A Radical Critique Of Universal Basic Income

Authored by Charles Hugh Smith via OfTwoMinds blog,

This critique reveals the unintended consequences of UBI.

Readers have been asking me what I thought of Universal Basic Income (UBI) as the solution to the systemic problem of jobs being replaced by automation. To answer this question, I realized I had to start by taking a fresh look at work and its role in human life and society. And since UBI is fundamentally a distribution of money, I also needed to take a fresh look at our system of money.

That led to a radical critique of Universal Basic Income (UBI) and an outline for a much more sustainable and just system of money and work than we have now. To adequately explore these critical topics, I ended up writing a 50,000 word book, Money and Work Unchained.

Universal Basic Income (UBI) is increasingly being held up as the solution to automation"s displacement of human labor. UBI combines two powerful incentives: self-interest (who couldn"t use an extra $1,000 per month) and an idealistic commitment to guaranteeing everyone material security and reducing the rising income inequality that threatens our social contract--a topic I"ve addressed many times over the past decade.

UBI"s goals - guaranteeing material security and reducing income inequality - are not just worthy; they are essential. The question then becomes: how do we achieve these goals?

The conventional critiques of UBI focus on the practicalities of funding such a substantial universal entitlement. Where will the trillions of extra dollars required come from? Can we pay for UBI by "taxing the robots" or borrowing/ printing more currency?

But a radical critique must go much, much further, and ask: is UBI the best that we can do? If we provide the basics of material security--the bottom level of Maslow"s hierarchy of human needs--what about all the higher needs for positive social roles, meaningful work, and the opportunity to build capital?

This critique reveals the unintended consequences of UBI: rather than deliver a Utopia, UBI institutionalizes serfdom and a two-class neofeudalism in which the bottom 95% scrape by on UBI while the top 5% hoard what every human wants and needs: positive social roles in our community, meaningful work that makes us feel needed, and the opportunity to build capital in all its manifestations.

UBI is the last gasp of a broken, dying system, a "solution" that institutionalizes all the injustices of serfdom under the guise of aiding those left behind by automation. We can do better--we must do better--and I lay out how to do so in this book.

A radical critique must also examine the widely accepted assumption that automation will destroy most jobs. Is this assumption valid? It turns out this assumption rests on a completely false understanding of the nature of work, the economics of automation and the presumed stability of an unsustainable global economy.

Read the first section for free in PDF format.

*  *  *

I"m offering Money and Work Unchained to my readers at a 25% discount ($7.45 for the Kindle ebook and $15 for the print edition) through Saturday, December 9, after which the price goes up to retail ($9.95 and $20). If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

If You Like Your Stagnant Wages, You Can Keep Your Stagnant Wages

Ever since the great recession of 2008/2009, economists have grown increasingly perplexed by the lack of real wage growth in the U.S. economy despite improving unemployment trends.  Even with a 4.4% unemployment rate, real wage growth has been elusive and hovered between negative 1% and positive 1% for years now.

Of course, it all could have something to do with the ~95 million people who have given up looking for jobs and/or the massive transition to part-time laborers in the Obamacare era, but we"re just spitballing here.

Regardless of the reasons, according to a new survey from Aon Hewitt, the downward pressure on U.S. wage growth is unlikely to subside in 2018 with many employers saying their wage growth will be flat YoY.  Per the Wall Street Journal:

Businesses are planning to keep budgets for raises relatively flat in 2018, while continuing to devote more payroll dollars to performance-based pay, according to a survey of salary planning at 1,062 organizations conducted by consulting firm Aon Hewitt.

Despite low unemployment and increased competition for talent, companies are bearish on across-the-board pay raises, said Ken Abosch, an Aon Hewitt executive who works on the annual survey, now in its 41st year.

“Organizations are expressing reservations about the years coming and, for the first time since the recession, are signaling doubt or uncertainty about what they think their performance will look like in the coming year,” he said.

Moreover, in a move that will undoubtedly draw the ire of Bernie Sanders and his socialist followers, companies are increasingly saying that a higher percentage of their overall compensation will be dedicated to merit-based bonuses. 

Companies are paying to keep their highest performers happy and in place, with an average 12.5% of payroll going to incentive and bonus pay next year.

Overall, two-thirds of the organizations in the survey said they will use merit pay to show workers who’s doing a good job, and who could stand to improve. Of those companies, 40% said they would reduce or eliminate raises for low performers. And some high performers will have to work harder next year—15% of the companies changing merit pay say they will set more aggressive targets for bonuses and incentive pay.

