this reasoning is pure and simple and correct, you start from the top, not from the fact "they can afford it" because their job is not to spend the money they have their job is to increase value for investors.
Is their job to increase it in the short or the long term? These “I know we’ve been doing great for 3 years, but the past 3 months haven’t been so hot, so we’re going to cut jobs.” Messages seem incredibly shortsighted.
The whole system is wrong.
Only when things are going so terrible that the board is trying to get you replaced is when it becomes important.
If the board aims to replace you because of a bad quarter in a bad economy… find a different company to be CEO of I guess.
Is the vast majority working at these companies (with years of vesting, no?) so shortsighted? Especially the higher ups?
Is it a requirement at these companies that you have to be 10000% in debt and living paycheck-to-paycheck to be a SVP/VP/director/whatever so you have to be hyper-focused on that stock comp?
It's just ridiculous. (And note, I'm not saying it's not a factor, it might be, but it's just not the full picture.)
When excluding RSUs, FAANG jobs are not extreme in any way. RSUs are not a cherry on top but an important component of remuneration. Often for mid-level and above (roughly TL/staff engineer and Manager-II), the value of RSUs is more than 50% of total compensation.
and then there's stock on top. oth
Generally speaking, unless there is a fundamental change in outlook, selling based upon the latest earnings report is the hot money which attempts to chase the latest greatest and is moving on (and rarely tells you about their misses).
The challenge is that they dont have magic powers to see into the future. If a company income is falls this quarter without a compelling reason such as investment, this data indicates that the company will not do good next quarter.
The are tons of examples of company stock prices increasing due to a acquisition, despite a lower quarterly profit.
Why?
Incentivized by whom? This is choice they make. See the OP.
If you go on an investor call as the CEO and said, "hey we didn't make any profits this quarter because we invested it all into projects that will grow our revenue X% in the next quarter or half" you'll get fired by the board very quickly, or an activist fund will buy up shares and vote you out as quickly as they can.
A company that is cutting staff is creatively bankrupt and has clearly no idea where to spend effort in anything new.
I wouldn't invest in a company that is reducing headcount in this manner.
With 0% rates money is free and you can take forever to make a profit, nobody cares, just borrow more money if you run out.
With 5% rates money is expensive and you have say 2 years to make a profit or everyone loses their job and investors lose their funds.
This doesn’t really apply to massive companies like google or MS of course but it does to anyone smaller without a cash cushion (the majority). Now job cuts may or may not be the right decision but they are triggered by very real and urgent fears about plummeting earnings.
Cheap money has distorted the entire market and conditioned a generation of investors to expect unreasonable returns and to ignore the price, revenue, profit and loss.
We need to fire thousands of people.
Why?
Because it will make us more attractive for investors.
Why?
So they put their money in our company.
Why?
Because that will buoy our stock price, which is important.
Why?
Because it makes shareholders richer.
Oh.
Because that will buoy our stock price, which is important.
Why?
Because our stock price is also our operational funds.
How comes?
Because our actual funds are invested somewhere else.
Why?
Because it makes shareholder richer.
Oh.
or is it because a large portion of the global revenue is "parked" outside the US for tax reasons?
or due to stock buyback there are not much "funds" at all?
.. no it isn't? This is conflating "equity" with "free cash". Have a look at one of the balance sheets.
However, until now, it has been my understanding that the way any large company works is by using their stock value as collateral against short term investments from banks, which then serve as operational funds.
Am I wrong?
It looks like I cannot delete or amend my post, which is a shame.
You occasionally get debt-to-equity swaps in near-bankruptcy situations.
There was a certain amount of "borrow against funds held in Ireland to avoid US repatriation taxes" done by Apple, but that wasn't using stock as security, that was using cash of a different subsidiary.
Why? Because market is booming and we need to make the most of it to increase our stock price.
Why? Because it will make us more attractive for investors.
Why? So they put their money in our company.
Why? Because that will buoy our stock price, which is important.
Why? Because it makes shareholders richer.
Oh.
Or was it assumed that those in the tech industry were a "protected" class of people for whom the rules do not apply?
Hell one of the best things about capitalism: everyone is equal before the dollar and everyone is expendable.
https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fi...
