Are Private Sector Workers Paid Too Little?

Austerity protests in Wisconsin have partially involved the question of whether state and federal employees are paid too much. Are recent article in the NY Times (here) reviews research by the Bureau of Economic Analysis comparing private salary and benefits with those paid to public employees. It's not an easy question to answer.

Looking at the graph above (the lead graphic in the NY Times article), however, it's possible that we are asking the wrong question. Notice that private and public compensation diverges around 1980, the beginning of neoliberalism (think Ronald Reagan) and globalization. What this graph suggests to me is that private sector compensation, as a result of these two trends, is too low!

Public sector jobs cannot be outsource and public sector workers have been more successful in retaining union affiliations and protection. All the discussion about public sector compensation assumes that markets have magically set private sector compensation at the right level.

Globalizing labor markets are driving employee compensation down to subsistence levels and that's great for management bonuses and Republican party political contributions. It's not so great for workers or for aggregate demand.

THEORY: If disposable income decreases, consumption decreases which decreases aggregate demand, Y = I + C + G + BOP.

GM and Executive Compensation

GM CEO Dan Akerson in a speech to the Economic Club of Washington, D.C. complained that GM needed to increase it's level of executive compensation to retain top talent. This is at the same time that the Obama-McConnell compromise is promising tax cuts for wealthy Americans and Federal employees are being subjected to a compensation freeze.

Aside from demonstrating that Dan Akerson is not politically very adept, maybe he should wait until the current GM executive team (him included, who is making $9M/year) can demonstrate some results before bellying up to the compensation trough. My forecast for GM stock (above) does not predict a very bright future, at least through 2020.

Financial Crises, Income Inequality and a Return to "American Values"

Today, in a CNN interview, Republican Marco Rubio (former Florida House Speaker) said that we need a return to "American values" that encourage the accumulation of wealth. Also, on Fareed Zacharia GPS, Lloyd Blankein CEO of Goldman-Sachs said no one should be "ashamed" to make a lot of money. Finally, it turns out that part of the reason for the Greek financial crisis is that wealthy people in Greece (there are a lot of them) are underreporting (OK, lying about) their income.

I'm, not sure what Mr. Rubio wants to return to, possibly the high levels of income inequality right before the Great Depression and the current Subprime Mortgage Crisis. For Mr. Blankfein, it probably doesn't matter (what's a million or two when you made $53.4 million US$ in 2006). And, of course, the wealthy use their accumulations for the benefit of society, just look at Greece and the US.

Incentives to be Smart

This morning on CNN, Lloyd Blankfein, CEO and Chairman of Goldman Sachs, commented (approximately): "You can incentivize someone to move from one part of the room to another ... but you can't incentivize someone to be smart." Although I know this isn't what he meant (he went on the say that the problem was with the dumb "risk managers"), if we can't incentivize people to be smart, what's the point of Mr. Blankfein earning $53.4 million in 2006?

Mr. Blankfein has been on a charm offensive recently and Goldman Sachs earnings did fall short of setting a record this quarter, but I'm not sure the charm offensive is helping his case.