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On the surge in CEO compensation

Economic Policy Institute has published a new study on the surge in CEO compensation:


What this report finds: This report looks at trends in chief executive officer (CEO) compensation, using two different measures. The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000). The gap between the compensation of CEOs and other very-high-wage earners is also substantial, with the CEOs in large firms earning 5.5 times as much as the average earner in the top 0.1 percent.

The surge in CEO compensation measured with realized stock options was driven by the stock-related components of CEO compensation (stock awards and cashed-in stock options), not by changes in salaries or cash bonuses.

Because the decision to realize, or cash in, stock options tends to fluctuate with current and potential stock market trends (as people tend to cash in their stock options when it is most advantageous to do so), we also look at another measure of CEO compensation, to get a more complete picture of trends in CEO compensation. This measure tracks the value of stock options at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016.

By either measure, CEO compensation is very high relative to the compensation of a typical worker—and an earner in the top 0.1 percent.

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Accountable Capitalism Act

It’s called the Accountable Capitalism Act.   Here’s the bill text.

Yves Smith has a take on this…lots of talk in the news econ sections:

Elizabeth Warren introduced her Accountable Capitalism Act in the Senate yesterday and set forth the logic of her bill in a Wall Street Journal op-ed. The Massachusetts senator described how as recently as the early 1980s, even conservative groups acknowledged publicly that corporations were responsible to employees and communities as well as to shareholders. And as we’ve written, and is implicit in the Warren article, there is no such thing as a legal obligation to “maximize shareholder value”. It’s simply an ideology that has become widely accepted, even as some of its most prominent advocates, such as Harvard’s Michael Jensen, have since renounced it. But this practice has become so deeply embedded and so damaging that it will apparently take a change in rules, or at least a credible and live threat to do so, to change behavior in boardrooms and the C-suite.

We documented in the early 2000s that the cost of shareholder-fixated short-termimsm was that corporations as a whole were net saving, as in not investing, which was a disturbing departure from long-establihed norms. Corporate priorities have become even more warped in the post-crisis era as companies borrowed to buy back stock.

Warren highlights how “shareholders come first” doesn’t look to have been very positive for anyone save corporate execs who have asymmetrical pay deals. They get paid handsomely even in the face of so-so to lousy performance, and are paid egregiously if results are good.1

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Kevin Hassett In Lie Lie Land

Kevin Hassett In Lie Lie Land

I feel sorry for Kevin Hassett.  Of course he made a complete fool of himself two decades ago with his book on Dow 36,000 (still some ways away) with James Glassman, but he has had a good amount of time to get over that embarrassment.  When he was appointed CEA Chair for Trump, he was of the few appointments Trump made that received praise, especially in the  area of economics.  Pretty much everybody else appointed was some combination of corrupt (a bunch of those), incompetent (see abysmal forecasting record of Lawrence Kudlow, NEC Chair), or just plain insane (see warmongering Peter Navarro).  A longtime economist at the AEI and a former adviser of earlier GOP presidential candidates, Hassett had a conservative but mostly pretty respectable record, as well as being known as a nice guy.  Even many people on the left said nice things about him at the time of his appointment.  Indeed, he was not obviously corrupt, incompetent, or insane, despite some mistakes here and there (see Dow 36,000in particular).

Anyway, after getting appointed and Trump becoming president, Hassett has largely disappeared.  Near  as I can tell, the main time he surfaces  was when the CEA put out the Economic Report of the President, the main ongoing official function of the CEA.  For decades the CEA was viewed as the main body providing economic policy advice to presidents, and often the CEA Chair  actually was the top individual economic adviser to the president, although who that is at any point in time has always ultimately been a matter of personalities.  But then for reasons that remain mysterious to me, Bill Clinton created this new body when he came in, the NEC. It  (and especially its Chair) was supposed to communicate to the media and Congress, it apparently being viewed that CEA Chairs were too abstract or in the clouds or whatever to engage in such communications.  But the question became which of these  would have the presidential ear, and more often than not these NEC Chairs have been closer to presidents than CEA Chairs, even though more often than not the case has been that the CEA Chairs have known more about economics than the NEC Chairs.  This is ceetainly the case now, with the incompetent Kudlow regularly identified as being Trump’s “top economic adviser,” while the much more competent Hassett has been largely invisible.

