The only incentive that will effectively cause companies to pay their employees better is more demand for labor, which is most likely to be caused by increased economic growth. Most other programs end up being more complicated and costly than earned income tax credits and other methods of redistribution.
> The only incentive that will effectively cause companies to pay their employees better is more demand for labor
Or wage regulations (increasing the minimum wage)
Or labor organization (ie Germany)
Or tax regulations (shift tax incentives from machinery to labor)
> which is most likely to be caused by increased economic growth.
Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan). EDIT: We can argue this point if you'd like, in a thread about the strongest world economy planning for negative interest rates, while other central banks have already gone (and continue to hold) at negative rates (can't "push the string"!, ie stoke demand with free money).
>"Or wage regulations (increasing the minimum wage)"
Evidence on this is mixed at least; the majority of the studies go against this being an effective policy. The Card and Krueger findings are somewhat convincing, but do not hold over a longer period of analysis.
>"Or labor organization (ie Germany)"
Labor organization may help transfer wealth from shareholders, suppliers, or consumers to the workers, unless it kills the host companies or causes them to move away. I have not seen evidence that labor organization helps the average citizen, though there is some evidence that it may help the unionized people; unless labor organization improves productivity, it can only change distribution, and I'm not sure who it really transfers wealth from.
>"Or tax regulations (shift tax incentives from machinery to labor)"
This may help raise demand for labor, but pay can never go higher than productivity, which usually requires capital investments.
>"Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan)."
I disagree, and it is difficult (if not impossible) to prove which of us is right.
> Labor organization may help transfer wealth from shareholders, suppliers, or consumers to the workers, unless it kills the host companies or causes them to move away.
This is by design. If we can transfer more wealth to workers instead of shareholders, we should. If workers can't receive an appropriate wage from a company, than the business is most likely not viable (see: people complaining their business won't work with a $15/hour minimum wage).
>"Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan)."
> I disagree, and it is difficult (if not impossible) to prove which of us is right.
I agree that this will be determined by India, China, and to a lesser extent Africa. I believe these economies are growth-limited now, due to the fundamentals around how their economies are structured.
note: I removed a quote child comment responded to, referenced below.
>" If we can transfer more wealth to workers instead of shareholders, we should."
This is a normative goal, but you are assuming that unions always transfer wealth from shareholders to workers, and I am not convinced of this. Shareholders will refuse to invest if the returns are not attractive, so it is difficult to retain them. It seems more likely that unions will transfer wealth from consumers or suppliers to the union members, which is a much less appealing prospect.
>"Can you explain the rational as to how zero interest rate policies can stoke demand on-par with middle class consumers, versus simply enriching lending institutions? If I'm wrong, I am happy to concede the point."
I'm not convinced that the Federal Reserve has much impact on consumer and corporate interest rates. All central banks believe that international bond markets are relatively free. All central banks also believe that they control their national interest rates. These beliefs are not compatible.
note: the second quote in this post was edited out of the parent
>"Also, if monetary policy is driving rates negative, technically, capital "required" for productivity is literally free."
This is only superficially true. Real interest rates also take inflation risk and investment risk into account, so they could easily be quite signiifcant even when the central bank says there is a negative interest rate.
I am not an economist but I am pretty sure you could design tax policies that make it more attractive to pay higher salaries for the average worker or maybe give them shares in the company.
Can you imagine how much demand there would be if average wage growth would have kept up with productivity? People who make 30000/year would spend much more if they had 40000/year. I don't think a CEO's behavior will change much if he has 30 million or 40 million.
Obviously this won't happen but it's a thought that should be brought up from time to time.
>"Can you imagine how much demand there would be if average wage growth would have kept up with productivity? People who make 30000/year would spend much more if they had 40000/year. I don't think a CEO's behavior will change much if he has 30 million or 40 million."
There might be more demand for the consumer goods popular for low-middle income citizens, but then again, this could reduce capital investments and reduce productivity in the long term, thus reducing wage growth in the future. I suppose my answer is that I can't imagine how much 'demand' there would be if average wage growth kept up with productivity, largely because the economy is a complicated beast, and 'demand' is not a simple thing.
I am assuming that we hold M2 velocity of money constant for the purpose of this analysis; which is to say that I assume richer people and poorer people hold on to money for the same amount of time before re-allocating it (to stocks, bonds, consumables, durable goods, etc.). If this assumption is true, both will create the same total 'demand', but for different goods. Richer people tend to spend much less (as a proportion of their income) on consumables and personal items than poorer people; the rich also tend to invest the vast majority of their money, and that money often goes to capital investments.
