
America Is Getting a Raise, and Goldman Sachs Is Freaking Out About It - anchpop
https://civicskunk.works/america-is-getting-a-raise-and-goldman-sachs-is-freaking-out-about-it-6479cb86c59
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throwaway_srb
Is this what happens when someone reads a sell side report for the first time?
The author is having a fit merely over choice of words in the GS report. The
GS analysts aren't passing a moral judgement as to whether rising wages are a
good thing or a bad thing. They are merely pointing out that current stock
market valuations are baking in a corporate profit margin that may not hold in
the face of rising wages. That's it.

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cmonfeat
This was my take away too. Objectively, a decreasing gap between wages and
productivity probably is a threat to corporate profits. Reasonable people can
disagree about the importance of that threat vs the well being of American
workers, but the writer seemed to miss that that was not the point of the
Goldman report.

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washadjeffmad
The question is of the GS report's intent. Was it merely so they could make
plans to adapt to this new inevitability or a subtle call to address the issue
by prevention, perhaps by shortchanging US workers in other ways? It's not
wrong that this is raising eyebrows when the interpretation has yet to be
proved.

I'd say the point of the reporter's report was what the GS report pointedly
did not report.

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traek
> or a subtle call to address the issue by prevention, perhaps by
> shortchanging US workers in other ways

This is ridiculous. It's an equity research report, the intent is clearly to
report on the equities market. Who would this even be a subtle call to? There
is no cabal of capitalist overlords who are out to shortchange workers.

This is like saying a research report about a threat to e.g. Coke's EMEA sales
because of political instability might be a "subtle call" for Western
governments to recolonize the African continent.

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mnm1
"Does Goldman Sachs value a small sliver of profit over the opportunity to
create a sustainable economy that works for everyone?"

Duh! Not just Goldman but pretty much every corporate entity out there. The
irony is that corporations like Goldman Sachs do not have to exist. The sad
part is that our society not only allows them to exist, but encourages them at
the expense of real people's lives. One day, people might be smart enough to
realize we have a choice, that we don't have to let these amoral entities
dictate our lives. Oh, who am I kidding? People are too stupid for them to see
what's literally happening in front of their eyes.

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devoply
Replace the financial class with AI.

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mnm1
Or just a plain old CRUD app because intelligence is not required in this
field.

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gumby
It's such a short term, zero-sum view. Higher salaries increase the velocity
of money in the system (each iteration of which is an opportunity for you to
do some cream-skimming, Goldman Sachs) and improving the total operational
efficiency of the system is what yields profit, so providing workers with
better benefits does, in aggregate, improve output. All of which analysts
would know if the industry tried to hire analysts with operational experience!

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wdb
If I understand this correctly it would be better for GS to lower it employees
wages 3% yoy so the profits will go up. What about lowering the bonuses will
that help with the profits too?

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traek
You definitely don't understand this correctly because it's not about what GS
is paying their employees, but rather wage growth in America as a whole.

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wdb
Yes, I am aware this is about wage growth in America which affects the profits
of major companies in America. I think you got my point, though

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crimsonalucard
They shouldn't be afraid. When the middle class prospers everyone prospers.

It's counter intuitive, but there is a simple logic behind why this type of
mindless quest for profit is actually self destructive:

 _Businesses can not thrive when they pay the middle class a salary that does
not allow them to buy stuff from said businesses._

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mac01021
I never understood that logic.

If all of your revenue is from sales to your own employees, fueled by the
wages that you're paying them, then your business is, by definition, not
incurring a profit.

Maybe that's fine if you're like a farming coop or something, but it certainly
isn't going to get anyone to invest in your enterprise.

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selllikesybok
You can absolutely underpay your employees, sell goods to employees of others
firms who do not, and profit. There is a clear benefit to a single company
doing this.

It is not clear the benefit is greater than increasing wages, but that's
another thing.

But if everyone does this, to the point that there are not enough potential
consumers for the majority of products, then there is no benefit to lowering
wages. You can't sell anything to anyone.

In the end, no one wins the race to the bottom.

