Low MRP Workers?

The market failures have been in the capital markets, not the labor market.  The only thing wrong with wages is that we have allowed them to stagnate for so long.

At this rate, we would need to deliver 10% of GDP as corporate dividends before unemployment falls back to 5%.

Low MRP Workers?

8 thoughts on “Low MRP Workers?

  1. beowulf says:

    Not as difficult as it sounds. Publicly traded companies kick off, what, half of earnings as dividends? Start taxing them like REITs– no entity-level taxation so long as at least 90% of earnings kicked out as dividends, which are taxable to shareholders at ordinary income rates.

  2. Half? These days, if you count stock buybacks as dividends (and you really should; this figure is a bit misleading) it’s more than all of it. FRED doesn’t have new equity issues, for some reason, so you have to go to the FoF. 2006: after-tax earnings of $800 billion, $65 billion in dividends, $565 in net stock repurchases. 2007, it’s $750, $480, $790. (Yes, net stock repurchases exceeded after-tax profits.) 2008: $600, $470, $340. Everyone talks about how homeowners were extracting value in the 2000s, using homes as ATM machines, etc. We don’t talk about how the rentiers have been doing the same thing to productive enterprises.

  3. Chris-

    This is one of a serious of posts here making the (correct and important, IMHO) point that one of the underlying sources of our demand problem is the excessively high hurdle rate corporations set for new investment projects. For whatever reason, the required rate of return seems to be much higher than it used to be.This obviously reduces the number of projects that have a sufficient return, depressing the overall level of investment, and also reduces the purchase of monetary policy, despite the greater share of investment that is externally financed, since the market interest rate is a smaller portion of the opportunity cost of a project as perceived by firm decision makers. So when rsj says the problem is in the capital market, not the labor market, he means that if the investment function looked the way it did in let’s say the 1960s or 1970s, we’d have plenty of demand to absorb currently unemployed workers. Their supposed lack of appropriate skills would be no obstacle.

    The suggestion here is that when firms were willing to invest in relatively low-return projects (presumably in large part because investment finance was internal), an investment boom sufficient to produce full employment was associated with only a modest boost in dividends; today, since the projects would have to pay much more, full employment implies a much bigger dividend flow. Personally, while I agree with the broad point, I’m not 100% convinced that looking at dividends is the best way to make it.

    As for why firms now insist on a higher return on tangible investment? Personally, I would say it has to do with the increased power of finance vis-a-vis nonfinancial firms, as described by (e.g.) Dumenil and Levy. I don’t know if rsj would agree.

    1. I haven’t read Dumenil and Levy. In terms of finance, I like to group banks together with the government and focus on the non-financial sector. In that case, increasing financial sector profits are equivalent to a tax on the non-financial sector. Just imagine the interchange fees that businesses pay to allow their customers to use credit cards, or the fees the savers pay to their investment advisors, etc. In that case, increasing corporate taxes will push firms to increase profitability above and beyond what would otherwise be the case, and increasing taxes on the wealth of households will cause savings demands to go up (IMO). So finance is definitely partly to blame, but I don’t think its the key. Perhaps I’m wrong.

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