Supply and demand works the same for industrial buildings, robots, software, and trains as it does for homes, couches, and cars. The primary (economic) difference between these goods is their impact on long-term productivity.
>I am assuming that we hold M2 velocity of money constant for the purpose of this analysis
Poor people have to spend money on essentials as soon as it comes in. Rich people don't. That's pretty much the simplest possible definition of being poor. So that is not a valid assumption.
>If this assumption is true, both will create the same total 'demand', but for different goods.
This can't possibly be true either. Rich people spend money on essentials and on luxury goods and on investments and keep some spare cash on hand, because why not?
Poor people spend money on essentials, and perhaps a little distraction and entertainment.
Why would the total demand from both somehow be the same?
> The primary (economic) difference between these goods is their impact on long-term productivity.
Which is the crux of the problem - speculative casino "investment", which is based on gaming markets, isn't economically productive. Neither is an economy that leans heavily on usury.
Productive investment in R&D, small business development, and wage growth stimulates economic capacity and increases confidence.
Speculative investment - including speculative gambling, systems of forced debt like student loans and payday lending, and asset inflation which drives up rents and property prices - destroys demand and economic capacity.
The fact that we're even discussing negative interest rates while in the middle of severe commodity deflation proves the core problem hasn't been addressed.
>"Poor people have to spend money on essentials as soon as it comes in. Rich people don't. That's pretty much the simplest possible definition of being poor. So that is not a valid assumption."
Rich people invest money in capital goods as soon as it comes in, either through a direct purchase, or because the investment bank where they hold the money gives it to someone who spends it.
>"This can't possibly be true either. Rich people spend money on essentials and on luxury goods and on investments and keep some spare cash on hand, because why not?"
I said 'as a proportion of income'; rich people spend far less on living expenses than the poor do as a proportion of income. They might have a car that is 10x as expensive, but with 100x the income to pay for it.
>"Poor people spend money on essentials, and perhaps a little distraction and entertainment."
This agrees with my previous statement.
>>"If this assumption is true, both will create the same total 'demand', but for different goods."
> I am assuming that we hold M2 velocity of money constant for the purpose of this analysis; which is to say that I assume richer people and poorer people hold on to money for the same amount of time before re-allocating it
There are two problems with that: the most obvious is that differences in velocity at the first level is one of the main bases on which distribution differences are held to effect demand growth, so you are just assuming away the main issue.
The second is even assuming away velocity differences at the first step, you also have to assume that velocity is the same in the different markets to which the rich and poor allocate funds: even if velocity were the same in the first case, this assumption would be invalid. (In both the first instances and later steps, this is even more true when you are considering growth of the domestic economy, where you aren't just concerned with velocity at each step, but also the propensity to spend within the domestic economy.)
>"There are two problems with that: the most obvious is that differences in velocity at the first level is one of the main bases on which distribution differences are held to effect demand growth, so you are just assuming away the main issue."
Demand growth for what? CNC machines and tools, or LCD televisions? Making a capital investment in semiconductor fabs will affect production and inspection equipment demand, as well as driving down production costs for a wide variety of goods, whereas buying an LCD television will increase demand for TFT screens, backlights, and slightly increase demand for television production machinery. I am making an assumption because we have to. No one has ever make a comprehensive economy-wide microeconomic model that worked, and no one ever will; this is the essence of the calculation problem.
>"The second is even assuming away velocity differences at the first step, you also have to assume that velocity is the same in the different markets to which the rich and poor allocate funds: even if velocity were the same in the first case, this assumption would be invalid. (In both the first instances and later steps, this is even more true when you are considering growth of the domestic economy, where you aren't just concerned with velocity at each step, but also the propensity to spend within the domestic economy.)"
I agree that there is probably a difference between velocity of spending between rich and poor, but I'm not sure which one is faster (; please provide a link to such information if you have it). It seems likely that the poor spend more money on low cost foreign imports (stuff made in China) than rich people who are investing in very expensive specialty goods made in the West, so I think it likely that allocating more money to the rich is beneficial from a mercantilist point of view.
You might be living paycheck-to-paycheque, yet still take the same time to allocate money as someone much more well-off. A full time investment management staff can allocate money quite quickly, and tend to plan ahead (thus avoiding delays). Being 'leveraged' does not hasten allocation of funds, it affects how the money is used.
