Profits should return to '90s levels to lift worker pay: Morgan Stanley

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Economy, Morgan Stanley

12/1/2021 9:39:00 PM

It's time for corporate profits to return to the '90s so companies can make up for decades of underpaying workers, Morgan Stanley says

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Something is loading.We are so sorry! We bumped into a system failure and couldn’t take your email this time.Thank you for signing up!See all newslettersMorgan Stanley says it's time for corporations to roll back their profit margins to where they were about thirty years ago — all in the name of worker power. 

The investment firm's research division released a report this week highlighting the gap between corporate profits and worker wages. The discrepancy has taken on new relevance in the pandemic-era economy amid the extraordinary labor shortage. Businesses have struggled to rehire, and workers continued to

quit at record ratesin September. The trends have fueled a new focus on decades of meager wage growth — and fresh scrutiny of companies' blockbuster profit gains.To make up for underpaying workers, Morgan Stanley says corporations should dial back their own profits for the next five years to retroactively fill the gap. After all, the other option to make up for the higher wages being demanded by workers is to raise prices. Those profits, researchers write, should resemble their 1990s level.

"Real wages currently still have to grow by 7.3% in excess of productivity growth to make up the gap," the report reads."If this catch-up takes place over the next 5 years, unit profits will fall 33% from current levels… This would move the corporate profit share back to its 1990s average on a pre-tax basis, and leave it just marginally above on a post-tax basis." 

The team, led by chief US economist Ellen Zentner, argues that reducing the gap between profits and worker pay can serve as a"buffer" against higher wages driving prices higher. In turn, trading profits for higher wages would help minimize inflation while reaching the Federal Reserve's"maximum employment" goal, the team said.

The labor shortage is the US's new normalThe chasm between compensation and productivity is a relatively new one, Morgan Stanley added. There was a"tight" relationship between the two in nearly every industry from 1950 to 2000. As businesses' revenues rose, worker pay generally climbed in lockstep. 

That link snapped in the 2000s, according to the bank. Workers' wages started to lag profit growth. Institutions that boosted worker power like unions and high minimum wages weakened. Corporations' owners and shareholders, meanwhile, benefitted from booming earnings and soaring stock values, Morgan Stanley said.

The gap between company profits and worker compensation in the past two decades is unprecedented and threatens the structure of the economy, the bank said."This divergence between real compensation and real productivity had never before been seen in the recorded data," they said, adding the drop in worker pay"marks a break in the fundamental structure of the economy."

Closing the gap wouldn't be a seamless transition, the bank added. Raising wages in today's tight labor market could put downward pressure on stocks in the near future. Still, strong corporate earnings and"ampleliquidity" would cushion against a major selloff, the team said.

Reverting to the profit-wage structure of the 1990s is less radical than it may seem, the economists added. Wage growth rebounded during the pandemic as businesses scrambled to attract workers. The unusually tight labor market is already reversing the trend of the last two decades and policy is"[tipping] the scales in favor of labor," the team said. 

It turns out, the labor shortage already kickstarted that economic time travel.Sign up for notifications from Insider! Stay up to date with what you want to know.Subscribe to push notificationsAn icon in the shape of a lightning bolt.

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Corporations have CHOSEN not 2 pay fair wages as evidenced by all time highs in profits this year! Many paid ZERO IN TAXES further raising the debt. The GOP tax sham under Trump raised the debt 2 all time highs & now they want to shut down the Government over debt they caused.🤷‍♂️ you are nt going like this should be asking for more if you knew the real inflation numbers

I agree with diagnosis. But DOW 20,000? Can this be done without a catastrophic market crash? 摩根士丹利表示,现在是时候让公司利润回到90年代,这样公司就可以弥补几十年来工资过低的工人

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This Apple manager quit partly due to strict return-to-office policiesThis Apple manager loved his job. He quit anyway and took a 50% pay cut partly due to the company's stringent return-to-office policies Can I have his place ? How those Apple's policy differ from Fox New's policy on the same matter? 这位苹果经理热爱他的工作。无论如何,他还是辞职了,减薪50%,部分原因是公司严格的重返办公室政策

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Never ordered anything from there, I’m American I wasn’t ever important enough to be able to. Kept poor so I never could. good

Good. But will it be fair?

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