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Labor share of income in the developed countries is at the lowest it's been in decades (1). In the US, if all workers received a 13% pay hike, this would just bring the labor share to where it was in 1990. Profit margins are at record highs (2). It took me two minutes of googling, yet somehow people writing for one of the most prestigious econ-related magazine in the world are incapable or unwilling (more likely) to mention it.

In addition, this figure also includes the "labor share" of top-level management. People focus too much on CEO pay, and neglect the fact it's also C-suites, vice-presidents, board members, and most of the direct and indirect perks they receive. I wouldn't be surprised if the labor share of income to this new nobility increased from low single-digit to double-digit percentage

(1) - https://www.oecd.org/g20/topics/employment-and-social-policy...

(2) - https://www.axios.com/profit-margins-record-high-rising-infl...

And worse, the marriage of capital and politics is wrecking havoc. People are represented less and less vs special interest who never had it this good. Making a u-turn becomes harder and harder as time goes by.

To be fair here, capital and politics have always been married and wrecked havoc, for the last few thousand years, which is why the history of humanity is full with slavery, serfdom and bloody wars. There's no way around that, power and money corrupts and concentrates in the hands of a few who fight tooth and nail to further entrench their power and wealth at the expense of everyone else.

Our major break came from having two devastating world wars that affected the ruling class as well, and broke the traditional wealthy feudal powers, right before an industrial boom that gave the working class a leg up never before seen in our society, to which everyone looks back fondly as that situation will never happen again (at leat not until the next violent global war/revolution).

But now, during a prolonged period of relative peace and stability, our situation is reverting back to the feudalism of lords and serfs, haves and have-nots, exactly how our civilization has always been like.

The difference is that now, instead of being the serf of a lord for food and shelter, you're the serf of a giant megacorp for employment(food) and to a giant real-estate conglomerate or a giant bank for shelter, and with a much longer life expectancy and higher standard of living.

So yes, there is always going to be a fight for power in society, and people are going to find ways to buy power with money to the extent they are allowed. However there are ways to structure governance to limit the extent to which wealth can buy influence. For instance, I grew up in the states, and currently live in Germany, and while no government is immune to the influence of capital, having a multi-party system certainly does seem to lead to outcomes where the best interest of the people have a much better chance of winning out than you see in the states.

I also disagree with your reading of history that we're regressing to the natural feudal state of humanity, which was disrupted only by the world wars. I would argue what we have seen is more like a pendular oscillation between consolidated and distributed power structures, at least over the past several hundred years.

For instance, in France and Russia, ages of elite opulence, and disregard for the well-being of the general population gave way to violent revolutions which resulted in the redistribution of power, at least nominally, toward the population. Similarly, the gilded age in the US represented a massive consolidation of wealth in a few hands, and it eventually gave way to a labor movement which put more wealth in the hands of workers.

Since the late 70's at least, the neoliberal movement has been on the march to separate labor from their power and return it to the hands of the elite. We'll see if society manages to find some kind of equilibrium, but if history is any indication it seems more likely that some breaking point will be reached, and existing power structures will be torn down in favor of new ones.

I can’t remember where I read it but apparently historically too much inequality always resulted in revolutions and/or complete restructurings of society. In other words, too much greed leads to uprisings.

Most of history across the world has seen conflict between the wealthy merchant/scribe/craftsman class which would become the capitalists, and a landowner/priest/warrior aristocracy which typically held power. While it's not the first time it's ever happened, the modern industrial world is by far the longest lived and most extensive alignment of capital and power.

> But it fails to discuss if the chunky profit margin can be sacrificed without raising prices too

In recent years the mere suggestion of lowering profits is utterly taboo in American society, and is usually received about as well as if you were talking about selling beer to kids, or weddings for children.

I honestly believe a ton of people have been brainwashed (or maybe just tricked) into believing that McDonald's actually needs to make $10B [1] in profit per year, and that literally everything would fall apart if it didn't.

Nobody wants to admit that McD's could increase wages for tens of thousands of front line workers who need it most, keep prices identical and still make, oh I don't know, a hefty $2B profit each and every year. Instead they just recommend employees get a second job to make ends meet [2]

I can only assume the topic being so utterly taboo is because that would mean the wealth of the rich would increase slower than it is today (but of course, it would still increase)

(I'm using McD's as the example here, though I think it applies equally to every large and wildly profitable company)

[1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros...

[2] https://www.motherjones.com/food/2013/07/mcdonalds-budget-mc...

McDonald’s Corporation doesn’t hire the workers in the stores, those are franchises.

Last I checked, approximately half of McDonald's stores were franchises and half were corporate-owned.

