
Executives Play Down the Possibility of Raises - petethomas
https://www.bloomberg.com/view/articles/2018-05-30/executives-comments-about-raises-are-not-what-they-seem
======
bcoates
The idea that pay raises come from some sort of collective negotiation with a
bunch of executives is just bizarre on its own. Executives do not get to
decide the pay level of employees.

The point of the tax law was to lower the cost of employment and investment in
the US (specifically, the cost of repatriating foreign profits to pay US
salaries and buy US-based infrastructure). The hope being that lower costs
cause companies to value US labor more, which tightens the labor market.

A tight labor market causes the raises: companies will continue to offer what
they want to offer, and they will be unable to replace attrition because the
would-be new hire can do better. The employer is either forced to offer more
wages directly, lower their standards to poach employees from lower-paying
employers, or do without and leave profit on the table.

But none of that involves buttering up CEOs and getting them to pinky-swear
that they're going to give out raises just because they can. The wage level is
always "as low as they can get away with"

~~~
awinder
Is there any verifiable time in history when such a complicated multi-actor
system actually did increase wages? Or is this the cold fusion of government
policy?

~~~
dnomad
No, not at all. There is no evidence that tax cuts lead to higher wages or
economic growth. It's been studied and debunked to death but it never dies.

~~~
ksk
There is evidence, its just that the evidence is weak and mere co-relations.
All of macro economic theory is like that - just models explaining aggregate
human behavior. Anything people propose can probably be shown to work in some
model or another.

On the flip side, higher taxes also don't "lead to" any wage increases or
economic growth. Given the massive waste and inefficiency in most government
programs, very little of our taxes actually go to anything useful. Most of it
goes towards war and to pay government contractors invoicing a $200 "military
spec" screwdriver.

~~~
dnomad
> Given the massive waste and inefficiency in most government programs, very
> little of our taxes actually go to anything useful.

There is very convincing evidence that higher taxes and greater government
spending do lead to long term economic growth. These days even the old fuddy
duddies at the IMF have been forced to admit that higher taxes don't lower
growth [1] and that many times the fiscal multipler is greater than 1 [2].
Certainly from 2008-2015, despite all the austerity hawks going on and on
about inefficient government spending, actual evidence indicates the fiscal
multipler was nearly 2!

[1]
[https://www.independent.co.uk/news/world/politics/inequality...](https://www.independent.co.uk/news/world/politics/inequality-
imf-international-monetary-fund-high-tax-rich-jeremy-corbyn-a7995826.html)

[2] [https://www.washingtonpost.com/news/wonk/wp/2013/01/03/an-
am...](https://www.washingtonpost.com/news/wonk/wp/2013/01/03/an-amazing-mea-
culpa-from-the-imfs-chief-economist-on-austerity/?utm_term=.8b9c2def2ad0)

~~~
ksk
If you wanted to, you could fill a cup of water by dumping a gallon bucket on
top of it. The point here is that the government has never been efficient in
allocating resources.

Also FYI: I'm not a representative or a supporter of the IMF. The fact that
some of their people have said things which didn't turn out to be true doesn't
concern me. In fact I'd probably expect that most bold predictions don't come
true, especially on economic matters.

------
sharkweek
My favorite scam I've seen lately has been the "We're gonna give you a
promotion with no salary increase, see how you do, and then discuss a pay
raise after X months! You should be grateful for this opportunity!"

And then of course in six months, the pay raise is basically a small bump,
versus what one might be paid if brought in as a manager/higher title.

~~~
toyg
You are supposed to take the promotion, update your linkedin, and find a real
position with that title elsewhere for more money.

~~~
bonsai80
I've had the privilege to have the proactive version of this discussion: A
discussion was had about an employee and then the question was asked "If they
left, how much would we pay to hire someone the replace them? Let's give them
a raise to that amount now and avoid that mess."

~~~
croon
That sounds like a Sorkin production where everyone is unrealistically smart
and rational.

------
hitekker
> In fact, one basic result in the theory of cheap talk is that if you assume
> the cheap-talker will do what’s best for him and worst for you, you can
> often get him to reveal more of the truth.

This is basically the definition of enemy.

These people are your enemies.

By that I mean, in the context of fair wages, employees ought to treat
executives as enemies, not as slightly conflicted parties with slightly
divergent interests. To win the pay he or she deserves, the employee must have
both resolve ("I don't want this person to beat me") and clarity ("this person
would gladly pay me half of what I make"). Mind and heart must be ready to
fight, thus the word "enemy". A dangerous label but sometimes, a courageous
one.

Pretending that these people care about your best interests, that they'd be
willing to sacrifice a little because they're so forward-thinking, smacks of
conflict-avoidance. I.e., "Oh my boss's boss is just trying to minimize and
maximize like any rational actor. It's normal. Happens to everyone. I'm
scared!"

~~~
Eridrus
This is very reductive. You could use the same logic to argue that your
coworkers are your enemies because the money being paid to them could be paid
to you instead.

~~~
hitekker
If a person had a coworker who thought "well I could get a 40% pay increase if
I get <person> fired", then that person should consider that coworker an
enemy.

Fortunately, the world does not revolve around game-theory and most other
parties with whom we choose to associate, will at least consider and value our
interests. Enemies do not do so, or value our interests at something close to
zero; thus their calculus: "worst for you, best for them".

~~~
ucaetano
If you would get a 40% raise if you switched companies, would you? Should
execs see you as the enemy, then?

There are no "sides", everyone is just maximizing their own payouts.

People here don't seem to mind when profit-focused engineers switch companies
for better salaries, but seem to mind when companies do the same.

