Bonuses and Bogosity
On Feb. 19 Walmart, America’s largest employer, announced broad-based pay hikes. In fact, it announced that it would be raising wages for half a million workers. The Trump tax cut is working!
Oh, wait. That announcement was three years ago – it came on Feb. 19, 2015. And as far as I can tell, nobody gave the Obama administration credit for the move.
A Walmart employee helping a customer at a store in Colorado.
Credit Rick Wilking/Reuters
Why did Walmart raise wages? Partly because the labor market was tightening: unemployment had fallen more than 40 percent from its peak in 2009 (a decline for which the Obama administration’s stimulus and other policies actually do deserve some credit.) This tightening labor market meant that Walmart was having trouble attracting workers.
Walmart was also in the midst of a change in business strategy. Its policy of always low wages, always, was starting to look problematic: low pay meant high turnover and low morale, and management believed that moving at least partway to the Costco strategy of paying more and getting better performance as a result made sense.
The moral of this story is that unless the economy is deeply depressed, there will always be some companies, somewhere, raising wages and offering bonuses. Which brings me to the Trump tax cut and the very bad, no good job much of the media initially did of covering its effects.
Every card-carrying economist agrees that cutting corporate tax rates will have some trickle-down effect on wages – in the long run. How much of a trickle-down effect depends on a bunch of technical factors: what share of corporate profits represents monopoly rents rather than returns to capital, how responsive inflows of foreign capital are to the U.S. rate of return, what share of the capital stock is even affected by the corporate tax rate. Enthusiasts claim that the tax cut will eventually go 100% to workers; most serious modelers think the number is more like 20 or 25 percent.
Whatever the number, however, it’s about the long run. It requires a chain of events: lower taxes -> higher investment -> higher stock of capital -> higher demand for labor -> higher wages. And this chain of events should take a number of years, probably decades, to fully work itself through. Even in the most favorable analyses, there is no reason to expect any wage gains in the first few months after a tax cut.
Yet for a while there the news was full of stories about companies announcing that they were giving their workers bonuses thanks to the Trump tax cut. Why were they doing this?
Well, the tax cut provided no immediate incentive to raise wages. It did, however, give companies that benefited from the tax cut a strong political incentive to claim that the tax break was the reason for bonuses or wage hikes they would have given in any case. Why not? They want the tax cut to look good, since it’s good for them. And hyping its benefits is a cheap way to make a de facto campaign contribution to an administration that can do a lot to help companies it likes, say by removing pesky safety or environmental regulations.
In other words, the whole “bonuses thanks to tax cut” story was bogus, and obviously so. Yet much of the media fell for it.
There was also a big element of innumeracy involved. Most people have no idea just how big the U.S. economy is; if you say “company X just hired 1000 workers” or “company Y just gave 5000 workers a $1000 bonus” they imagine that these are big stories, when in reality they’re just noise in an economy where around 5 million workers are hired – and an almost equal number quit or are fired – every month.
The numbers we have so far show that the much-hyped bonuses are trivial – less than $6 billion, or 0.03% of GDP – while stock buybacks have been more than $170 billion. And many of those bonuses would probably have happened anyway, whereas stock buybacks are running far above historical levels.
Furthermore, the surge in stock buybacks suggests that the long run effect of the tax cut on wages will be small. Remember that the chain that should lead to trickle-down begins with lower taxes -> higher investment. If companies use the cuts to buy back stocks, not add to plant and equipment, the wage-growth story doesn’t even get started.
So the real news about the tax cut is that it is – I know you’ll be shocked – mainly a giveaway to corporations. Who could have predicted?
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by Paul Krugman
There may be links in the Original Article that have not been reproduced here.
Article is LOCKED by author/seeder
Using Paul Krugman as a reliable source?? You cannot be serious.
I suggest that visitors actually READ the seed before Replying to it.
This stops now!
Bob you have to let 9mm on the article.
9mm, you should make amends. I know as a fact Bob served and at a job no man would have wanted. If you can't I won't make you, but it also tells me a lot about your character.
If it continues, I will close the article.
He is not welcome. Neither on this seed, nor on any other.
I made it clear that I cannot prevent his posting, but that he is unwelcome.
Bob that will be the last time you say that. Clear?
No. I will repeat it whenever he posts to one of MY seeds.
I'm just wondering how you were able to survive the 60's and 70's with all those Leftist spitting on you when you returned to the USA. You know, they are still spitting on us for that war and every one since then.
