One of the big problems in the U.S. economy right now is that big corporations are generating record profits not by growing revenues but by cutting costs. "Costs," as everyone who works for a big corporation knows, are a synonym for employees, employee wages, employee perks, capital investment, and research and development.As a result, we have reached a point where corporate profit margins are at all-time highs and corporate wages are at all-time lows as a percent of the economy. (See charts here.)....The employees whose collective wages are stagnant or dropping account for most of the spending that drives the economy. So if employees aren't getting paid well, and corporations aren't spending, the economy can't grow quickly....Gary Shilling is right that today's record-high profit margins and labor-capital imbalance won't persist, because it never does. But the question companies should be asking themselves is how they want this imbalance to be addressed. Do they want to wait until they are forced to share more of their wealth by unions or the government? Or do they want to do it voluntarily, because it's the right thing to do and because it's better for them and their shareholders in the long run?
I think it will come down to whether a competitor starts to offer better wages to their employees to help boost production and overall morale of the business. If no competitor does it and the company doesn't want to be the first to take a hit in profits because the timing might not be right to change their image, it will take the government to force change. Until then, the companies are just going to take advantage of the ability to make profits.
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