Good reads from around the Web.
Inequality is a rising – and a very real – problem. So it’s no surprise that those members of the chattering classes still able to earn a living coining bon mots for the broadsheets have come up with a new one: Wage rage.
Wage rage is what happens when your salary doesn’t go up in real terms, yet living costs and company profits do.
At the moment it’s mainly manifested in localised rants between couples in the grocery aisles of Tesco – one wants the asparagus while the other says make do with carrots – but it can only be a matter of time before the squeezed middle-classes angrily demand to see each others’ pay slips.
The lefty economist Chris Dillow, who writes curiously enough for the Investor’s Chronicle, has a Marxist explanation for why real wages have been falling:
…socio-technical change since the 80s such as CCTV, containerization and computerized stock control has made it easier for bosses to monitor workers. Direct oversight means they don’t need to worry about buying workers’ goodwill. They are instead using the Charles Colson strategy: “When you’ve got ’em by the balls, their hearts and minds will follow.”
Years ago, firms wanted smaller but motivated workforces.
Now they can control workers directly, they don’t need to worry so much about motivation and so are content with larger but grumpy workers.
Dillow argues that high-flying executives can’t yet be motivated by the threat of being replaced by someone in China or Amazon’s mechanical Turk, and so they have been able to increase their wages.
Is he right? I have no idea.
As an investor and a capitalist, I do wince though when I see company profits rising relentlessly even as revenues and real wages fall. That the richest 1% have got inexorably richer is just the icing on the cake.
The problem for me is not just that it’s arguably morally wrong for a few to benefit at the expense of the many – morals are pretty fluid, after all – but that it’s unsustainable.
Companies need customers. And democracies need some notion of equality.
Still, it only takes a few lines in The Guardian for my inner Thatcherite to come out swinging his man bag:
There are also signs that workers are paying a price for the new competition from the likes of lone parents, whom aggressive workfare policies are chivvying to take up whatever work might be available, irrespective of the wage.
Yes, there are signs of that in the same way that there are signs in tea leaves.
Inequality has been growing for decades, through various political administrations. It’s more likely down to technology, globalisation, and the near-universal acceptance of market economies. It’s not down to saying that people who can earn money should do so before dipping into the pockets of others.
And then there’s the language. Someone with a job is a “worker” but a parent with a child who gets a job is apparently still a “lone parent”.
When does a lone parent become a worker? And what do we call a lone parent who already has a job? Or shouldn’t they exist in Guardian-land?
Capitalism rules, okay?
My hope is that the slide in real wages is a symptom of the long economic slump and the lack of animal spirits.
Once the economy starts ticking up on a global scale, company bosses may well fall over themselves to employ more people to meet the demand, increasing the competition for workers (and those wage-less lone parents…) and putting more money in our pockets to spend. Gradually workers will claw back some of what they’ve lost.
A rosy outlook? Certainly, but it’s worked before.
In the meantime I suggest saving as much of your dwindling salary as you can, and putting a big portion of it into shares.
If you can’t beat your capitalist masters, best you join them!
From the blogs
Making good use of the things that we find…
Passive investing
- The case for closely monitoring the markets – Capital Spectator
- Past performance tells you diddly about the future – Rick Ferri
Active investing
- Three parts to a diversified portfolio of shares – DIY Income Investor
- The importance of expectations for value investors – Oddball Stocks
- Value investing works, everywhere – Turnkey Analyst
Other articles
- The accelerated impact of saving – Mr Money Mustache
- Start saving ASAP – Vanguard Blog
- Nine money tips every dad should teach his kids – Len Penzo
- How to almost steal $10 million – The Altucher Confidential
Product of the week: The Guardian is highlighting the new Race for Life bond from the Coventry. It pays 2.1%, fixed until 30 April 2015, and an extra 0.1% to Cancer Research UK. I note the best two-year fix is paying a higher 2.3%, so you might earn more and donate yourself. But remember your interest will probably be taxed!
Mainstream media money
Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.