Lindenwood University, a liberal-arts school near St. Louis, Mo., recently introduced a merit pay system for the school’s staff of 950. Previously, there was no formal structure for rewarding performance.

High performers get rewarded for their extra effort, said Dr. Deb Ayres, the university’s vice president of human resources. “They’re not getting the same small increases as everyone else. It’s very motivating for them.”

All of which is just a long way of confirming that "if you like your stagnant wages, you can keep your stagnant wages."

Hawaii Considers A "Universal Basic Income" As Robots Seen Stealing Jobs, There's Just One Catch...

Forget social security, medicaid and WIC, today"s progressives have moved well beyond discussing such entitlement relics of the past and nowadays dedicate their efforts to the concept of a "Universal Basic Income" for all...call it the New "New Deal".  You know, because having to work for that "car in every garage and chicken in every pot" is just considered cruel and unusual punishment by today"s standards.

Of course, it should come as little surprise that the progressive state of Hawaii, which depends on easily automatable jobs tied to the tourism industry, is among the first to pursue a Universal Basic Income for its residents.  And while the idea of passing out free money to everyone seems like a genius plan, if we understand it correctly, as CBS points out, there is just one catch...figuring out who will pay for it.

Driverless trucks. Factory robots. Delivery drones. Virtual personal assistants.

As technological innovations increasingly edge into the workplace, many people fear that robots and machines are destined to take jobs that human beings have held for decades--a trend that is already happening in stores and factories around the country. For many affected workers, retraining might be out of reach —unavailable, unaffordable or inadequate.

Over the past two decades, automation has reduced the need for workers, especially in such blue-collar sectors as manufacturing, warehousing and mining. Many of the jobs that remain demand higher education or advanced technological skills. It helps explain why just 55 percent of Americans with no more than a high school diploma are employed, down from 60 percent just before the Great Recession.

Hawaii state lawmakers have voted to explore the idea of a universal basic income in light of research suggesting that a majority of waiter, cook and building cleaning jobs — vital to Hawaii"s tourism-dependent economy — will eventually be replaced by machines. The crucial question of who would pay for the program has yet to be determined. But support for the idea has taken root.

"Our economy is changing far more rapidly than anybody"s expected," said state Rep. Chris Lee, who introduced legislation to consider a guaranteed universal income.

Lee said he felt it"s important "to be sure that everybody will benefit from the technological revolution that we"re seeing to make sure no one"s left behind."

But taking billions from hard working Americans to "spread the wealth around" has never been all that difficult before so presumably this too should prove to be a relatively minor issue.

In all seriousness, where does Representative Lee and CBS figure Hawaii will get the funding for their guaranteed income plan?  Well, as it turns out, Facebook co-founder Chris Hughes made a very generous $10mm donation to support programs just like this...the only problem, of course, is that Hawaii would need about 1,000 times that amount to fund Chris Lee"s plan for just one year.

For now, philanthropic organizations founded by technology entrepreneurs have begun putting money into pilot programs to provide basic income. The Economic Security Project, co-led by Facebook co-founder Chris Hughes and others, committed $10 million over two years to basic income projects.

Tom Yamachika, president of the Tax Foundation of Hawaii, a nonprofit dedicated to limited taxes and fairness, has estimated that if all Hawaii residents were given $10,000 annually, it would cost about $10 billion a year, which he says Hawaii can"t afford given its $20 billion in unfunded pension liabilities.

That said, it"s difficult to argue with Karl Widerquist"s argument that Hawaiians deserve a "beach dividend" for their heroic efforts in being born and continuing the difficult task of breathing day in and day out.

Karl Widerquist, co-founder of the U.S. Basic Income Guarantee Network, an informal group that promotes the idea of a basic income, suggests that Hawaii could collect a property tax from hotels, businesses and residents that could be redistributed to residents.

"If people in Alaska deserve an oil dividend, why don"t the people of Hawaii deserve a beach dividend?" he asked.

And while we have little doubt that Widerquist has fully thought through his suggestion that Hawaii just raise an incremental $10 billion every year via a tax on hotel stays...we thought we"d run the math just to make sure his plan holds water.  As it turns out, roughly 3 million families visit Hawaii for a little R&R every year which means each family would only have to pony up an extra $3,400 per hotel stay to cover Hawaii"s Universal Basic Income plan.  Seem more than reasonable, right?