~~~
Tade0
Which means it's essentially a free-for-all. If everybody is your enemy, then
you still have enemies.

~~~
ucaetano
> Which means it's essentially a free-for-all. If everybody is your enemy,
> then you still have enemies.

Being a free-for-all doesn't make it enemies, just a game. The two prisoners
in the prisoner's dilemma aren't enemies.

Employment is just another case of game theory. There are times when the best
outcome for you is to collaborate with your employer, other times is to play
against them. And so on.

A reductive vision of me vs. the world, or us against them is naive and
counterproductive. Particularly because you'd do the same in their shoes.

~~~
Tade0
> Being a free-for-all doesn't make it enemies, just a game. The two prisoners
> in the prisoner's dilemma aren't enemies.

You're disregarding the fact that while the prisoner's dilemma is a non-zero
sum game, employment in general is - any value added over your marginal
usefulness is your loss and your employer's gain.

Some people even "solve" this problem by being minimally valuable.

~~~
ucaetano
> employment in general is

You're absolutely, utterly wrong. Voluntary employment only exists because it
isn't a zero-sum game.

Any voluntary trade is not a zero-sum game, by definition.

And any value generated in excess of your cost is capture by you and the
employer based on the price elasticity of the demand for labor.

~~~
s73v3r_
Can it really be called "voluntary" if you starve if you don't have a job?

~~~
ucaetano
Still is.

When you're trading your labor for money, you end up with more value than
before. And excess value is split between you and the employer as I explained
above.

~~~
s73v3r_
That's some pretty dubious logic, that is not completely backed up by reality.

And the idea that the split is governed by the value of labor at the time has
also been debunked. Businesses everywhere are complaining of a labor shortage,
yet they're not raising wages. I'm sorry, but the simplistic Econ 101 stuff
isn't really applicable in the real world.

~~~
ucaetano
Wrong again. This isn't "logic", this is well established science.

It's like gravity, you can dismiss it all you want, but if you jump out of the
window, you'll still end up on the floor.

And you clearly didn't understand what price elasticity of demand means.

~~~
s73v3r_
"This isn't "logic", this is well established science."

No, it very much is not.

"It's like gravity"

Gravity behaves the same way every time you observe it. Economic activity most
certainly does not.

"And you clearly didn't understand what price elasticity of demand means."

Because clearly anyone who disagrees with you is only doing so because they
don't understand?

~~~
ucaetano
> No, it very much is not.

Well, Nobel-prize winners and millions of economists around the world disagree
with you, but I'm sure that your personal opinion trumps all of that.

> Because clearly anyone who disagrees with you is only doing so because they
> don't understand?

No, because you mixed "value of labor at the time" and "price elasticity of
labor demand". If you had understood what price elasticity of labor demand
meant, you wouldn't mix the two.

If cost of labor is X, demand for labor is Y, then "value of labor at the
time" is X and "price elasticity of labor demand" is dY/dX.

~~~
s73v3r_
"Well, Nobel-prize winners and millions of economists around the world
disagree with you, but I'm sure that your personal opinion trumps all of
that."

Very few economists would classify what they do as a science, like biology or
chemistry.

And no, I didn't mix anything up. I disagreed with you on your point. But
because you can't back up your point, you have to resort to petty retorts. The
fact of the matter is, what most economists have traditionally believed
regarding wage growth and tightening labor markets has been turned on its
head, due to many companies complaining about labor shortages yet there not
being any real gains in wages.

------
maxxxxx
I like the concept of "cheap talk". In my company they always celebrate sales
growth and higher profits loudly. It really seems to motivate a lot of people
while at the same time salaries are frozen so most of them get no benefit from
the "good news".

~~~
JustSomeNobody
My favorite is when this happens in the same meeting. "Best year evar!1!" Can
we finally get a raise? "Oooooohhh, sorry."

------
Rotdhizon
For a typical working man job, this is the unfortunate reality of the job
market

For tech jobs, this is why people jump ship every few years.

~~~
LoSboccacc
it's also why they try to instill&enforce the 'job hopper' stigma

~~~
Eridrus
Is it really a stigma when it is perfectly rational to prefer employees who
will stick around for a while?

~~~
cryoshon
the point is that it's a stigma because they have made it into one because it
benefits them.

to the employee, it's an artificial social barrier to getting their economic
worth by hopping jobs.

~~~
melq
I think his point is that its not and artificial barrier because not having to
replace someone in 12 months provides a real value to the employer.

~~~
s73v3r_
If that were the case, then they should be willing to pay to keep people.
People hop because companies aren't giving raises.

------
bertjk
Given that this was an event organized by the Dallas and Atlanta Federal
Reserve Banks, we should consider the possibility that the CEOs were simply
trying to encourage the Fed to keep interest rates low.

Here is most likely the event being referenced:
[https://www.dallasfed.org/research/events/2018/18ted](https://www.dallasfed.org/research/events/2018/18ted)

------
ceejayoz
I'm curious as to whether that "median wage growth" chart takes inflation into
account.

~~~
deathanatos
The data appears to come from here[1], which describes it as,

> _Once we have constructed the individual hourly earnings data, we match the
> hourly earnings of individuals observed in both the current month and 12
> months earlier. The matching algorithm results in an average of 2,400
> individual wage growth observations per month. We then compute the median of
> the distribution of individual 12-month wage changes for each month._

That seems to indicate that it does not take inflation into account.

[1]: [https://www.frbatlanta.org/chcs/wage-growth-
tracker.aspx?pan...](https://www.frbatlanta.org/chcs/wage-growth-
tracker.aspx?panel=1)

------
denzil_correa
In the end, it is back to the fundamental question : How should the business
benefits created by the workforce be distributed?

------
s73v3r_
I mean, why on earth would they give raises? It's not like we just passed a
huge tax cut bill with enormous cuts to corporate taxes with the justification
that the money would go back to workers...

Oh wait.

