” category?