Forum Post: The Myth that Globalization has Caused Job Losses and Salary Stagnation
Posted 13 years ago on Oct. 11, 2011, 10:10 a.m. EST by rmmo
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This content is user submitted and not an official statement
Recent studies have shown that it is a myth that globalization is mostly responsible for job losses and stagnate middle class salaries. Studies show that the middle class salary stagnation that has plagued America has not happened in the rest of the industrialized world. http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-income-gap-is-not-growing-in-other-countries-like-france-13
What really happened is this: In the 1980's there was a law change that altered the business world. The Courts found that corporate executives only had one duty and that they could be found liable if they did not carry out, to the fullest extent, that one duty. The courts found that executives' sole duty is to maximize shareholder profits. Therefore, it was determined that executives no longer had duties to their workers or to society.
Moreover, executive compensation became tied to maximizing short-term shareholder profits. At the same time, the marginal tax rate disincentive was disappearing. High marginal tax rates were a disincentive to paying out all of the corporate profits in executive salaries because of they made more than a certain amount, they were taxed 90% on every dollar over that amount. When the marginal tax rates were highest, middle class workers got paid better and more benefits because there was more profit pie to spread around. The marginal tax rate dropped from 90% in the 1950's, 49% in the 1980's, 39% in the 1990's, and to a meager 36% in the 2000's eliminating the disincentive.
In the 1980's it became the executive's duty to create as much short-term profit for their shareholders as possible and the more the created the more the executives got paid.
Executives quickly learned that it is far easier to create profit by cutting costs than by innovation and creating new great products -- it is harder to and takes much longer. Instead, CEO's came up with an easy model of creating profit, cutting costs. CEO's realized that they could lay off workers and making their existing employees pick up the slack for the missing workers. So, workers worked harder and harder. American worker productivity is at an all time high.
They also realized that they could cut costs by making their workers shoulder more and more of their own healthcare and retirement costs -- hence the creation of 401ks and health savings accounts. These cost savings created more profit for the shareholders and huge salaries for the executives. In fact, a recent study shows that most corporate profits today are not from great things that companies are doing -- investments, creation, or innovation. Instead, most corporate profits today are created on the backs of the workers.
http://www.dailyfinance.com/2010/11/23/record-corporate-profits-are-coming-out-of-workers-hides/ http://www.slate.com/articles/business/moneybox/2011/03/more_profits_fewer_jobs.html http://www.google.com/search?client=safari&rls=en&q=ratio+of+ceo+to+worker+pay+in+1950's&ie=UTF-8&oe=UTF-8 http://communities.washingtontimes.com/neighborhood/21st-century-pacifist/2011/feb/16/2010-realizes-record-profits-us-corporations/ http://articles.latimes.com/2011/apr/01/business/la-fi-profits-20110401
Our economic crisis has been caused by the loss of the marginal tax rate; the loss of a balance of corporate duties to workers, shareholders, and society; the replacement of middle class wages with easy credit/loans; the failure to regulate wall street; the deregulation of the banks; and the demise of employee bargaining power (only 6.9% of all private sector jobs are unionized).
THE RATIO OF AVERAGE CEO COMPENSATION AND WORKER PAY IN THE US 1965-2005 2005 - 262:1 (Av. CEO-$10,982,000/Av. Worker- $41,861) 2004 - 238:1 2003 - 181:1 2002 - 143:1 2000 - 300:1 1989 - 71:1 1978 - 35:1 1965 - 24:1 Source: Mercer Survey of 350 large industrial and service firms conducted for the Wall Street Journal as reported by Mishel, Bernstein, Allegretto http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-gap-between-the-top-1-and-everyone-else-hasnt-been-this-bad-since-the-roaring-twenties-1
unfair trade kills jobs
Corporations do not make money and go broke lose shareholders money and go broke and people lose jobs. Would never invest in a company that did not make profits.
