Posts Tagged ‘corporations’

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Back in June, Neil Irwin wrote that he couldn’t find enough synonyms for “good”  to adequately describe the jobs numbers.

I have the opposite problem. I’ve tried every word I could come up with—including “lopsided,” “highly skewed,” and “grotesquely unequal“—to describe how “bad” this recovery has been, especially for workers.

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Maybe readers can come up with better adjectives to illustrate the sorry plight of Americans workers since the Second Great Depression began—something that captures, for example, the precipitous decline in the labor share during the past decade (from 103.3 in the first quarter of 2008 to 97.1 in the first quarter of 2018, with 2009 equal to 100).*

But perhaps there’s a different approach. Just run the numbers and report the results. That’s what the Directorate for Employment, Labour, and Social Affairs seem to have done in compiling the latest OECD Employment Outlook 2018. Here’s their summary:

For the first time since the onset of the global financial crisis in 2008, there are more people with a job in the OECD area than before the crisis. Unemployment rates are below, or close to, pre-crisis levels in almost all countries. . .

Yet, wage growth is still missing in action. . .

Even more worrisome, this unprecedented wage stagnation is not evenly distributed across workers. Real labour incomes of the top 1% of income earners have increased much faster than those of median full-time workers in recent years, reinforcing a long-standing trend. This, in turn, is contributing to a growing dissatisfaction by many about the nature, if not the strength, of the recovery: while jobs are finally back, only some fortunate few at the top are also enjoying improvements in earnings and job quality.

Exactly! The number of jobs has gone up and unemployment rates have fallen—and workers are still being left behind. That’s because wage growth “is still missing in action.”

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Workers’ wages have been stagnant for the past decade across the 36 countries that make up the Organisation for Economic Cooperation and Development. But the problem has been particularly acute in the United States, where the “low-income rate” is high (only surpassed by two countries, Greece and Spain) and “income inequality” even worse (following only Israel).

The causes are clear: workers suffer when many of the new jobs they’re forced to have the freedom to take are on the low end of the wage scale, unemployed and at-risk workers are getting very little support from the government, and employed workers are impeded by a weak collective-bargaining system.

That’s exactly what we’ve seen in the United State ever since the crisis broke out—which has continued during the entire recovery.

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But we also have to look at the opposite pole: the growth of corporate profits is both a condition and consequence of the stagnation of workers’ wages. Employers have been able to use those profits not to increase worker pay (except for CEOs and other corporate executives whose pay is actually a distribution of those profits), but to purchase new technologies and take advantage of national and global patterns of production and trade to keep both unemployed and employed workers in a precarious position.

That precarity, even as employment has expanded, serves to keep wages low—and profits growing.

What we’re seeing then, especially in the United States, is a self-reinforcing cycle of high profits, low wages, and even higher profits.

That’s why the labor share of business income has been falling throughout the so-called recovery. And why, in the end, Eric Levitz was forced to find the right words:

American Workers Are Getting Ripped Off

 

*And, of course, even longer: from 114 in 1960 or 112 in 1970 or even 110.2 in 2001.

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The premise and promise of the Republican tax cuts—officially, the Tax Cuts and Jobs Act—are that lower corporate taxes would lead to increased investment and thus more jobs and higher wages for American workers.

We all knew at the time that the logic was a sham. As I explained last August, one of the likely outcomes of the kind of corporate tax cuts Donald Trump and his fellow Republicans supported—and, as we saw, eventually rammed through—would be an increase in inequality. That’s because, since corporations aren’t facing any kind constraint in profits or their ability to borrow beyond their current profits, we likely wouldn’t see more investment, but instead some combination of more mergers and acquisitions, more payouts to shareholders, and more distributions of the surplus to CEOS.

More recently, I explained that inequality would also increase because corporations would likely use a portion of their higher profits to engage in stock buybacks, leading to an increase in stock prices. And stock ownership in the United States is already grotesquely unequal. Therefore, the rise in equity prices would disproportionately benefit the small group at the top of the wealth pyramid. And that’s exactly what is happening.

And that supposed increase in workers’ wages? Well, as it turns out, as Jeff Stein and Andrew Van Dam have shown, the hourly wages of regular (i.e., production and nonsupervisory) workers have actually fallen over the course of the past year. For those workers, average “real wages”—taking into account inflation—fell from $22.62 in May 2017 to $22.59 in May 2018.

As if that’s not enough to debunk the ludicrous claims of Trump, his economic advisers, and the Republicans who voted en masse for the tax cuts, there’s now an additional reason to cast doubt on the jobs and wages part of the selling of the tax cuts: close to 40 percent of multinational corporate profits are artificially booked in tax havens each year.*

That’s the conclusion of recent research by Thomas Tørsløv, Ludvig Wier, and Gabriel Zucman. And U.S. companies are among the most aggressive users of profit-shifting techniques, which often relocate paper profits without bringing jobs and wages. The research suggests the global trend toward lower corporate tax rates in major countries—including the recent U.S. reduction to 21 percent from 35 percent—won’t cause companies to alter their tax-avoidance moves. U.S. companies can still lower their tax bills significantly by shifting profits to places with effective tax rates between zero and 10 percent.**

It also means that cutting corporate tax rates, as the United States did at the end of 2017, is not likely to generate the positive effects on jobs and wages that the Republicans and the textbook economic models suggest. As Tørsløv et al. explain,

For wages to rise, productive capital needs to increase, which can happen fast if capital flows from abroad, much less so if paper profits—not productive capital—is what moves across countries. Second, profit shifting raises new challenges for tax policy. It reduces the effective rates paid by multinationals corporations compared to what local firms pay.

The fact is, the U.S. corporate tax cuts are a gigantic tax giveaway—to large corporations and the super rich—with no benefit to workers, even according to the trickledown logic of Trumpian economics.***

Clearly, the tax cuts are not about making America or American workers great again. In both design and implementation, they’ll only benefit employers and the tiny group of already-obscenely wealthy individuals at the top.

 

*”Multinational profits” include all the profits made by, say, Apple in France, Germany, Ireland, Jersey, and so on, but not by Apple in the United States (where its headquarters are located).

**Another implication of profit-shifting is that headline economic indicators—including Gross Domestic Product, corporate profits, trade balances, and corporate labor and capital shares—are significantly distorted. That’s because the flip side of the high profits recorded in tax havens is that output, net exports, and profits recorded in non-haven countries are too low.

***The Congressional Budget Office has concluded that, although the 2017 tax act includes a number of provisions that discourage profit shifting, it may encourage some additional profit shifting by exempting foreign dividends from U.S. taxation. On net, it projects the changes in tax law may reduce profit shifting by roughly $65 billion per year, on average, over the next 11 years. The CBO does note that “the effect of the tax act’s international provisions on profit shifting by multinational corporations is particularly uncertain”—because of the provisions’ complexity and because foreign governments might change their tax rules in response to the act. They should also have noted that any increase in booking profits in the United States rather than abroad represents a transfer of paper profits, not financial or productive capital.

 

 

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