Passive investing
- The case for NOT closely watching the market – NY Times
- Investment advice versus investment porn – Huffington Post
- The Vanguard anomaly – Morningstar
- Look out! Non-transparent, actively-managed ETFs – Index Universe
Active investing
- Is cash the most under-invested asset class right now? – Minyanville
- The few things you should read (Wot no Monevator?) – Motley Fool US
- Ruffer: Risks of a ‘1994’ style bond crash are growing – CityWire
- The end of QE is already roiling emerging markets – Economist
Other stuff worth reading
- Five million Lloyds customers to be ‘dumped’ into TSB bank – Guardian
- NS&I slashes interest rates [Search result] – Telegraph
- Home truths about property prices [Search result] – FT
- Especially in the US, interest rates are finally rising – Dealbook
- Martin Wolf: The overstated inflation danger – FT
- Warning over care home ‘trust’ schemes [Search result] – Telegraph
Book of the week: What I Learned Losing a Million Dollars
Like these links? Subscribe to get them every week!
Interesting theory on increased monitoring of workers. It squares with my experience of the workplace over 30 years – the slow erosion of autonomy, and increasingly short-term targets, counteracted a bit by climbing theg reasy pole. Command and control, paradoxically, seem to be on the rise despite all the investing in people and ‘people are our greatest asset’ platitudes. There’s also a trend towards piece-work (freelance contracting, zero-hours contracts etc). All these favour the able and the driven over people who consider work as a means to an end. I’m almost convinced.
the news came out this week about the high number of aged 65s employed,the gov spinned this as good news,but I think it’s living costs an debt forcing them to work on
Personally I still don’t understand why inequality is an issue. How is my life affected if somebody has a jet and earns £100 million a year? I think I’m an absolutist rather than a relativist when it comes to poverty.
Widespread falls in real disposable income are largely a credit crunch phenomenon although, I believe, real incomes for most people in the US were static from the 1970’s through to the late 1990’s. There is obviously a real problem with a lack of demand in the economy resulting from declining income. The post-credit crunch fall is, in my view, simply due to the lack of bargaining power of the work force resulting from high unemployment and much less trade union power.
@Ermine,
You’ve identified what I would describe as cultural changes within the workplace which I too observed over my 30-odd years as an employee. Even more important for “success” than being able, was the willingness to understand and play “the game”: to conform to the current management culture and adapt as it changed with the latest imported management consultancy nostrums and support enthusiastically new initiatives, however misguided.
@David,
I’m inclined to agree with your comment. Another view on rising employment amongst the over-65 is that they are depriving young people of jobs!
The blogger CynicusEconomicus, with regard to income inequality “what is actually taking place is greater income equality in which income is being redistributed to places like India and China, while income inequality within (developed Western) countries increases due to an oversupply of labour overall”.
Only a Marxist or Guardian writer could piece together an article which doesn’t mention the impact of both offshoring and mass immigration – although both part of globalisation – on jobs and wages in this country.
Hello Folks,
I’ve come to believe that one of the bad effects of the rise of the “command and control” management system that Ermine has identified is that it leads to poorer management.
As an example, as the top management of the big banks gained greater control before 2007, the advice of their risk compliance departments was deliberately suppressed.
I don’t think it is possible to have responsible management in big organisations when those at the top can turn them into such personal fiefdoms.
By the time I decided to take my growing financial independence and retire early, I felt my large employer had given me an insight into what it must have been like to live in the Soviet Union.
It’s really made me determined to never submit to an employer again.
Bob.
I must have a particularly dull job as precious little seems to have changed since I lost my virginity way back in the heady days of the summer of 72.
Granted we wear more protection (hi-viz and hard hats, in case any old school were thinking Johnny’s) in homage to the false God that is H&S, but the work is pretty much the same and the hopes and aims of the younger sect seem to mirror those that were ours when we started out. Even the ripeness of Anglo-Saxon is as popular as ever, albeit tinged with a foreign accent…
And for those final few still labouring under the misguided belief that things have changed, you can still hear Tony Blackburn blaring out on the radio whenever the site agent is out of ear shot 😉
It’s really down to skill level coupled to supply and demand.