Before getting into more recent events, let me note that the Economic Report of the President Hassett and his CEA staff put out avoided making actually incorrect statements, at least that I am aware of. Of course data favorable to the administration was emphasized and arguably overly optimistic projections were made regarding the future impacts of policies, especially the tax cut.  But then this is normal CEA behavior in most administrations, putting as positive  spin on actual data and making optimistic, but not off-the-wall projections of policies.  So far so good, or at least not too bad.

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Gimme Shelter: the rental affordability crisis has worsened  

Gimme Shelter: the rental affordability crisis has worsened

Four years ago HUD warned of “the worst rental affordability crisis ever,” citing statistics that

About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent.

This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q2 2018 report on vacancies and rents was released a few weeks ago, so let’s take an updated look. In this post I will look at four measures:

  • real median asking rent, as calculated quarterly using the Census Bureau’s American Community Survey
  • two rental measures from the monthly CPI reports
  • HUD’s quarterly rental affordability index
  • Rent Cafe’s monthly rental index

As we will see, regardless of which measure used, rent increases continue to outpace worker’s wage growth, meaning the situation is getting worse. Most likely this is a result of increased unaffordability in the housing market, driving potential home buyers to become or remain renters instead.

Real median asking rent

In the second quarter of last year, median asking rents zoomed up over 5% from $864 to $910. In the two quarters since, they have remained at that level:

Here is an updated look at real, inflation adjusted median asking rents. The entires prior to 2009 show the interim high and low values from the previous 20 years. Since 2009, real rents have almost continuously soared — and reached yet another record high in the quarter just ended:


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Four measures of wages all show renewed stagnation

Four measures of wages all show renewed stagnation

This is something I haven’t looked at in awhile. Since 2013, I have documented the stagnation vs. growth in average and median wages, for example here and here. I last did this in 2017. So let’s take an updated look.

We have a variety of economic data series to track both average and median wages:

Let’s start with nominal wages.  The first graph below shows the YoY% growth in each of the four measures:

While each is noisy, the overall trends are clear:

  • First, in this cycle as in the last, wage growth declined coming out of recessions, then rose as the expansion continued.
  • Second, by most measures nominal growth has picked up somewhat in the last year.
  • Third, secularly there has been an undeniable slowdown in wage growth, which (while not shown) was 4-6% in the late 1990s peak and 3-4% at the 2000s peak. So far in this expansion it is no better than 2.5%-3%.  I believe this is in part due to how weak the employment situation was for so long into this expansion, but also secularly due to shifts in bargaining power, as employers learn over time that employees can be retained with lower and lower annual increases in compensation.

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June 2018 JOLTS report evidence of both excellent jobs market and taboo against raising wages

June 2018 JOLTS report evidence of both excellent jobs market and taboo against raising wages

Yesterday’s JOLTS report remained excellent, suffering only in comparison to last month:

  • Hires were just below their all-time high of one month ago
  • Quits were just below their all-time high of one month ago
  • Total separations made a new 17-year high
  • Openings were just below their all-time high of two months ago
  • Layoffs and discharges rose to their average level over the past two years

In short, the JOLTS report for June confirmed the excellent employment report of one month ago.

So let’s update where the report might tell us we are in the cycle, remaining mindful of the fact that we only have 18 years of data.

Let’s start with the simple metric of “hiring leads firing.” Here’s the long term relationship since 2000, quarterly:

Here is the monthly update for the past two years measured YoY:

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Would Serious Climate Change Mitigation Policy Increase World Hunger?

Would Serious Climate Change Mitigation Policy Increase World Hunger?

That’s the finding of a recent study published in Nature Climate Change, “Risk of Increased Food Insecurity under Stringent Global Climate Change Mitigation Policy” by an international team of 22 researchers.  (Coauthorship like this is why god created et al.)  The abstract has made the rounds of the blogosphere, including Marginal Revolution, which is where I found it.