You never see CEO’s take pay cuts, lose compensation, or executive teams get, “right sized.”
It’s always the workers who get the shaft first.
Given that a lot of this is driven by a hedge fund, isn’t this how IBM was gutted back in the day?
Investors know this. Investors would also question why there are layoffs in an apparently healthy company. All this means that CEOs don't want to do mass layoffs which even more strongly raises the question of why they did it to start with.
Who else uses the term "right-sizing" and considers how being laid off "provides an opportunity to build resilience"?
There exist large private companies; how do they behave differently? I could imagine it going either way, depending on the owners, employees, and all kinds of other factors.
The framing of ordinary workers getting the boot so fat cats can buy bigger yachts is seductive but I can just as easily frame it as:
Fixed income, middle America boomers entrusted these companies to be good stewards of their capital but it was instead spent on paying high six figure salaries to coastal city professionals from elite schools to do work of dubious value.
Social Security is pinned to inflation, so I don't understand why those living on Social Security payments might be in different circumstances now than 5 years ago.
"The labor economist Arindrajit Dube has estimated hourly wage changes — by decile rather than quartile — over a longer period, since the beginning of the pandemic recession. He finds that real wages for the bottom 40 percent of workers have actually increased".
[1] https://imgur.com/a/WCrJ40c [2] https://imgur.com/a/t1tQe4n
I wasn't arguing for a particular point, but I do happen to advocate for basic income policies funded by progressive taxes.
> to about 2008
I must have overlooked that you were talking about a longer time period than the pandemic. Most people recently have been discussing the stimulus policies and correlated (not necessarily caused) inflation. There's been a trend of saying they were counter-productive for lower income households, which is not supported by FRED measurements.
From my original comment, my statement you took issue with was
> Instead, we see most wealth going to the richest of Americans, with the lions share of wealth created during the last 2 years of resurgent economic boom going to the top 1% of Americans
which is a very substantiated claim[1]. Your counter argument was that in the same time frame, the bottom 40% have seen real wage gains. My counter to that argument is that while it is true, it still doesn't reflect where most of the money is actually going, and is a disingenuous argument that makes the situations of the lower 50% seem better than it is. I never argued that stimulus policies were bad for lower-income households. Not sure what point you're trying to make to me.
[1] https://www.cnbc.com/2023/01/16/richest-1percent-amassed-alm...
I wanted to add nuance to the statement about most wealth going to the top. The last two years have also been great for (some groups of) poorer Americans. Real wages had been going down since the 1970s. Now, up (for some cohorts). Unemployment is down.
The world has detail.
If I had to make a point, I suppose it'd be that summaries can be misleading. But, I'm not interested in engaging in a debate of points and counter-points. There's no judge here, awarding victory and speaker points. I suppose upvotes are tracked, but we've moved off the front page. Not so much traffic to give us a sample.
Then I guess I have to agree with you, when discussing where wealth went during 2020, and the state of the lower 50% of Americans, it is misleading to only point out that the lower ~50% experienced wage growth without also pointing out that a majority share of overall wealth still went to the 1% and that the real gains have still not caught up with the terrible situation they've been in for years. As for the original point, the claim that the majority of wealth created since 2020 has gone to the 1% is not made any more nuanced by including that real wages have increased for the bottom 50%, as all it does is distract from the actual issues at hand.
On the contrary, noticing that real wages increased for the poorest 40% may motivate policies like a universal income / citizen dividend. Perhaps a higher steady state inflation is necessary, 4% instead of 2%, to keep unemployment low and real wages rising for the poorest.
Its an interesting argument but it has already been seen in America where neo-libs and the GOP have shifted most of the blame for inflation to the stimulus checks, so I doubt it.
> Perhaps a higher steady state inflation is necessary, 4% instead of 2%, to keep unemployment low and real wages rising for the poorest.
The only way I could see higher inflation leading to higher wages is worse material conditions leading to more workers fighting for higher wages. Unless there's some weird economics at play, I don't see any other reason why inflation would increase wages, and if that is the reason, I'm not going to support any platform that only works because it increases misery.
> Have you considered what happened to the wealthiest 1% as inflation fears led to increased interest rates?