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syockit
Parent post is not arguing about underpaying, but the feasibility of
increasing wages. The idea is that if we treat all companies and their
employees as one grand company, then the company will have to sell everything
to its employees in order to get revenue, but that revenue will have to be
distributed to the employees as wages, in full, in order for everything to be
bought. That leaves no margin for profit.

The answer to the question lies in what is missing from the equation: the
existence of stockholders. They are potential customers too. You don't need to
sell everything to just employees, that means you can underpay them and still
be sustainable as long as stockholders buy things too.

But there are limits to how many things a customer wants to buy. Once the
stockholders' needs are satiated, the rest of the profit won't be spent. At
that point, in order for businesses to be sustainable, this balance has to be
redistributed as increase in wages.

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segmondy
Old news, 4/2017

"Labor is being paid first again" \- citi

[http://www.salon.com/2017/04/28/labor-is-being-paid-first-
ag...](http://www.salon.com/2017/04/28/labor-is-being-paid-first-again-
american-airlines-investors-complain-after-company-gives-pilots-and-flight-
attendants-raises/)

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Eridrus
I've long wondered how productivity is measured, so I went and found the study
these graphs are from: [http://www.epi.org/publication/understanding-the-
historic-di...](http://www.epi.org/publication/understanding-the-historic-
divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-
why-its-real/)

A few things were interesting:

a) Productivity is measured as roughly GDP/hours worked (with some tweaking)

b) The biggest chunk of the gap is income inequality. The graph that gets used
is for average non-supervisory worker in the private sector. The graph looking
at all workers is much closer.

c) The second biggest is that consumer goods are more expensive relative to
what workers are producing. The term of art seems to be "terms of trade"

d) The third biggest is more returns to capital, ergo profits, was the
smallest, only contributing 8.9% of the difference; they note that this part
is hard to measure, but the sources of error they describe are unlikely to
bump this up beyond 10%

===

At the end of the paper they rebut some common arguments and a section I found
particularly interesting was titled "Individuals’ productivity cannot be
inferred from industry trends" about why using industry-level productivity
statistics is a bad idea. Which pretty much argues that actual productivity is
not important because worker's salaries will not rise in more productive
industries.

They bring up Baumol’s law/cost disease to explain why there is a
decorrelation between sector productivity and pay, and I guess this also ties
into the "terms of trade" issue. Your barber is no more productive than he
would have been 100 years ago, but now he needs to be compensated at a level
that makes it worthwhile for him to do it.

===

Looking at this, I don't really come away more convinced that what economists
call productivity is what lay people would call productivity. Or that
measuring "average productivity" in this way makes particular sense, rather
than just being a convenient and available metric.

I also find the graph they use misleading since what that graph is largely
(implicitly) showing is that wage gains have not been evenly distributed, but
it implies something different.

===

They have a whole other paper on what they see as policy issues that lead to
this (globalization, minimum wage stagnation, fall of unions, economic rents
to CEOs) and their recommendations: [http://www.epi.org/publication/raising-
americas-pay/](http://www.epi.org/publication/raising-americas-pay/)

~~~
BoiledCabbage
This was a great link, thanks for sharing. One of the better links I've seen
on here in a while for understanding what's been going on.

Out of curiosity, could you explain more on how you found that one graph
misleading? I didn't see it that way - but didn't follow your reasoning.

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Eridrus
My complaint may be less about this exact graph, as used in the article I
linked, but more about the fact that I've seen this same graph in a bunch of
places, and I've never really seen it mentioned what exactly the graph shows.

Personally I find it sort of suspect to compare "productivity", which is the
average economic output per unit of time worked for all workers, then compares
it to the average wage for the subset of workers. Particularly since
productivity is usually presented in the layman's understanding of the word,
which would imply that individual people are more productive, but are not
being paid any more, but that is not what this graph is showing.

I feel like a better label for this chart is "economic growth is
disproportionally going to the managerial/capital class", which is a thing
that can be said without invoking productivity.

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robocat
Hard to take article seriously with such a misleading comparison between
graphs: productivity was shown on a log scale, and corporate profits on a
linear scale...

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allan_golds
Non closable "open in app" pop-up.