Nope.

https://corporate.mcdonalds.com/corpmcd/franchising-overview...

Approximately 93% Of McDonald’s restaurants worldwide are owned and operated by independent local business owners.

The thing is, it seems like there are multiple factors at play here.

What you're talking about is the distribution of funds within an organization. I.e. if company X has a certain total revenue, can they afford to re-distribute a greater percentage of that number & towards employee compensation vs. stock buybacks. From that standpoint, for many successful firms the answer is probably yes.

But another factor at play here is market forces, and scarcity in particular. So for instance, amidst the chip shortage, the price of new and used cars increases because it's not possible to produce enough cars to meet demand. So firms that can afford to pay more do so to afford top talent, because working at company X will mean you can afford to have the lifestyle you want. This incentivizes company Y, which can not simply redistribute profits toward wages, to increase prices so they can afford to compete in the labour market, which farther contributes to the increase in demand for higher-wage jobs, contributing to the cycle of inflation.

So I don't think it's as simple as having super profitable companies take a haircut to increase wages. In an environment of greater-than-average scarcity, the market should perform its role in price discovery of scarce goods. But in an environment where capital itself is not scarce, you risk that price discovery mechanism being broken, and prices just increasing indefinitely.

Disclaimer: I'm not an economist, I'm just someone who's been thinking about inflation a lot lately, so I am happy to be corrected.

All costs boil down to: Natural Resources, Labour, and Capital.

If Capital is not scarce, Labour is scarce, and there isn't a change in natural resources (there may be in some cases, but I don't think that changed a lot), then capital should become cheaper and labour should become more expensive. That's how a well functioning market economy should work.

Inflation is largely irrelevant in the discussion, since the real output of the economy doesn't change with inflation (of course, hyperinflation and deflation can destabilize an economy, but we're definitely not there).

I don't really understand this: why should capital availability increase in the face of a labor shortage? Making capital doesn't actually create more labor, so wouldn't this just re-allocate labour towards those with more access to cheap capital?

I'm not suggesting capital availability increased because of labor shortage. I'm saying capital availability has been high for a while (one of the reasons for the low interest costs).

EDIT: just noticed I missed an "and" in the original comment. It should be "If Capital is not scarce, and Labour is scarce"

> greater-than-average scarcity

Isn't scarcity infinite?

Every argument against increasing labor share of income boils down to "oooooooioooh, inflaaaaaaaaation, spoooooooky!"

> Every argument against increasing labor share of income boils down to "oooooooioooh, inflaaaaaaaaation, spoooooooky!"

This doesn't seem to make any sense, considering increasing labor share is not creation of money (inflation) but merely a different method of allocating the existing money. But maybe that's your point or maybe inflation is defined differently than what I learned in high school.

I believe that most Americans believe that it's an economic law that if wages increase it _will_ result in wage price inflation.

Inflation just means you get less stuff per dollar in the store

Wage price inflation means the excess labor cost(wages) is added to the price of goods, resulting in increased wages, resulting in increased prices over and over until bread costs 1 billion dollars.

This is an absurd proposition when you could just reduce profit margins. The problem is that capitalists don't want to. Why should they!

What should happen is that we should allow wage price inflation forcing companies to lower profit margins after a very short recession, then quality of life would increase for the working majority.

See this would hold if the money supply is held relatively constant. We are not in that environment.

I am in favor of increasing labor's share of income. My point is, in order to increase labour's share of income, the money supply has to be held relatively constant in order to avoid inflation.

In an environment like we have, where capital is basically free, when labor becomes scarce, firms with access to the infinite money supply can just raise wages ad infinitum and this is what creates the problem. The capital supply is not properly controlled by market forces currently. If it were, increasing labor's share of profits would be resolved without inflation.

So my overall point is that we are seeing issues with inflation because of the intersection of Quantitative Easing and real-world scarcity. QE hasn't led to inflation before, because most of the new capital created just ended up in paper assets like securities. So if the fed prints 10 trillion dollars, and most of it just ends up on the balance sheet of some investment banks, it's not going to affect the price of a loaf of bread. But if the money supply is increased indiscriminately and it also gets into the hands of people who are competing for the same used car, this is what causes issues with the value of the currency.

> QE hasn't led to inflation before, because most of the new capital created just ended up in paper assets like securities.

Ah, well summarized.

> competing for the same used car

What happens when labor no longer has the money for non-essentials?

Thoughts on how real estate will come into play?

Economists gets it wrong all the time so no need for disclaimers.

Attitudes to wages vary so much. A German ex-colleague of mine here in London is convinced we (SWE's) are all underpaid. An Estonian ex-colleague on the other hand offhandedly described our profession as overpaid. I mention nationalities because I think it is a factor in their attitudes.