Yes, they saw a small adjustment in net worth down 7% at the beginning of 2022, although that seems to have flattened out since then, and real wages have only increased since early 2021, when they fell ~1% in Q1 2021. I'm not sure what you'd do with this, because increasing interest rates reduces inflation, which works against your (since you don't like the word argument) idea that we should keep inflation higher.
However, there seems to be a relationship between inflation and unemployment. It's been cloudy, but the hypothesis is that low unemployment causes higher inflation. I further conjecture that sustained low unemployment flattens the income curve, leading to higher real wages at the low end.
Regardless, low unemployment is a good thing in its own right.
Again, no they aren't, the only link would be that inflation worsens material conditions, which could lead to more people seeking higher wages, which overall improves wage conditions. The only "link" we've seen is recently, and even looking just behind the 2020s you can find inflation causing real wage decreases [1].
> If all components of inflation increased uniformly, purchasing power would stay constant
"If" is doing a lot of heavy lifting here.
> Inflation is only a drag to the extent that it's surprising.
Tell that to people who are un-banked, working minimum wage, or really any average person and see what their response is.
> However, there seems to be a relationship between inflation and unemployment.
Not sure where you're seeing this, and its hard to try and claim, as we are just now reaching pre-2020 levels of unemployment, not some mythical low level of unemployment. I could see an argument for lowering unemployment leading to higher inflation, but a stable low unemployment has shown no bearing on inflation.
> I further conjecture that sustained low unemployment flattens the income curve, leading to higher real wages at the low end.
Thats a nice conjecture, but again, just look right before 2020 to find the perfect counter argument, and data coming out from the end of 2022 is showing the opposite[2], that as U6 has reached an all time low (which I will say is not too shabby), real wages have started to slow their growth.
> low unemployment is a good thing in its own right
I know I'm probably starting to seem combative here, but again, this just isn't always true. For the overall state of our economy and the safety of the wealth of the richest, maybe, but on one end of the unemployment chart it speaks to less people being able to make it by without jobs. Employment among people with disabilities is at its lowest[2], which speaks to our societies inability to care for those who need it. People with disabilities are not going out and finding jobs because bagging at a grocery store is fulfilling, they're doing it because they can't afford not to.
On a different note, I'm really not trying to seem combative, and I hope you're enjoying our fake online discussion as much as I am.
[1] https://positivemoney.org/wp-content/uploads/2018/02/CPI-inf... [2] https://cepr.net/jobs-2023-1/
One difference in terms that we're having trouble with is "inflation". When I spoke of "inflation" previously, I meant it in the general sense, not specifically consumer goods prices, or some other subset of prices. By definition, that means that nominal wages are included. The price of labor is just another price that inflates along with everything else. Note that the chart you linked [1] says "CPI inflation" rather than simply "inflation".
As for the relationship between unemployment and inflation, it's in a standard economics textbook. Unfortunately, the evidence for the theory has been somewhat mixed.
> Note that the chart you linked [1] says "CPI inflation" rather than simply "inflation"
https://www.brookings.edu/blog/up-front/2021/06/28/how-does-...
When I'm speaking of inflation, I use the generally accepted definition of "a general increase in prices and fall in the purchasing value of money." This is why in the US we use CPI (and sometimes PCE) to measure inflation, it allows us to track how the prices of goods change, and through that we are (theoretically) able to track what the actual inflation rate over time is. Inflation in the macro sense can come from many places, but in general it is accepted that while wages _should_ keep up with normal inflation of 2% or so in America, that inflation eats away at stagnant wages, and has little direct effect on its own over wages, as evidenced by looking at average wages vs inflation, even in 2022 where the bottom 50% experienced their real wage growth[1]. "Price of labor" is much more theoretical in modern america, as there are many regulations that affect it, along with the much decreased bargaining power of the average worker since the decline in union membership, along with the fact that the average person anywhere in the world is not going to ever "buy labor", its a price that corporations set themselves and pay exclusively, and is therefore already fairly detached from any inflation (yes, I understand that corporate spending is still spending, but that argument starts getting a little trickle-down). As I said before, I can see there being a link between inflation and wage rise, but I still don't see where the root cause could be other than material conditions worsening leading to people fighting for higher wages. I guess in a "we need to fight more for ourselves" sense this isn't terrible, but I think we need to move away from a system where the way to progress is through misery.