We’re now starting good grads on closer to £30k that £25k and engineers with a decade+ of experience can earn many times that.
OK, so this won’t push them into the “top 1%” but it’s certainly going to enable a good lifestyle so why does the fact that some are earning 10x or 100x this cause any great problems?
Those who lack valuable skills and/or the ability to learn them will find things harder, much harder, but is this really worse now than at other times in history? Really?
“As an investor and a capitalist, I do wince though when I see company profits rising relentlessly even as revenues and real wages fall. That the richest 1% have got inexorably richer is just the icing on the cake.”
While there’s no denying the real nature of how most of humanity reacts viscerally to inequality, to a certain extent it can be separated from sustainability after a certain point insomuch as that there is relatively little work to do in order to provide for the basics in the “first world”.
And why does the 1% getting richer irk you? One analogy I like is with American Contract law: one can only recover the **discrepancy between** the loss incurred by not fulfilling the contractual obligations and effective re-deployment of resources and capital if the contract is repudiated by the other party.
Consider now that I personally consider myself to be living a great life on significantly less than most Americans. I choose this because I value investing and buying my share of those corporate profits in exchange for deferring use of my capital and putting it at risk. Every day people across the globe are making the exact opposite decision. If they then want to claw back profits from “greedy corporations”, what makes them justified in doing so when they have foregone actually taking on the required risk to benefit without the use of coercion?
Monevator,
Shame on you, your bigotry does no justice to what are generally thoughtful pieces. I sense you live not in the real world of having to work, but of carping from the sidelines, as a selfish observer. You should be very bothered about the trend of removal of fair shares for ‘workers’, because your investments depend on it. Marxian analysis already predicted an eventual outcome like 2008, yet people of your political stance still insist on trashing the ideas and language that appear to threaten your creed/greed. You play into the hands of the of the ruling class and its perpetual rise, that allows you to pick up scraps from the table in the form of investment ‘returns’ (i.e. keep pace with inflation if you are lucky – ‘return rage’ maybe ?). You need to think more creatively if you choose to pontificate in these areas. Capitalism as you know it, is demonstrably broken, and requires a re-think, rather than relying on socialist principles to bail it out when it fails periodically and catastrophically. A little rational thought here should go a long way :-).
> when it fails periodically and catastrophically
It’s neither periodic (otherwise it would be wholly predictable) nor catastrophic (otherwise it would not recover). ‘Predicting’ and exaggerating aperiodic self-corrections like 2008 is the stock in trade of left and right ideologues the world over and it’s always the better story.
@ John
“How is my life affected if somebody has a jet and earns £100 million a year?”
More noise and pollution for a start!
Discussion about inequality and the 1% always makes me think of “Bread and Circuses” from Roman times – the theory that you can keep the masses under control as long as they have the essentials plus some entertainment.
The trouble is that numerous studies show we seem to be hard-wired to compare ourselves to our neighbours, which thanks to improved communications now includes everyone in the world.
Henry Ford said that capitalism works better when the workers can afford to buy the products they’re making. An explanation for the London shopping riots perhaps?
There have been plenty of unequal civilisations in the world where the rulers have ended up being overthrown – presumably this is part of what the Investor means by growing inequality being unsustainable.
Worth having a look at the Wikipedia entry for “The Spirit Level”. However, there are refutations and counter-refutations of the statistics used and the statistical techniques applied.
For my own part, I’m always sceptical when people’s views on a topic coincide too closely with their own self-interest. Obvious examples are rich and powerful individuals and interests arguing in favour of policies which just happen to make them accrue more wealth and power and tobacco companies in the 1950’s downplaying the link between cigarettes and lung cancer.
An apology if this makes little sense. I’m just writing from my consciousness.
It concerns me that the pay multipliers between the graduate staff and those at the top have become so large (x20 to x50). I ask myself, are the employees/employers at the top so valuable that their production is some 20 times the junior staff? I have difficulty in justifying it. As do the top management, charge out rates between the bottom and top are somewhere around 4-5x.