Correct, but the incentive structure is off right now. The corporate incentive structure has been to give less and less of the corporate profit pie to the workers and more and more of it to the executives and shareholders. Also, because lack of employee bargaining power, executives often make profit not through innovation or creation, but through squeezing their workers. All that I am saying is that this is not positive Capitalism, but distorted Capitalism where CEO's are rewarded for failure -- high salaries even though they fail -- and are rewarded not for producing the best products and services, but for squeezing the workers the most.
Got a point CEO some of them should be thrown out, but still CEO my beef is not the millions that make I could care less about that. My problem is when CEOs intentionally destroy well ran company loot it and move on to the next one. Mergers need to regulated more also as bigger the company is sometimes the more they screw the worker and consumer.
Agreed.
In other words, you want to increase tax for the rich.
You might like to know many corporations pay less federal tax than they do their executives.
I agree. Corporations used to pay 39% of their profits in tax. Now they barely pay anything and federal taxes have been pushed onto individual's pay checks through higher payroll taxes and SS taxes.
This is a very informative post. Would also welcome your discussion of the role that High Yield Bonds ("Junk Bonds") played starting in the 1980's and the necessity of rebalancing back to equity from debt (bonds). For example, because of the deductibility of interest payments, corporations are incentivized to load corporations with cheap debt. (junk bonds). There needs to be a rebalancing to equity. You can see this in the world of Islamic Finance where debt is abhorred and equity is preferred as the method of financing.
Agreed!
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Sounds good -- I'll check it out.
And another fucking shill.
Fun fact: daily wage for a tech support agent for Dell in India is INR 500. That's about ten bucks american.
This cuts to the heart of what I think everyone left/right/center can agree on. Congress needs to pass a bill to overturn that court decision. And another to outlaw CEO bonuses except on a long-term basis--like 5 years--not freakin' quarterly.
Our problem is we've created a system where the CEOs of the biggest corporations in this country are paid more to burn down the house than build a new wing on it.
Here are some more about the fact that CEO's are incentivized to engage in mergers even though 70% of all mergers fail, it is a huge loss to workers, and a huge loss to society. They are incentivized because mergers trigger higher compensation packages for them and a short-term profit spike for shareholders because the stocks of the companies go up in the short-run. In the long run, the companies fail because of the merger.
http://www.nytimes.com/2004/07/18/business/yourmoney/18watch.html?pagewanted=all http://edition.cnn.com/2009/BUSINESS/05/21/merger.marriage/index.html http://findarticles.com/p/articles/mi_m1272/is_n2639_v127/ai_21098129/ http://www.bowne.com/securitiesconnect/details.asp?storyID=1495 http://www.bowne.com/securitiesconnect/details.asp?storyID=1815 http://knowledge.wharton.upenn.edu/article.cfm?articleid=1137
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"Studies show that the middle class salary stagnation that has plagued America has not happened in the rest of the industrialized world."
Isn't America like...the only "industrialized" nation known for regularly selling its people out and setting them on a race to the bottom while favoring nations that do not honor their ends of the free trade agreement? (Like China and its own mercantilistic practices on us. Tariffs on us. Flooding us with cheap crap and cheap labor to destroy all our industries.) Europe is known for being better managed than that and that is why you do not hear about "France flooding us with cheap crap."
Do the math here. If goods are made cheaper elsewhere then why would anyone buy from the "Expensive and spoiled country"? Right now South Koreans are protesting the US's latest "free" trade practice of flooding...with imported beef and pork. And the Bay Area protested the South Korean FTA over the outsourcing of our tech jobs. We already gave a bunch of "poor" countries our manufacturing industries and our call centers...are we really going to give away our tech industry too? In the end of it all...what will we be #1 in? What motivation would there be for people to get something other than a nursing degree or some other "recession proof" job? Why would anyone take risks in a demand less economy?
If globalization is inevitable we NEED to push for fairer (or at the very least honest) trade.
I beg you to cite some other sources. Because we're not the only country in deep shit right now like you seem to suggest.