I will say I was incorrect about the standard view of the relationship of unemployment and inflation, and that historically there has been (and it makes sense for there to be) a link between high inflation and low unemployment. Again, though, there are several ways to look at this, and it depends on where you think the driver of inflation is. If you (informally) believe that inflation comes from supply-side, then its pretty easy to explain the current inflation as we have consistently seen breakdowns in supply chains that have consistently led to lower supply. For demand-side inflation I think an argument could be made there, as with direct-to-consumer stimulus there is more money (along with the same amount of money going into PPP loans for buisness-owners), but looking at real disposable income[2], we are just reaching pre-2020 levels (aside from some very obvious spikes where stimulus checks were). Without extra disposable income across the board, I'm not sure where the extra discretionary spending would come from to increase prices. According to the NY Fed, the inflation was mostly caused by the demand shock (specifically) when recovering from early 2020, and supply-side issues[3].
For more context, I do fancy myself a bit of a work-abolitionist and am horribly left, so it is definitely coloring my takes, but I hope I'm providing enough data for my claims to counteract my inherent bias.
[1] https://fred.stlouisfed.org/graph/?g=SCYD [2] https://fred.stlouisfed.org/series/DSPIC96 [3] https://libertystreeteconomics.newyorkfed.org/2022/08/how-mu...
The general public are consumers, so it's plausible that the "generally accepted" definition of inflation considers mostly the CPI. However, many generally accepted things are incorrect. If we're having a more technical discussion, it's reasonable to use a more technical definition. Perhaps best to be specific, saying "consumer price inflation" and "employment cost inflation" rather than simply "inflation" with no modifiers.
Notice that recent news about inflation has been deceleration of consumer prices. Most importantly, of rent, the largest component of the CPI. If the FRB were only concerned with that, they'd probably not have voted to increase the interest rate on Feb 1st. I'm guessing they had access to unemployment rate numbers from the BLS, which published a surprising job growth report today.
> people fighting for higher wages
My "fight" has been quite easy. I simply ask for it, or go get a different job that pays more. Of course it's not so easy for some people, but over the last couple years I've heard anecdotes from many business owners moaning over their employees' demands. "I just can't find any [qualified people that accept the wage I paid last year]." A friend of mine, an hourly worker, got an 18% raise in January!
The idea one might believe in either supply-side or demand-side causes of inflation and not both is strange to me. First, the primary driver of inflation in the long run is monetary policy. That's not controversial (among economists). Whether to consider price changes due to supply and demand as inflation is trickier, especially because those causes are so difficult to disentangle from monetary causes. Second, in considering short-term price changes due to the balance of supply and demand, they're clearly both important for almost all goods and services.
No. "In classical economics, labor is one of the three factors of production, along with land and capital. Labor is often defined as the physical or mental effort exerted by human beings in the production of goods and services. In neoclassical economics, labor is a broader concept that incorporates all human activity that adds value to a product or service"[1]. And while the ECI does exist, and is used by the fed to inform inflationary policy, it includes all costs of employing someone, indicating inflation in the health care market just as much as in wages. Labor is known to be much more of a reactive market[2], and also much more affected by things like the labor participation rate than inflation on its own. Even your original source for real wage increases uses the CPI. It also makes sense to use a measure of consumer inflation when talking about wages, as again, most consumers aren't buying labor.
> If the FRB were only concerned with that, they'd probably not have voted to increase the interest rate on Feb 1st.
Yes because the FRB is concerned with large scale monetary policy, and only have a few strings to pull. Interest rate hikes are intended to slow monetary velocity, effectively decreasing money supply, and has nothing to do with the housing market.
> Of course it's not so easy for some people
Bit of an understatement
>but over the last couple years I've heard anecdotes from many business owners moaning over their employees' demands
And? Anecdotes aren't sources, so I don't know what to do for ya here.
> A friend of mine, an hourly worker, got an 18% raise in January
That's awesome for them! It doesn't change that its anecdotal, and doesn't change any of the previous data that I've included to show that at best the lowest 50% are just starting to reach and surpass where they were in 2000.
