Wednesday, July 28, 2004

Employment: Trade and TINSTAAFL,

As I've pointed out before, proponents of "free" trade seem to have this curious utopian faith of the benefits of trade being inevitable, infallible, and (eventually) universally beneficial. This sort of anti-logic seems to apply to basic addition and subtraction skills.

You see here are the wages of average workers, flat or declining. (Courtesy of Billmon)

Here is executive pay, courtesy of CNN.

CEO pay hikes double

Corporate Library survey finds median raise for S&P 500 CEO was 22.18% in 2003.
July 28, 2004
: 8:34 AM EDT

NEW YORK (CNN/Money) - The CEO's at the nation's largest companies saw their raises more than doubled in 2003 as the median raise handed out by S&P 500 companies to their top executives was 22.18 percent, according to a study by The Corporate Library.

The watchdog group said that stock options and awards of restricted stock drove the larger pay hikes. But most elements of the pay -- base salary, annual bonuses, restricted stock, long-term incentive payout, value realized from stock options and total compensation -- showed increases. The only type of compensation not to show a gain was the value of stock option grants during the year.

"This double-digit rise in pay shows that calls for pay restraint appear to be being ignored," said the statement from the group.

I bring this up not to suggest that CEO pay is unwarrented, or that market demand dynamic is not the driving force behind labor compensation. The oldman has dealt with those topics previously.

The oldman this time is addressing a different topic. The infallible faith of most "free" trade proponents always brings them to suggest that new, and higher quality jobs, are being created to compensate for the ones lost. Well there is a different possibility of course. The profits from "cost cutting" labor could instead be transferred to owners such as shareholders or to management.

As a matter of fact, if we're using ordinary accounting those dollars flowing to shareholders, capital, and to management, such as CEO's, surely must not be available to create these new, better, jobs that we're always hearing about but are always somewhere else where we're not looking. TINSTAAFL, afterall. If the CEO pay is rising, and probably executive pay in general, those dollars aren't around to hire new workers or improve pay grades. Given how much CEO's make, hundreds of times what the average pay - by no means is this the common worker's pay - in their companies even small rises in their compensation would mean that many people would not be hired or have their compensation upgraded. Instead of small increases we see a meteoric rise of management pay.

Can the "free trade" proponents handle the concept that it might simply be that the heads of companies are making more from their employees, and simply paying themselves more and dividing up the rest of the benefits among shareholders?



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