Here this chart shows how all of the money in America is being paid out to the few at the top while this is not happening in the rest of the world. http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#americas-income-spread-is-nearly-twice-the-oecd-average-12
No, we are not the only country in trouble now, but the European troubles are different than ours. First on the other issue. Companies have the money to hire workers, but the tax disincentive against paying out all of the profits at the top is gone. Here is a chart that shows the rise of CEO salaries and the stagnation of worker salaries. If the CEO's made a couple million less, that would mean that they could either hire more people instead of making their workers work harder and harder or pay their workers more.
http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-gap-between-the-top-1-and-everyone-else-hasnt-been-this-bad-since-the-roaring-twenties-1
http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-last-two-decades-were-greatif-you-were-a-ceo-or-owner-not-if-you-were-anyone-else-5
The European troubles stem from our unregulated hedge funds doing vulture bets against sovereign nations. Our hedge funds are unregulated and so they have colluded to make money by attacking leveraged sovereign nations and they picked Greece to start with because they were the most leveraged.
The placed massive bets against Greece which caused a cascading of events. First the investors fearful, pulled out en masse causing Greek government bonds to become worthless and caused the massive loss of tax revenues on the investments.
Struggling Greece, then had to prop up its banks, but the government already had a lot of its own debt and could only continue to prop them up against hedge fund vulture attacks for so long until Germany and France had to come in to take on some of the debt.
Then, hedge funds moved to second tier debt countries of Ireland, Spain, Portugal, and Italy and started betting against them causing the same problems in Greece and France and Germany having to step in to take on debt. Then, the hedge funds placed $8 billion bets that the Euro and European union will fail and continue their attacks -- there is only so long that Germany and France can take on debt before the whole union breaks apart.
Germany, Greece, and Italy have all tried to ban the hedge funds, but the US which is bought and sold by Wall Street refused to regulate them or ban them from attacking sovereign nations.
http://in.reuters.com/article/2010/02/26/markets-euro-hedfunds-idINN2515219020100226 http://www.globalization101.org/news1/Goldman_Sachs_Greece http://dealbook.nytimes.com/2010/02/26/big-hedge-funds-said-to-bet-against-euro/ http://www.bloomberg.com/news/2010-05-18/germany-to-start-temporary-ban-on-naked-short-selling-of-euro-bonds-banks.html http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aj9Qo2YqmFKs http://www.economist.com/node/16322566 http://www.independent.co.uk/news/business/news/soros-hedge-fund-bets-on-demise-of-the-euro-1914356.html
Here is some more information on CEO's incentives making CEO's lay off workers and do mergers where workers are let go. 70% of mergers fail and result in job losses for workers, but CEO's do it because it triggers higher compensation packages and short-term shareholder profits.
http://politics.salon.com/2011/03/29/failure_of_shareholder_capitalism/ http://environment.harvard.edu/docs/faculty_pubs/stavins_corporate.pdf
http://www.businessweek.com/magazine/content/05_50/b3963106.htm http://www.allbusiness.com/human-resources/employee-development/4097299-1.html
http://www.nytimes.com/2004/07/18/business/yourmoney/18watch.html?pagewanted=all http://edition.cnn.com/2009/BUSINESS/05/21/merger.marriage/index.html http://findarticles.com/p/articles/mi_m1272/is_n2639_v127/ai_21098129/ http://www.bowne.com/securitiesconnect/details.asp?storyID=1495 http://www.bowne.com/securitiesconnect/details.asp?storyID=1815 http://knowledge.wharton.upenn.edu/article.cfm?articleid=1137
"Then, hedge funds moved to second tier debt countries of Ireland, Spain, Portugal, and Italy and started betting against them causing the same problems in Greece and France and Germany having to step in to take on debt. Then, the hedge funds placed $8 billion bets that the Euro and European union will fail and continue their attacks -- there is only so long that Germany and France can take on debt before the whole union breaks apart.
Germany, Greece, and Italy have all tried to ban the hedge funds, but the US which is bought and sold by Wall Street refused to regulate them or ban them from attacking sovereign nations."
So you admit that globalization has played some part in this. Because this and other schemes like the Dutch Sandwich and Double Irish scheme would not be possible without (at the very least irresponsible) globalization...
