Welcome to DU!
The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards.
Join the community:
Create a free account
Support DU (and get rid of ads!):
Become a Star Member
Latest Breaking News
General Discussion
The DU Lounge
All Forums
Issue Forums
Culture Forums
Alliance Forums
Region Forums
Support Forums
Help & Search
Economy
In reply to the discussion: STOCK MARKET WATCH -- Thursday, 26 March 2014 [View all]Demeter
(85,373 posts)14. "Paid-what-you’re-worth" Is a Dangerous, fundamentally misleading meritocracy myth By Robert Reich
http://www.informationclearinghouse.info/article38032.htm
Its often assumed that people are paid what theyre worth. According to this logic, minimum wage workers arent worth more than the $7.25 an hour they now receive. If they were worth more, theyd earn more. Any attempt to force employers to pay them more will only kill jobs...According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldnt be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.
"Paid-what-youre-worth" is a dangerous myth.
Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in todays dollars. Today, Americas largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour. Does this mean the typical GM employee a half-century ago was worth four times what todays typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasnt much better educated or even that much more productive. He often hadnt graduated from high school. And he worked on a slow-moving assembly line. Todays Walmart worker is surrounded by digital gadgets mobile inventory controls, instant checkout devices, retail search engines making him or her quite productive. The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew theyd be unionized if they didnt come close to matching the union contracts. Todays Walmart workers dont have a union to negotiate a better deal. Theyre on their own. And because fewer than 7 percent of todays private-sector workers are unionized, non-union employers across America dont have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.
By the same token, todays CEOs dont rake in 300 times the pay of average workers because theyre worth it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards dont want to be seen by investors as having hired a second-string CEO whos paid less than the CEOs of their major competitors. Either way, the result has been a race to the top. If you still believe people are paid what theyre worth, take a look at Wall Street bonuses. Last years average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New Yorks state comptroller. Remember, were talking bonuses, above and beyond salaries. All told, the Street paid out a whopping $26.7 billion in bonuses last year. Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail.
People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from Americas smaller banks. Thats because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones wont be bailed out if they get into trouble. This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger. How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated its about eight tenths of a percentage point. This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount roughly $83 billion a year. Recall that the Street paid out $26.7 billion in bonuses last year. You dont have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because theyre too big to fail is about three times what Wall Street paid out in bonuses. Without the subsidy, no bonus pool. By the way, the lions share of that subsidy ($64 billion a year) goes to the top five banks JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits. The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasnt because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions big Wall Street banks that hold a privileged place in the American political economy. And why, exactly, do these institutions continue to have such privileges? Why hasnt Congress used the antitrust laws to cut them down to size so theyre not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)? Perhaps its because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties....According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of Americas 1,085,000 full-time minimum wage workers. The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit. But I dont expect Congress to make these sorts of adjustments any time soon.
The paid-what-your-worth argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done.
Dont buy it.
Robert Reich: Chancellors Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers Aftershock" and The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
Its often assumed that people are paid what theyre worth. According to this logic, minimum wage workers arent worth more than the $7.25 an hour they now receive. If they were worth more, theyd earn more. Any attempt to force employers to pay them more will only kill jobs...According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldnt be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.
"Paid-what-youre-worth" is a dangerous myth.
Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in todays dollars. Today, Americas largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour. Does this mean the typical GM employee a half-century ago was worth four times what todays typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasnt much better educated or even that much more productive. He often hadnt graduated from high school. And he worked on a slow-moving assembly line. Todays Walmart worker is surrounded by digital gadgets mobile inventory controls, instant checkout devices, retail search engines making him or her quite productive. The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew theyd be unionized if they didnt come close to matching the union contracts. Todays Walmart workers dont have a union to negotiate a better deal. Theyre on their own. And because fewer than 7 percent of todays private-sector workers are unionized, non-union employers across America dont have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.
By the same token, todays CEOs dont rake in 300 times the pay of average workers because theyre worth it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards dont want to be seen by investors as having hired a second-string CEO whos paid less than the CEOs of their major competitors. Either way, the result has been a race to the top. If you still believe people are paid what theyre worth, take a look at Wall Street bonuses. Last years average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New Yorks state comptroller. Remember, were talking bonuses, above and beyond salaries. All told, the Street paid out a whopping $26.7 billion in bonuses last year. Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail.
People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from Americas smaller banks. Thats because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones wont be bailed out if they get into trouble. This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger. How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated its about eight tenths of a percentage point. This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount roughly $83 billion a year. Recall that the Street paid out $26.7 billion in bonuses last year. You dont have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because theyre too big to fail is about three times what Wall Street paid out in bonuses. Without the subsidy, no bonus pool. By the way, the lions share of that subsidy ($64 billion a year) goes to the top five banks JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits. The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasnt because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions big Wall Street banks that hold a privileged place in the American political economy. And why, exactly, do these institutions continue to have such privileges? Why hasnt Congress used the antitrust laws to cut them down to size so theyre not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)? Perhaps its because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties....According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of Americas 1,085,000 full-time minimum wage workers. The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit. But I dont expect Congress to make these sorts of adjustments any time soon.
The paid-what-your-worth argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done.
Dont buy it.
Robert Reich: Chancellors Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers Aftershock" and The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
Edit history
Please sign in to view edit histories.
31 replies
= new reply since forum marked as read
Highlight:
NoneDon't highlight anything
5 newestHighlight 5 most recent replies
RecommendedHighlight replies with 5 or more recommendations
Citi, four other banks see capital plan rejected by Fed By Steve Goldstein, MarketWatch
Demeter
Mar 2014
#2
Bank of America to Pay $6.3 Billion to Settle Mortgage Securities Suit By MATTHEW GOLDSTEIN
Demeter
Mar 2014
#3
First Amendment Train Wreck in the Making: U.S. Senate Tries to Define Who Is a Journalist
Demeter
Mar 2014
#6
"Paid-what-you’re-worth" Is a Dangerous, fundamentally misleading meritocracy myth By Robert Reich
Demeter
Mar 2014
#14
US Prepares To Provide A Billion To Ukraine As Detroit Plans Mass Water Shutoffs Over $260 Million
Demeter
Mar 2014
#11
Sinkhole of bureaucracy:Deep underground, federal employees process paperwork by hand in a long-outd
Demeter
Mar 2014
#12
ETA News Release: Unemployment Insurance Weekly Claims Report (03/27/2014)
mahatmakanejeeves
Mar 2014
#22