Interestingly the latter ex-colleague was on 20% less TC than me despite doing the exact same job, and having 5 years seniority.

More formal seniority levels and wage transparency would help workers a great deal in my view.

SWE salaries in London seem to be booming

I think that nationality angle is interesting but I believe it's only incidental. For example I tend to sympathise with this idea that in some cases IT workers are overpaid compared to other professions, but I'm from a relatively wealthy country (Scotland). When you have lived somewhere that has lower wages overall, but you have worked in a highly paid profession in a wealthy country then you're going to be quite keenly aware of the gap in compensation. So if you've seen the wages a janitor, shopkeeper, cleaner or even schoolteacher in Estonia makes and reflect on the fact that Facebook, Google devs in London will likely be on over $100k/year then yeah it's not unreasonable to conclude that we are overpaid.

London and Estonia are much different places with different salary expectations and living costs so you can't really expect them to be identical (not least across different jobs) but I think it's unavoidable that anyone with experience of both will make the comparison.

Sorry for picking on London and Estonia here, it wasn't personal :) I the same would apply to San Francisco vs Budapest or Frankfurt vs Manila or Oslo vs Rosario etc etc

> Attitudes to wages vary so much.

They're probably relative to the costs of living.

There's a job offer I looked at a while ago (just moments before the pandemic started), for a company in London. The pay was typical for non-FAANG companies. I did some math on it, and quickly discovered that:

- If I can do the job remotely from Poland, I'm instantly becoming a high-earner. There are jobs locally that pay comparably, but they're the ones other people point at when they say SWEs are overpaid.

- If I have to move to London, the pay is shit. I'd be moving with my family (wife and then a 1yo daughter). I'd have to rent out a smallish 2-room apartment on the other side of London, with 40-60 minutes commute one way (bus -> metro -> bus), and the pay would barely cover rent + daycare for the kid, meaning if we wanted to eat something more ambitious than ramen, my wife would have to either stay at home (forging daycare), or find a decent job herself. Forget saving any money.

Now, it's not currency power difference - it's cost of living difference. The little bits of money we'd be able to save if we reduced our standards of living hard wouldn't translate to much spending power back in Poland either way.

After doing the math, I've decided the value add of being in London vs. being in Kraków (a major city in Poland, with an active tech community) is not worth the reduction of quality of life, and near-complete drain of disposable income. I double-downed on remote work, enjoying costs-of-living arbitrage for as long as I can.

(And it's a matter of time before this ends. While the pandemic dramatically increased the choice in remote work jobs, it also put the topic of CoL arbitrage in the spotlight, so now businesses have it easier to coordinate and capture the surplus for themselves instead, under the guise of employee fairness.)

EDIT: also your German colleague might be a special case, because AFAIK in Germany, software jobs are underpaid compared to the rest of the world, even accounting for currency power and costs of living. A German colleague of mine, working for a German software company servicing industry clients, once complained to me that he's sad that on - in his opinion decent, for Germany - software salary he can barely afford to keep the family afloat, and that's with his wife also working, whereas a "bad, no-good" relative of his earns way more than that doing occasional construction work...

I think it’s because of the government moves that have effectively shut down a huge swath of prior contracting gigs (where SWEs got paid decently, albeit as freelancers). These experienced engineers are not going to work for 70k/year like suckers, er perms, were doing 5 years ago. Combined with rising TCs at FAANG, and a shortage of experienced engineers, overall wages have gone up significantly in the last 2-3 years.

Can you kindly explain what SWE and TC mean?

SWE = Software Engineer

TC = Total Compensation

Software engineer and total compensation, respectively.

> suggesting that if wages are increased, prices will need to increase (...) fails to discuss if the chunky profit margin can be sacrificed without raising prices too

Even if companies were to choose to sacrifice the "chunky profit margin", wouldn't an increase in salaries (and therefore demand for consumption) lead to an increase in prices anyway?

In a lot of cases no: if the wage increases are eaten up by the energy price increases. If the wage increases go to the upper middle and upper class, which don’t know what their money on. If the demand goes into mass producible goods, where higher demand leads to lower prices.

Higher demand only leads to cost reduction if goods are produced more cheaply with increased scale, which is not given. There is a point where diminishing returns bring saving at scale to 0

Only if supply is highly inelastic. Otherwise, increased demand can just mean increased supply at the same price point.

Also, a lot of goods have their current price points because of price gouging and monopolistic practices. These can also be attacked, though that's a different matter.

It does seem the cost of living around tech hubs is higher