If pay is therefore not representative of productivity then it is distorted. And by some staff being overpaid, the rest must be underpaid (unless of course the business is overpaying everybody, then it might not have long to survive!). The distortion itself becomes distorting. As GOP notes above, self-interests come into play. We are probably all familiar with glass ceilings, senior managements that are reluctant to embrace change, and power (and large salaries) being concentrated amongst the few. We have probably seen senior staff who are more concerned with protecting their salary and position then actually using their knowledge and experience to create productivity and profit.
The question is how do juniors react to these distortions. Personally, I am reluctant to “play the game”. I have been planning my way out, even whilst I was starting out. I know others who give pretty much their entire existence to their job, in the hope that that leads them to the top. After sacrificing so much, I wonder if they would be reluctant to relinquish their roles and adopt change if they, do in fact, succeed.
Hows global inequality been doing over the past few decades? I’d imagine its been falling particularly in the last 5 years and as the UK is the top 10% of the world and the readership of this blog the top 1% its natural there is some pain.
@mucgoo — Interesting point.
English Greg here. (The 1% getting richer, leeching off the rest of us while claiming they did it all themselves irks me a lot.)
Inequality interests me, as it should everyone, though I don’t have time to comment much at the moment. The latest recession has been very unusual in that the very richest came out better than the rest of us. Most places are getting fairer over decent timescales, however. (Notable exceptions being the UK and US.)
I recommend people spend some time on the superb gapminder site to see how things are and how they have changed over time. Basically, most things are getting better, unless you are from Africa.
http://www.gapminder.org/world
@John/UKVI like you, I don’t compose myself to the filthy rich but I think the huge and growing multiple of executive earnings compared to median earnings is a serous problem for us all. Companies must invest if we are too prosper in future. Instead many chase profit in the short term to fill their bonus schemes. In some ways I think the job of an investor is to find the companies that are investing and back them.
@All — Great comments here, with lots of food for thought. I find it a little ironic that I’ve both been accused of being a “bigoted” proto-capitalist enslaved to my financial masters (despite writing clearly that in my view inequality is a real and growing problem) even as others question whether I should be worried about inequality at all! Perhaps a reflection of the polarizing nature of this debate?
@The Investor,
Brave of you to venture into this territory so soon after the Thatcher rants!
@Greg,
Thanks for the clarification. The American Greg’s post did seem at odds with what you’d posted before!
Over the decades the workers have faced increased competition likely to reduce their incomes.
(i) Entry of more women into the workforce
(ii) mass immigration
(iii) competition from abroad due to “globalisation”.
Competition has been reduced by
(iv) the growth of the lumpenproletariat who don’t offer themselves for work (at least not the sort that appears in official stats)
(v) withdrawal of youngsters from the labour market as school-leaving age increased and as more and more go on to further of higher education.
I don’t think it’s too surprising that (i) – (iii) outweigh (iv) & (v).
I think that the world is becoming more equal but countries are becoming less equal because the global pool of talent that companies can draw on is now much deeper
Previously, with most of the world hemmed in behind the iron curtain, just being born in the West was a golden ticket for life which the “baby boomer” generation have ridden for all its worth
Younger generations have faced progressively more global competition
Mrs Neverland and I frequented our favourite local curry house on Sunday. Our waiter, who we know a little, is a Nepali kid of 20-25 who has just finished his economics degree at an okay UK university. After the summer he is starting his MBA and after that he plans to qualify as an accountant. He seems to work most days of the week to help pay for all this
I don’t really see that level of ambition from so many white kids where I live… or their parents
Therefore I expect some of them will end up working for him in one fashion or another
This is the reality that the current generation in the UK are growing up with, which was not the case for their parents
“high-flying executives can’t yet be motivated by the threat of being replaced by someone in China or Amazon’s mechanical Turk”
I think this is what they’re anticipating. However, they’re going to find people simply downgrading their lifestyles and dropping out. We’ll have a labor crisis where skilled people aren’t working here or elsewhere because they’ve got enough and that’s enough.