<https://www.theguardian.com/commentisfree/2022/jan/29/share-the-profits-us-business-workers-economy-wages>
According to this week’s release from the commerce department, the US economy
has been growing at its fastest pace in almost 40 years. Corporate profits are
their highest in 70 years. And the stock market, although gyrating wildly of
late, is still scoring record gains.
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Robert Reich
Robert Reich
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So why do most Americans remain gloomy about the economy? Mainly because their
real (inflation-adjusted) wages continue to go nowhere.
Steeply-rising profits, economic growth and stock market highs – coupled with
near-stagnant wages – has been the story of the American economy for decades.
Most economic gains have gone to the top.
So why not share the profits?
Profit-sharing was tried with great success in the early decades of the 20th
century but is now all but forgotten. In 1916, Sears, Roebuck & Co, then one of
America’s largest corporations with more than 30,000 employees, announced it
would begin to share profits with its employees, giving workers shares of stock
and thereby making them part-owners.
The idea caught on. Other companies that joined the profit-sharing bandwagon
included Procter & Gamble, Pillsbury, Kodak and US Steel.
The Bureau of Labor Statistics suggested profit-sharing as a means of reducing
“frequent and often violent disputes” between employers and workers.
Profit-sharing gave workers an incentive to be more productive, since the
success of the company meant higher profits would be shared. It also reduced
the need for layoffs during recessions because payroll costs dropped as profits
did.
By the 1950s, Sears workers had accumulated enough stock that they owned a
quarter of the company. And by 1968, the typical Sears salesperson could retire
with a nest egg worth well over $1m, in today’s dollars.
The downside was that when profits went down, workers’ paychecks would shrink.
And if a company went bankrupt, workers would lose all their investments in it.
The best profit-sharing plans took the form of cash bonuses that employees
could invest however they wish, on top of predictable wages.
But profit-sharing with regular employees all but disappeared in large US
corporations. Ever since the early 1980s when corporate “raiders” (now
private-equity managers) began demanding high returns, corporations stopped
granting employees shares of stock, presumably because they didn’t want to
dilute share prices. Sears phased out its profit-sharing plan in the 1970s.
Yet, just as profit-sharing with regular employees disappeared, profit-sharing
with top executives took off, as big Wall Street banks, hedge funds, private
equity funds and high-tech companies began doling out huge wads of stock and
stock options to their MVPs.
The result? Share prices and chief executive pay (composed increasingly of
shares of stock and options to buy stock) have gone into the stratosphere,
while the wages of the typical worker have barely risen.
Researchers have found that before the 1980s, almost all the increases in share
prices on the US stock market could be accounted for by overall economic
growth. But since then, a large portion of the increases have come out of what
used to go into wages.
Jeff Bezos, who now owns around 10% of Amazon’s shares, is worth $170.4bn.
Other top Amazon executives hold hundreds of millions of dollars of shares. But
most of Amazon’s employees, such as warehouse workers, haven’t shared in the
bounty.
Amazon used to give out stock to hundreds of thousands of its employees. But in
2018 it stopped the practice and instead raised its minimum hourly wage to $15.
The wage raise got headlines and was good PR – Amazon is still touting it – but
the decision to end stock awards was more significant. It hurt employees far
more than the increased minimum helped them.
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Robert Reich
Robert Reich
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If Amazon’s 1.2 million employees together owned the same proportion of
Amazon’s stock as Sears workers did in the 1950s – a quarter of the company –
each Amazon worker would now own shares worth an average of more than $350,000.
America’s trend toward higher profits, higher share prices, mounting executive
pay but near stagnant wages is unsustainable, economically and politically.
Profit-sharing is one answer. But how can it be encouraged? Reduce corporate
taxes on companies that share profits with all their workers, and increase
taxes on those that do not.
Sharing profits with all workers is a logical and necessary step to making the
system work for the many, not the few
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