Friday, March 25, 2016

Robots won't make CEOs more productive

Over the span of Bernie Sanders campaign, there has been an interesting response to his call for a $15 minimum wage. Of course, Sanders isn't the only one to call for such an increase and some cities are actively working on raising their local minimum wage to $15. The response from conservatives has been this:

Apparently, some people think that raising the minimum wage would only accelerate the pace of automation in the fast food industry. Someone seems to be forgetting that if robots replace people, there won't be any customers to buy what you're selling. Who's forgetting that? I think that might be the CEOs and their complement of friends in their respective boards of directors.

Yet few will counter with the problem of CEO pay that is not directly connected to CEO productivity. You could say that CEO pay has become unhinged. Economist Dean Baker notes in his book, "The End of Loser Liberalism", that somewhere around the late 1970s, a policy decision was made to disconnect wages from productivity. This is reflected by a longstanding reluctance on the part of Congress to raise the Federal Minimum Wage. 

So while some people bemoan the possibility that fast food workers will be out of a job if we raise the minimum wage to $15 an hour, few have taken any notice that the real reason for automation might be to help finance out of control executive compensation. Few would guess that CEO compensation is a matter between friends. But it is.

Economists have rightly noted that incomes in the top 1% have gone up much faster than for the rest of the country. While the top 1% saw their incomes double since 1979, the rest of us saw stagnant or falling incomes, despite productivity gains. Economist Dean Baker has put together a nice chart to show how productivity has increased over the last 30 years relative to the previous 30 years.

What we see is that since wages have been decoupled from productivity, productivity has gone down. This isn't a small decline, it's actually very significant. Now lets look at executive compensation during the same periods:

You can find the original chart here, at the Economic Policy Institute's Website.

What do we see? We see that as executive compensation went astronomical, productivity actually went down. Way down. When productivity goes down, things get expensive. Unless of course, your team of MBAs figure out a way to make things you sell in China, Vietnam and Thailand. One might think that CEO's are managers and that when the productivity of the people they manage goes down, so does their compensation, right? Well, not in America. We're different.

I don't know about you, but I'm more worried about CEOs than robots when it comes to my job. Their income isn't based on their productivity. It's based on their ability to influence public policy

Study after study has shown that low voter turnout correlates with inequality. The only way to change public policy is to get engaged. Read. Write. Vote.
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