> The idea one might believe in either supply-side or demand-side causes of inflation and not both is strange to me
I never said it was one or the other, and even linked to sources that included a breakdown of the share of each. I was more speculating on the driver of the higher than average inflation since 2020, and included fed breakdowns that gave evidence for a good amount of supply-side inflation, whereas most American pundits tend to cast it in a demand-side only light (people have more money so they spend more kinds of arguments). I even pointed out where it was demand-side in the fed report, although they show that it is not more people with more money, but an effective contraction (from reduced monetary velocity) and subsequent rapid inflation of monetary supply following COVID.
>First, the primary driver of inflation in the long run is monetary policy
I really need you to pick a time frame. I thought we were arguing inflation for 2020s. Yes obviously monetary policy tends to have the most influence in the long run. I also don't think anyone would say that inflation in the 2020s has been driven by monetary policy, and in general it isn't in times where its higher than what is wanted from monetary policy, like what we've been experiencing.
[1] https://study.com/academy/lesson/labor-types-importance-exam... [2] https://www.forbes.com/sites/qai/2022/10/01/us-wage-growth-f...
Consumers may not often directly buy labor (though it feels otherwise as a homeowner seeking a handyman) but the cost of labor matters nonetheless.
There are many people who might blame inflation in the 2020s on quantitative easing, which is a monetary policy.
It's interesting that you're going with a "classical" definition of labor, but not one for inflation, which would classically be defined as purely a monetary phenomenon independent of price changes due to supply and demand.
The issue I'm having with the distinction you're trying to make is that you're also trying to argue wages, which is only helpful in the context of consumer price inflation. Consumer price is also the best measure we have of inflation, since it is the only measure that is widely available and open to the public.
> though it feels otherwise as a homeowner seeking a handyman
Yes, part of what you're paying for is labor, but I guarantee that if the laborers actually got paid what you're getting charged, the world would be a very different place. The main difference between labor and any other good or service is that it does not exchange at its value, it necessarily has to exchange below its value, or else nobody would see profit (that value that people make that companies keep). This is necessary in a capitalist economy or it falls apart. This is why its hard for me to want to include it in our discussion about wages and inflation, because it is valued very differently from anything else, and again, is not something most everyday people are concerned about, which I've been very consistent about arguing about. I have not once talked about how inflation has affected corporations or businesses because I honestly don't care, so I don't see how a discussion about cost of labor is anywhere near relevant (if you say its "part of inflation" again I'm done with this).
> There are many people who might blame inflation in the 2020s on quantitative easing, which is a monetary policy.
https://libertystreeteconomics.newyorkfed.org/2022/08/how-mu... Already included a link where I gave evidence against that fact, and have not once myself said it was. Not sure where you're getting this argument from, but its not mine and I've never claimed it.
> It's interesting that you're going with a "classical" definition of labor, but not one for inflation, which would classically be defined as purely a monetary phenomenon independent of price changes due to supply and demand.
If thats the definition you want to use, then why do you keep going on about labor cost. If you want to use the monetary phenomenon definition, then inflation is just about monetary supply being higher than it was previously, which is what I said. While we did "see" an increase of money supply at the beginning of 2020, it was not to the degree that people try to argue (mostly M1 catching up with M3), and the monetary velocity was horrendously low (e.g. coin shortage). A low monetary velocity is essentially a lower money supply, which when rebounding resembles inflation (the link I've now included twice from the NY fed).
I agree that we're largely talking past each other. I've been trying to keep the discussion on real wage increases and the fact that although it has happened for the bottom 50% in the last 2 years, it hasn't helped much with their situation, and no redefinition of inflation is going to change that, so I'm still not sure why you're so stuck on it.
Whether that's sufficient to be interesting, I'm not energetic enough to debate.
Hope you got what you wanted out of this
I'd be interested to see evidence but I suspect we did see this? Retirement portfolios and housing prices (where the majority of elderly wealth is) ballooned.
> Instead, we see most wealth going to the richest of American
The elderly are the richest Americans so this is consistent with the elderly getting wealthier.
[1] https://www.census.gov/library/stories/2022/08/who-has-retir... [2] https://ncoa.org/article/get-the-facts-on-economic-security-...
> I had to guess.