Do you know what's been responsible for the most layoffs of American workers? "Free" trade that isn't really free and where everybody cheats us instead. A decrease in demand for workers will predictably lead to mass layoffs, lowered wages, nonexistent worker rights, having one person do the job of seven people, etc.
You'd be naive to rule out globalization in all this.
I just think that big business wants us all to believe that we are lucky to have our jobs because of globalization and uses that to stagnate our wages, take all of the corporate profit for themselves and their shareholders, and "create" corporate profits off of the backs of the workers.
Executives have had 30 years of ballooning compensation and made employees just feel lucky to have jobs and not realize that those millions paid to the executive could go to paying higher wages for the workers, healthcare benefits, and retirement benefits.
Not to mention bringing jobs back home.
And you are either a US trading "partner" or are turning one HELL of a blind eye if you won't look at "Free" aka "Slave" Trade being responsible for this. They can cut even more costs if they move offshore to some slave labor country where they don't have to pay any high wages and benefits. Heck - we can get fired for any stupid reason here (in the right to work states)! Are you religious? You're fired! Are you gay? You're fired! Did you support Obama? You're fired! Am I having a bad day and need to blow off steam because I got herpes from that $20 skank that just blew me? You're fired!
Is there -anything- "Made in USA" in this country anymore? My mom bought her towels from fucking Pakistan, her blankets and my laptop was made in China and I just went to a mall and checked all the labels...."Bangladesh, India, China, Vietnam..." Not even a right to work state was allowed to be on a label.
All because cheap goods are worth being unemployed for. And now our tech industry is next with this new South Korean FTA that would outsource all of Bay Area's tech jobs. Oh but don't worry - we get to have South Korea's beef and pork industry in return. We get to displace their farmers so that they can steal our tech industry! Woo hoo!
Sorry for the hostility just read an MSNBC and CNN rag today. Then somebody mentioned Kanye West.
Historically speaking (and correct) the "European Aristocrat(s)" have been trying to pull this country (and it's PEOPLE) into every endless imaginable conflict, that they ever could/is at all possible. Where did they get the idea to begin w/ looking into greener alternative fuels (solar, wind, HYDROGEN, ETC.) ? From "US" (?) just talking about it for over fifty years. Instead of under the table deals (in total contradiction of any leadership set course), what do you think would happen, if instead of making promises (a.k.a. wrong deals ETC.) into ensuring that the flow of oil (as well as it's usage ETC.) continue, they would do if "WE" announced tomorrow that since it is clear "that all cooperation has gone out the window", "The United States" has decided to begin manufacturing it's own HYDROGEN (and using "it" just like scientists have wanted) as a main alternative fuel/power source/ETC., by using the other methods (solar/wind/NOT EXCLUDING "IT"/ETC.) to do it? "Most sincerely", (LOVE-n-STUFF) DONNIE Salem Mass. EST. 1626 P.S. If a nuclear enriched pellet could run a super aircraft carrier for ten to fifteen years ETC., how much HYDROGEN (as an energy alternative) could that same "PELLET" produce? +
This is absolutely the correct outlook and understanding of the situation. Our problems are wholly internal and related to policy choices that have been enacted as a result of organized business interests. And, specifically, organized business interests advancing the interests of corporate executives (not necessarily shareholders, as the abandonment of SEC protection of their interests demonstrates).
Ironically, even--nay, especially--ardent capitalists should be up in arms over a system that places the personal interests of corporate executives over even shareholders, but that is exactly the system we have.
Here are some more about the fact that CEO's are incentivized to engage in mergers even though 70% of all mergers fail, it is a huge loss to workers, and a huge loss to society. They are incentivized because mergers trigger higher compensation packages for them and a short-term profit spike for shareholders because the stocks of the companies go up in the short-run. In the long run, the companies fail because of the merger.
http://www.nytimes.com/2004/07/18/business/yourmoney/18watch.html?pagewanted=all http://edition.cnn.com/2009/BUSINESS/05/21/merger.marriage/index.html http://findarticles.com/p/articles/mi_m1272/is_n2639_v127/ai_21098129/ http://www.bowne.com/securitiesconnect/details.asp?storyID=1495 http://www.bowne.com/securitiesconnect/details.asp?storyID=1815 http://knowledge.wharton.upenn.edu/article.cfm?articleid=1137
Also see Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States, available at: http://pas.sagepub.com/content/38/2/152.full.pdf
I think you'll like that one.