The article reports an integrated assessment model (IAM) exercise in which various scenarios are run, each consisting of a climate piece (how agriculture will be affected by climate change) and a climate policy piece (how steep a carbon tax is imposed and how it impacts production and consumption).  More tax, less climate change and vice versa.  The unsurprising result is that, if the tax is universal and large it will raise food prices, putting millions more people at risk of hunger.

But where does all this extra money collected in carbon taxes go?  That was not addressed: “In most models, carbon tax revenue stays outside of agricultural sectors both on the producer and consumer sides, and is not properly redistributed to affected people.”  That’s all they say about carbon revenues, but it’s enough to explain why climate policy is portrayed as a threat to the world’s poor.  In any sensible approach, carbon taxes or moneys collected from carbon permit auctions are returned to the people who pay them in a progressive manner, so those with the lowest incomes come out ahead.  (They get back more in rebates than they pay in higher prices.)  The simplest way to do this is with an equal per capita dividend.

I did a simple back-of-the-envelope calculation of the effect of a global carbon price rebated via an equal lump sum payment everywhere.  For every dollar of this price, $12.5 billion is effectively transferred from upper to lower income countries.  (Details will appear in my climate change book when it appears next year.)  Of course, there are large political and administrative problems to overcome in setting up such a system, but they are not insurmountable, especially since higher income countries can decide (or negotiate) how to divvy up carbon revenues between those destined for national versus international rebates.

So, yes, a global carbon tax as modeled by the Nature Climate Change team would make the poor poorer, but the one additional tweak of recycling the money on an equal per capita basis would lead to the opposite effect.

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How close are we to “full employment”?

How close are we to “full employment”?

As I pointed out Friday, there was a lot of good news underneath the headline jobs gain — primarily in labor force participation and underemployment. So, how close are we to “full employment,” based on the last few expansions?

Let’s start with the simple, straightforward unemployment rate of 3.9%. This is already considerably below the best reading of the 2000s expansion, and only 0.1% above the best reading of the 1990s expansion, which was tied two months ago in May:

But of course that isn’t the end of it. Much attention has been paid to the U-6 underemployment rate, which reached a new expansion low of 7.5%.

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Real Wages Decline

Real Wages Decline

Trump and his allies have been loudly bragging about the second quarterly GDP growth rate of 4.1%.  It is quite possible that a growth rate of this sort may be maintained for another quarter or so, given the large fiscal stimulus put in place at the beginning of the year. How curious it is that that coincided with the peak of the US stock market, at least as measured by the Dow.

However, this is seriously overblown for the simplest of reasons: the rate of inflation is rising.  It has now gotten to rising at a 2.9% rate while nominal wages are rising at a 2.8%.  So real wages have declined by a 0.1% rate.  Real wages rose throughout nearly all of the Obama presidency, except for a couple of quarters.  But if one pays attention to Trump and his allies, one would have no idea of this development. Needless to say, as the price increases from the trade war kick in, this situation is  not likely to improve.

Barkley Rosser

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July jobs report: booming jobs market, and a surge in participation continues to depress wage growth  

July jobs report: booming jobs market, and a surge in participation continues to depress wage growth


  • +157,000 jobs added
  • U3 unemployment rate down -0.1% from 4.0% to 3.9%
  • U6 underemployment rate down -0.3% from 7.8% to 7.5% (new expansion low)

Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now:  down -95,000 from 5.258 million to 5.163 million
  • Part time for economic reasons: down -176,000 from 4.743 million to 4.567 million (new expansion low)
  • Employment/population ratio ages 25-54: up 0.2% from 79.3% to 79.5% (new expansion high)
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.03 from  $22.62 to $22.65, up +2.7% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  

  • Manufacturing jobs rose +37,000 for an average of +29,000/month in the past year vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs were unchanged for an average of +100/month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

May was revised upward by +24,000. June was also revised upward by +35,000, for a net change of +59,000.

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