You guess incorrectly
Pension funds, which ensure a decent retirement for a large portion of US residents. Index funds, in which many people have invested their retirement funds.
… Why?
Because that will buoy our stock price, which is important.
Why?
Because a significant portion of executive compensation is in stocks.
But the big tech companies are actually profitable. Even Amazon. https://www.wsj.com/market-data/quotes/AMZN/financials/annua...
They put $470 billion through the till and ended up with $33 billion net income, for a margin of 7%. That's a normal profitable company, albeit a huge one that continues to eat the remaining retail world. You can look at the quarterly results too, but there's nothing in the rear view mirror that justifies layoffs.
The real driver is shareholder returns. The shareholders would rather make more money than provide more jobs / run a charity.
Maybe you were saying the same thing, but the companies don't see the new investor money, other investors /owners do
True...contrast Microsoft's decision to take an $800m hit in letting go 10,000 employees with its earnings report showing $16.4b operating profits.
Only at the executive tier.
Analysts expect $1.40/share.
Company X releases earnings of $1.45/share.
Things still tank, because... the "real" expectation was 5% over analyst expectations, which was already over guidance.
layoffs arent always about cutting costs, its usually about restructuring and reprioritizing
But so what? There’s no gotcha here; it’s not like Microsoft or Google or Amazon claimed they were cash poor and could t afford to pay people. They are changing the areas they spend money in. Would it be better if they were only cutting back and not also investing in new areas?
* showing profits
* showing multi-billion in investments in new companies
* when the money saved is tiny compared to the increased year-over-year profits
"But so what?"
Their response is _exactly_ on topic. There is a real sting on these human lives where a company has decided they don't have value relative some new tech purchase. This is contrary to particular ethics frameworks many of us are familiar with around human value.
But I guess I don’t see how empathizing with that means. . . What? Microsoft should cancel an investment they think is strategic? Microsoft should keep job roles they no longer things are important?
Highly profitable companies like Microsoft are not zero sum. Nobody said “let’s lay people off so that we can invest in openAI”. Each decision is made independently, for its own ROI. If they believed that keeping these people and making the investment was the best approach, they have the funds to do so, easily.
I love the McSweeney’s piece, and I’m sympathetic to those laid off, I just don’t get the innuendo that a company should do something differently.
If a family in financial trouble just lost their son to a car accident, for example, is it the right time to say "well, at least you won't need to pay for his college."?
Especially in software, skills are pretty fungible, and most of the support organization's on-going requirements are likely to be highly agnostic of what, specifically, is being engineered.
IT does bring up an interesting alternative. What if instead of layoffs, companies provided an ultimatum:
Your employment costs $X. You have 3 months to find a new source of $X+1 revenue that requires your continued labor.
Shareholders like me are the ones you have to convince, not some CEO or abstract concept of a corporation.
Fair warning, you will have to convince me that it is more important than supporting my children and maximizing my retirement.
There is basically no risk that a different group of stockholders with more voting power want to run it as a public works jobs program
I do think it is unethical to jerk people around (e.g. new hires), but I think generous severance goes a long way towards addressing this.
Most workers don’t want to use their leverage to make corporations make better decisions - they want to use their leverage to get paid more.
A company and its owners doesn't get wealthy from revenue or sales, but from pumping up their stock. For some reason, investors love both layoffs AND headcount increases.
Too many people are busy trying to play financial games and not enough are actually looking to produce anything of value. It is worrisome where this long term trend takes us.
Better for whom?
HaHaOnlySerious. A stepping stone on the mysterious garden path of bad decision-making that leads to consultant$, ho$tile takeover$, etc.
Aligns with the news that ChatGPT could pass b-school exams[1]. I think this should be very threatening for low skilled middle management.
[1] https://nypost.com/2023/01/23/chatgpt-outperforms-humans-on-...
Maybe I've hung around in the wrong circles too much recently, but this hit me hard. This is basically how the reasoning behind all top management decisions have been communicated to me in the past year:
"There is indeed a clearly better alternative course of action that we should take. You're right in that it would be trivial to adopt and we would all be happier from it, with more satisfied customers. The fact is that's not what we have chosen in reality, so we must shoulder the heavy burden of choosing the inferior alternative and give it our best shot."
Way to motivate a decision!