This is part II of a series being done on the topic of Investor vs. Labor. Part 1 of the series introduced the topic and can be found here. This post will focus primarily on how labor is a large part of the investing community. You may have heard your company's CEO make a statement such as "We are trying to maximize shareholder value." That is one of the most popular statements made by CEO's today. But that begs the question "Who are your shareholders?". The answer might surprise you.
The largest shareholders of Fortune 500 companies outside of company executives tend to be retirement funds representing the country's labor force. If you are to look at the largest retirement funds that regularly invest their money, you will find most are workers pension funds or mutual funds that are packed with retirement dollars. If you research most Hedge Funds, you will find the bulk of their capital comes from workers retirement packages also. Union pension fund investments into the stock market are in the billions each year. If you go to MSN Money, you can type in a stock and see that clearly worker retirement funds are the major investor in the stock.
Workers with blue collar salaries depend on the stock market for their retirement more than white collar executives because they have to. White collar salaried workers are able to take risk off the table and invest in safer instruments due to their higher salary. Blue collar workers do not have that luxury.
When a CEO makes that statement " We are trying to maximize shareholder value.", make sure it isn't preceded or followed by the statement "That is why we keep worker costs down.". If it is, he or she needs to find out who the company's shareholders actually are.
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The job situation today poses an interesting question for those on both the left and the right. Why is it or how can it be that companies in the standard and poors five hundred are seeing their earnings soar while at the same we are seeing such animic job creation by the private sector. The answer technology. Labor saving technology and also the increasing ability of many companies to move not just physical production overseas but also white collar jobs overseas. What we have here is a very serious dilemma on the one hand increasing productivty can keep prices down their by keeping inflation in check. But theirs a problem in our economic system. If a company is profitable and productive they could use their increasing productivity to improve both wages and benefits of their employees and they could also use their increasing productivity to lower prices or at least not raise prices. On the other hand they could use their growing excess profits which are directly related to their increasing efficiency and productivity to buy back their stock pay a larger dividend and do acquisitions or just hold the cash on their balance sheet. Rather than increase and improve the wages and benefits of their empolyees and lower or hold prices of their products and services steady. I believe the vast majority of the businesses in the united states have chosen to do the latter. In order to expect companies to pass on their excess profits in the form of lower prices or stable prices we must see increased competition among firms in the same business. This is often absent. Look at the huge money center banks that have a hold on huge regions of the country. With fewer competitors these companies can keep much of their excess profits instead of being forced to pass them along to consumers.. Another factor that is at work here is the tremendous amount of competition for jobs in the labor market as long as unempolyment remains high many companies are not inclined to increase wages and improve benefits. In the end we have a growing mismatch between the ability of the average consumer to afford the products and services being provided to the consumer by business.
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I guess theirs always going to be some sort of conflict between management and labor.
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