I love this book! It is by Professor Hacker from Yale. A must read for everyone.
Yes, and if you've read the book you probably don't need to read the link, which is to a shorter journal article about the same subject matter. I think directing people to that is helpful because (1) it's freely available online; and (2) is a condensed version of what is in the book.
Here is another study: http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#americas-income-spread-is-nearly-twice-the-oecd-average-12
Very, very well done. And really some much of it comes back to Wall Street, especially this point that you made: "Moreover, executive compensation became tied to maximizing short-term shareholder profits."
The equity market rewards short-term decision-making by executives. If a company misses its quarterly earnings estimates by a penny, you'll typically see a selloff in the stock...which is crazy if you think about. A penny?
There is no incentive for executives to make decisions with a long-term perspective because Wall Street punishes that.
Here are some more about the fact that CEO's are incentivized to engage in mergers even though 70% of all mergers fail, it is a huge loss to workers, and a huge loss to society. They are incentivized because mergers trigger higher compensation packages for them and a short-term profit spike for shareholders because the stocks of the companies go up in the short-run. In the long run, the companies fail because of the merger.
http://www.nytimes.com/2004/07/18/business/yourmoney/18watch.html?pagewanted=all http://edition.cnn.com/2009/BUSINESS/05/21/merger.marriage/index.html http://findarticles.com/p/articles/mi_m1272/is_n2639_v127/ai_21098129/ http://www.bowne.com/securitiesconnect/details.asp?storyID=1495 http://www.bowne.com/securitiesconnect/details.asp?storyID=1815 http://knowledge.wharton.upenn.edu/article.cfm?articleid=1137
Here is another study: http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#americas-income-spread-is-nearly-twice-the-oecd-average-12
Excellent example how the accumulation of political-economic policies have created a dysfunction (broken) economic and political system. How do we fix it?
Here is a start: 1) Get money out of politics; 2) regulate wall street; 3) re-instate the high marginal tax rates; 4) change the law that says executive duty is only to maximize shareholder profit and instead say that they have to balance that duty against duties to their workers and society; 5) create some modern form of unions to get back employee bargaining power; 6) regulate the banks (re-instate Glass-Steagall Act); and 7) tax Wall Street earnings at least the same as regular income.
This are all good core ideas. It is complicated. How does such a large and diverse group of people (the polity) raise such issues and build a consensus on both the problems and the solutions? Could a Wiki help build issue definitions of problems and solutions. Would you help edit an OWS Wiki on the issues that you have raised?
Sure, sounds great. We have an information problem. Most people do not realize what has happened over the past 30 years and, therefore, it is difficult to build consensus. We need the information to penetrate the general public.
I am happy to see that you have been able to understand the actual reason for today's economic problems in US.
The subject you have chosen for this post is not appropriate for the description, in my opinion. If you are saying uncontrolled free trade is good for the economy, I would disagree. In fact I would say unregulated free trade causes intense disruptions for both developing and developed economies.
Of the 7 suggestions you have made here, I would say just one suggestion (#3 increase marginal tax rate) is good enough of a policy which discourages bad behavior and encourages people to do the right thing. It basically controls human greed. This is why I support high taxes for the wealthy. Conservatives don't support high taxes because of their anti tax ideology.
Once greed is out of equation, humans don't need a lot of regulations. They already know the right thing to do and will do it.
I would also like to point out that the 1930's depression in America was preceded by a drop in marginal tax rates. As a result, I would like to conclude that drop in top income tax rates actually causes recession/depression in economy.
No, I don't think that free trade has no ill effect. I just think that there is more to the story and business uses free trade as their excuse when the truth is it is mostly their greed.