Ummm.... six...?
I'm a Leftist...
Those who puts themselves in harms way for the good of our society deserve our respect and gratitude. This also extends beyond the military to the (honest) police force, et. al.
Thank you OSM.
Thank you Bob.
Thank you 9mm.
My hope is that deadly-serious service to one's nation will not be further trivialized by petty squabbles on a public forum. Ideological differences aside, you three are brothers in an important fraternity - one whose dignity should not be tarnished.
You chose to address yourself to OSM, so I was going to let this slide... but since they have chosen to continue, so will I.
I deeply resent your characterization of my behavior as "petty".
9mm publicly cast doubt on my service. That is not "petty".
Now 9mm comes on MY seeds as though nothing ever happened. Nope. Ain't gonna work like that.
Perrie's meta set the record straight, and I am deeply grateful to her for that.
But we are still at the same situation: 9mm cast doubt on my service, and never apologized.
He is not welcome on MY seeds. I don't expect the community to do anything about 9mm's behavior (although it probably should), but I personally will not accept his presence on my seeds. If I meet him elsewhere, I will ignore him. If he Replies to me I will answer "I do not know you".
I apologize. I'm pretty sure I said hateful things and I didn't apologize. So I'm doing it now
You really need to grow up and act like an adult, or Perrie should ban you for a week or so. Never seen such crybaby whining on any forum!
I was not characterizing your behavior Bob. Look again at my post. The 'petty' was contrasting the service you and your fellow veterans provided with this online squabble (indeed, any online squabble). That is, relative to what you went through and the service you provided it is a real shame that three vets are having such a dispute on an online forum - something that cannot begin to compare with the service you three provided and the risks you took.
In short, relative to the reality of putting one's life on the line for one's country, online squabbles are 'petty'. IMO.
Obama will forever be ignored by any Republican voters. They will ignore his positive accomplishments and never give credit for anything he was able to get done.
I give him credit for cutting the payroll taxes I wish it was permanent instead of for just a couple of years. I also give him credit for raising the Federal estate tax exemption.
Obama accomplished nothing of value. Sold us down the river on the Iran "deal".
Could this explain the roller coaster stock market?
No it’s because of the computer algorithms the big trading houses use.
The numbers we have so far show that the much-hyped bonuses are trivial – less than $6 billion, or 0.03% of GDP – while stock buybacks have been more than $170 billion. And many of those bonuses would probably have happened anyway, whereas stock buybacks are running far above historical levels.
This is factual information, taken from the article. I'll stipulate to it.
Here are my thoughts:
1)Stock buybacks are for the benefit of the stockholders. They are the owners of the company. I get that there are judgments on who "should" get what, but the fact is that the owners are the ones that bear all the risk. The fact is that we've seen a number of "stock market" articles seeded by and commented on by a good number of NewsTalker economists and dilettantes who express great glee at stock market turndowns. Toldyasos aside, they basically decry the increasing wealth of risktakers, worldwide. These are the people with skin in the game, and they are - wait for it - ENTITLED to the lion's share of the financial benefit. Above all, they are entitled because they have to bear all the risk. And, despite the shrill screeds, there are millions of Americans participating in stock ownership through 401(k) plans who have realized more wealth than they ever imagined. Their retirement distributions in many cases exceed their Social Security benefit. The number of participants in these plans is an ever increasing number, and will continue to increase, because that is the American Dream, and it will continue to be realized by greater numbers. It's increasing. It's not dropping.
2)Let's agree that the bonuses are a one time boon to employees. There's probably nothing coming to most of these recipients next year. What really benefits workers is higher wages, and many have gotten increases. Should they get more? Sure, they should. And they will continue, as unemployment makes its way below 4%. The economy is absolutely ripping, and I know it's difficult to admit that Trump's actions have contributed greatly to it, but this will bring higher wages.
But it will also bring greater wealth to companies, who will be in a position to increase those wages. The fact that they gave most of their repatriated cash to the stockholders does not preclude the American worker from receiving raises in the very near future. The state of the economy has already caused a tightening in the labor market, and the additional incremental tightening in the coming year will be an even greater boon than the bonuses received.
The poo-pooing is not an objective way to look at the present state of affairs. It's one thing when this goes on in the threads. It's another when you trot out a person with a strong economic background who is loathe to give credit where it is deserved.