Goldman Exposes America's Corporatocracy - Wage Growth Is Slowing, Not Rising

By now most market participants have been able to see through the smoke and mirrors of Friday's 'explosive' wage growth data (driven by a drop in hours worked and declined on a weekly basis) but the narrative remains one of soaring wage growth and inflation anxiety on mainstream media today.

Perhaps that is why Goldman Sachs penned a rather fascinating report over the weekend that played down wage growth stories dramatically and - most surprisingly - pointed the squid-finger at the ever-increasing concentration of American business as the reason why... in other words, enabling oligopolistic (or monopolistic) economies across various sectors has crushed the American Dream for many - and will continue.

Goldman's Jan Hatzius notes that the wage data released last week provided positive early indicators of a potential reacceleration of wages, which disappointed in 2017, but a strong of recent data misses in the various wage series - including the Atlanta Fed wage tracker and median weekly wages series from the household survey - have pushed down our broader wage growth tracker to just 2.1% as of Q4, as shown below.

More broadly, the moderate pace of wage growth over the last couple of years has fallen short of the expectations of many observers.

While the labor share - the part of national income paid to workers—has recently continued its decades-long decline, US corporate profit margins have risen further to historic highs, especially for the most profitable firms. Over the last two decades, most industries have also become more concentrated with a few large firms earning a larger share of revenue, potentially shifting the bargaining power from consumers and workers to firms and employers.

As the chart above shows, average wage growth has fallen from 3.5% in 1985-2007 to 2.1% in 2008-2017. While much of the weakness in wage growth over the last decade relative to pre-crisis norms can be attributed to cyclical labor market slack and soft price inflation, longer-run declines in trend productivity growth and in the trend labor share are currently still weighing on wage growth.

Exhibit 2 shows that the part of nonfarm business income paid to workers has fallen by 6 percentage points (pp) since 1999 to just 56%, while corporate profit margins have continued to rise.

Goldman suggests that rising concentration of employment could shift the balance of bargaining power from workers to employers. Wage-setting power allows employers to lower wages below workers’ marginal revenue product without losing too many employees. While a handful of superstar employers with better technologies could choose to hire more workers and pay higher wages than less productive firms, the limited availability of attractive alternative employers may prevent workers from earning their full marginal revenue product.

Exhibit 4 shows that the share of total industry sales attributed to the largest 50 firms has increased in 10 of the 13 two-digit industries covered by the Economic Census.

About 75% of the NAICS three-digit industries have experienced an increase in concentration levels over the last two decades. We have documented in previous research the relationship between concentration and profit margins, as illustrated in the right panel of Exhibit 4.

And as Goldman concludes,

Combining the average decline in the number of establishments in 2001-2016 and our coefficient estimates, we estimate that the rise in labor market concentration accounts for a 1% hit to the level of wages since 2001, or a 0.05-0.1pp drag to annual wage growth. A crude sum of our product and labor market concentration estimates suggests a combined drag from the rise in concentration to annual trend wage growth of around 0.25pp.

Which roughly translated means America's increasingly monopolistic corporatocracy has weighed heavily on Average Joe's wages...

And Goldman is not entirely optimistic this improves anytime soon...While the cyclical outlook for wage growth looks increasingly favorable given the ongoing fall in labor market slack, a continued decline in the trend labor share would hold down trend wage growth...we remain cyclically optimistic about wage growth and continue to expect a renewed acceleration as the labor market tightens further. Over a longer horizon, our analysis shows that the potential of continued rise in concentration implies some downside risk to our 3-3.25% trend wage growth estimate.

Comments

Thought Processor Joe Davola Tue, 02/06/2018 - 12:12 Permalink

 

Yeah, automation to the rescue!  That'll fix things real good.  All by design.  

 

Wage inflation, historically has been the largest inflation component that the real owners (re; 1%) cared about.  Which is why real wages have been kept in check and or have been declining relative to other aspects of inflation for quite a long time.  

So yeah, automation will pretty much cement the above wage inflation disconnect into the future.  

In reply to by Joe Davola

Deep Snorkeler Thought Processor Tue, 02/06/2018 - 12:24 Permalink

The nation has peaked

Americans are not valuable,

they aren't good at anything any more.

Nearly a third of the nation's population is illiterate

and their numbers grow by 2 million a year.

Work ethic has been traded in for

celebrity-watching and leisure pursuit.

Breast implants replaced knowledge implants.

In reply to by Thought Processor

SeaMonkeys Deep Snorkeler Tue, 02/06/2018 - 12:48 Permalink

You're absolutely right. And credit cards, home equity and so on have enabled the bottom 70% to continue spending, which keeps the balance sheets of the 1% healthy and able to grow. The ability to add value and capture it in earned income has vanished from America. 

The ability to reverse course is prevented by the huge inflation in prices of everything in the economy outside of raw materials. The inflated prices are a result of debt and speculation that came with financialization, starting in the 70's.

We are stuck between a rock and a hard place. The first thing to do should be to create sovereign money.

