Wage Equality in the Wake of the Great Recession

It is the 21st century version of Plato’s maxim that owners should make no more than five times the wage of their lowest paid employee. We are quickly coming to the end of concepts like wages and hourly pay. The problem is that things have changed so much it’s hard to understand how things now work, not to mention how to create workable alternatives.

In my view, the Great Recession was more than just the housing bubble bursting — it signaled the last gasp of the industrial economy. Home building was the last labor-intensive assembly line to go out of existence, and there was no other path forward than leaving the industrial age behind. However, that means that all of our financial measures are no longer relevant, (or maybe relevant in a different way than they had been).

For example, productivity had always meant the degree to which workers could make their efforts more efficient. After 2006, it measures the degree to which machines are replacing humans. A job used to mean a 40-hour workweek and financial security. Now the average workweek is only 33 hours and about half the employed in the United States receive some sort of government assistance.

One of the most glaring casualties of the end of work is the end of traditional jobs. About 40% of all jobs are now contingent — that is, part time and/or short duration. Workers work only when there is enough work and are often paid piecemeal, not hourly. There are now fewer people in the labor market then there were in the 1970’s when women began entering the labor market.

One of the consequences is that full time jobs go largely to people who already have full time jobs. Recent studies from the Fed found that employers use other employers to vet job candidates, that very few people over 40 are ever hired, and that when unemployment lasts more than six months candidates are very unlikely to get hired. The number of good paying jobs has not expanded for years, so there is no need for large scale hiring; workers lucky enough to have a good job circulate within the job community.

So how does Wage Equity work when there is no work to generate wages? How will that affect the millions of people who have created a way to survive without a job? (Like going on disability, staying home to take care of kids, or like me, going to school forever.)

Wage Equity runs into complex tax issues, also. Under the new tax reform act the highest tax bracket for corporations is now 21% for firms claiming over $15 million in profit. However, up to that point there is a sliding scale and “percentage plus” calculation. To make things even more complicated tax attorneys and accountants have a lot of latitude in how they structure their tax reports.

For example, salary compensation is considered COGS, (Cost of Goods and Services), a deductible expense and therefore “free money”. Additionally, CEOs and others often accept stock option contracts — the chance to buy corporate stock at some point in the future at current prices. These can be very lucrative, but quite challenging to assess as compensation. I’m not even sure if stock options are considered compensation in the same way that salary and bonuses are.

This brings up the entire issue of “ ” class=”markup–anchor markup–p-anchor” rel=”nofollow noopener” target=”_blank”>financialism” — that is, the trend of large corporations to abandon their core service or product business model and switch to making profit by manipulating their financial activity. This is what led to the recent General Motors lock debacle. At GM the “finance guys” have pushed the “car guys” out of influential management positions; GM still makes lots of money, but most of it is from increasing stock prices rather than increasing sales or profit margin. Design and production mistakes are on the rise throughout corporate America as a result.

We are seeing a lot of this in the medical and health insurance industries. You may have noticed the surge in M&As in the health insurance and pharma industries in the wake of ObamaCare. Tons of tax dollars flooding the market, combined with guaranteed profits turned companies like Alergin and Health Net into finance companies instead of health or drug manufactures.

Something similar is happening in the housing industry involving the creative manipulation of debt. Private equity companies like Blackstone will put up $10 million in real estate as collateral for a $100 million loan. They use the loan to buy property of a distressed real estate company or a block of repossessed homes, and then lease the property to either the original owners or property management firms who collect rent. Then they claim the debt as a business loss and amortize it over a period of years to avoid taxes. (That is shadow banking by the way.) Figuring out how much senior manager’s benefit from that kind of arrangement, especially given the variable meanings of salary and compensation is a lawsuit-filled nightmare.

We live in an era that does not need millions of workers. Computers and software have replaced people. Imagine — For the first time in history, there are more people than there is work to go around! There is so much excess labor that its value has dropped to nothing. The median W2 wage is only $30,000, and that follows year’s long decreases following the collapse of the industrial economy in 2006–08. We might be heading for an economic culture like that of the Middle Ages — impoverished serfs working at the will of elites who own all the wealth.

Maybe the solution is Universal Basic Income. If we get rid of all the social service bureaucracies sucking up wealth and not passing it onto their clients we can afford to give everyone — yes everyone — enough money for food, shelter and basic health needs. Finland is experimenting with this idea, as are a few states here in the US. Eventually the entire tax bill to support such a scheme will come from the wealthy elites who write the laws. They might see this as a good business decision because the last thing anyone wants is a population of idle hungry –often the fuel for social upheaval.

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