In reply to by Deep Snorkeler

Endgame Napoleon Thought Processor Tue, 02/06/2018 - 12:34 Permalink

It is automation and too many womb-productive citizens, legal and illegal immigrants who do not need higher wages or full-time hours due to the fact that they have spousal income or monthly welfare and now-doubled, refundable [EITC] child-tax-credit welfare up to $6,444, when they work part time to stay below the earned-income limit for monthly welfare and the cut off for refundable child-tax-credit welfare.

That, and automation, will keep wages and hours low, with the lack of hours meaning more homelessness for the non-womb-productive non-welfare-eligible citizens who must cover all bills with earned-only income, including rent that soaks up more than half of monthly pay. At least, Goldman and Tyler, in the linked article, are being honest about it, not trying to get one over, like Swamp Creatures on both sides of the Uniparty and their PR team in the corporate-owned media.

In reply to by Thought Processor

InnVestuhrr Endgame Napoleon Tue, 02/06/2018 - 15:09 Permalink

Mostly true EXCEPT that my job and income, and many others like me, are FROM automation.

If you don't want to be replaced or controlled by a robot then Make yourself more useful and valuable than a robot.

AND

Automation is the ONLY chance that Americans have to compete in producing goods against the massively over-populated high-breeding-rate countries which consequently have ultra-low-cost labor.

Focus your efforts on keeping the low-IQ, uneducated, socially-incompatible, high-breeding-rate, entitlement parasites out, and learn how to code.

 

In reply to by Endgame Napoleon

InnVestuhrr pitz Tue, 02/06/2018 - 23:11 Permalink

I agree that there is a lot of H-1B visa abuse, and I would like to see that program scaled down to a trickle and force every employer to justify and fully subsidize every H-1B visa that they import,

BUT

the solution is NOT to oppose automation because it "takes away jobs", the subject of the post. If the skills you have and the work you do are so low that you can be replaced by automation, then you deserve it.

In reply to by pitz

venturen Tue, 02/06/2018 - 11:57 Permalink

Going to run out of customers soon and then people will have time to figure out the way to TAKE BACK THEIR COUNTRY...Remember you still need people to build your safe room and for your security team

GRDguy Tue, 02/06/2018 - 12:00 Permalink

This is exactly why silver is being kept so artificially low; so workers can't evaluate just how much they're being screwed hourly by the large plantations. It's been effective, too. And those workers getting a one time $1000 bonus; it's just half of what's stolen from them last year.  Losing one dollar per hour times 40 hours a week times 52 weeks is $2080. 

J J Pettigrew Tue, 02/06/2018 - 12:01 Permalink

more illegals...

and for those who think corporations are going to pass their savings on .... wake up

Corporations charge what the market will bear

Pay employees what it takes

$1000 bonuses a PR move, one timer

moonmac Tue, 02/06/2018 - 12:13 Permalink

No reason to raise wages. There’s a million American Temp Workers who would kill for a permanent low wage dead end job with paid sick days, vacation and full benefits.  

Bastiat Tue, 02/06/2018 - 12:23 Permalink

There are corporations, then there are corporations:

"Employees at Whole Foods Market say the company’s new policies have thrown their workday into chaos, with one supervisor saying it’s not uncommon to see stressed-out employees crying on the job.

Workers for the Austin-based supermarket chain tell Business Insider that the store’s new “order-to-shelf” inventory system has been taking a toll on the staff since the guidelines were implemented last year.

WHOLE FOODS CUSTOMERS ANGRY OVER SHORTAGES, EMPTY SHELVES"

http://www.foxnews.com/food-drink/2018/02/02/whole-foods-employees-are-…

This paves the way for robot workers--maybe they can simplify their inventory and sell robot parts, Li-ion batteries and quick-charge services to other robots, totally avoiding the whole perishables thing?

 

Blankfuck Tue, 02/06/2018 - 12:42 Permalink

But But the SLEAZY ONES ON CNBC AND IN WASHINGTON BEEN TELLING US LIES? OH MY, CANT BE TRUE? 

But But the SLEAZY ONES ON CNBC AND IN WASHINGTON BEEN TELLING US LIES? OH MY, CANT BE TRUE? 

But But the SLEAZY ONES ON CNBC AND IN WASHINGTON BEEN TELLING US LIES? OH MY, CANT BE TRUE? 

But But the SLEAZY ONES ON CNBC AND IN WASHINGTON BEEN TELLING US LIES? OH MY, CANT BE TRUE? 

To Hell In A H… Tue, 02/06/2018 - 14:12 Permalink

Trumpstein will change things. lol Who needs comedy club and nights for a laugh, when you can read half of the Trumpstein supporting comments.

I sit at my chair on my home desk and just roll up in laughter. Some of Trumpsteins supporters portray the psychology of a cult member.

Trump is not a big fan of wage increases, that's for sure. Back to the slave markets peons. **Winning** 

tunetopper Tue, 02/06/2018 - 16:33 Permalink

2 Party Politicians - exploiting labor for 100 Years!   Outsourcing to China, India, Singapore, Taiwan, S. Korea. Insourcing low cost labor from Central and South America. Giving away academic opportunity to kids from all around the world, most of whom had no loyalty to the US, and whose fathers and forefathers DID NOT fight to defend our country in 2 world wars.  In fact our forefathers fought to make them an opportunity in their home country. 

Our kids are now strapped with student loans and low wage jobs.

 

Welcome to 'Murica