In Fiscal Dire Straits, Connecticut Showers State Disability Workers With Overtime Pay

Judging by muni spreads, Illinois is widely considered the most financially troubled state in the country. However, preppy Connecticut, which has the highest per-capita income in the country and whose capital Hartford has been on the verge of bankruptcy for months, isn’t far behind.

As lame-duck Democratic Gov. Daniel Malloy battles with the legislature – including members of his own party - over passing the state’s budget with a $2.5 billion deficit, the state’s largest newspaper, the Hartford Courant, is highlighting an issue that is emblematic of a nettlesome fiscal problem facing the nutmeg state: its overly generous treatment of state employees through overtime pay, particularly the Department of Developmental Services which operates a string of hospitals serving the intellectually disabled and group homes, that is putting a heavy strain on the state’s already teetering budget.

State payroll data analyzed by the Courant revealed that, through the first half of the year, 37 DDS employees have already earned more than $50,000 in overtime alone, putting a handful of these workers on track to collect $250,000 in pay this year. By comparison, workers with similar jobs in the private sector with state contracts - a group that serves 90% of the state’s intellectually disabled patients - haven’t had a pay raise in 12 years.

This excessive reliance on overtime is the result of a quirk in the regulatory framework that governs how the aging state institutions are run. Some nurses are on track to earn more this year than DDS Commissioner Jordan Scheff.

“With half the year to go, one direct-care worker in a facility in DDS"s west region, with an annual base salary of $44,000, had already earned $119,000, including $91,170 in overtime alone, payroll records show. She"s on pace to earn $238,000 this year.”

“…in the north region, with a base salary of $57,000, had earned $122,500 by mid-year, including $94,000 in overtime since Jan. 1, the records show. At this pace, he"ll earn over $245,000, well more than the $138,000 annual salary of the commissioner of DDS, Jordan Scheff.

More than 250 DDS employees, most of them direct-care workers, had earned at least $25,000 in overtime through June, records show.”

According to the Courant, the state’s excessive regulations governing how state-run health-care enterprises should be staffed, have transformed the Department of Development Services into a massive drain on the state already devastated budget. As a result, the state is hesitant to hire much needed new workers because it’s slowly working to close the state-institutions.

“For many advocates…overtime illustrates the inequities between the public and private sectors. There have been calls for several years for more funding for the private agencies serving most of the state"s 16,000 intellectually disabled clients. Advocates say the disability community has never been in greater jeopardy, and they have ratcheted up their public protests. Several hundred parents, advocates, and clients attended twin rallies at the Capitol on July 18.”

DDS Head Scheff explains how the state’s powerful public employee are working to preserve the system despite its obvious inefficiencies, adding that the costs of running these hospitals are “not sustainable.”

"No, it"s not sustainable, and it"s not cost effective, and it"s not in the best interest of the people we support to have out folks working this way," Scheff, in an interview last week, said of the overtime situation.

He said the budget impasse, funding cuts to the agency, and certain state concessions to the union, such as stopping the privatization of state-run group homes, have hampered the department"s ability to reduce costs and shift money to serve clients who have been waiting years for housing support, in-home aides, or other assistance from DDS.”

Furthermore, wasteful regulations that require a ratio of 2.7 on-duty staff for each psychiatric patient at a state-run hospital has also been blamed for ballooning the DDS budget to $1 billion.

“Advocates who have studied the public and private systems extensively say that a higher staff-to-client ratio in the public sector, about 2.7:1, compared with about 2:1 in the private sector, is a major reason why the public costs are significantly higher. A study by the legislature"s program review and investigations staff concluded that the quality of care provided by state and private workers was the same.”

To be sure, solving the overtime problem at CT’s psychiatric institutions wouldn’t go anywhere near to resolving the state"s budget woes which extend far beyond this one sector. But the problem is emblematic of the most intractable financial and political problems facing the state: powerfully entrenched state employee unions, wasteful regulation and programs that commit vast resources to serving a handful of needy individuals.

But the need to close – or at least minimizing – the massive budget deficit is growing inexorably more pressing with each passing day. Back in May, yields on CT’s general obligation bonds surged as plummeting income-tax revenues and a series of downgrades by the major credit-rating houses raised serious questions about the state’s fiscal health. And with the state capital, Hartford, downgraded to junk on June 11, underscoring the threat of an imminent bankruptcy, worries that the state might need to orchestrate a bailout of its once-proud capital have intensified.

And just when the situation was showing signs of stabilizing, a series of corporate defections, including health insurance giant Aetna’s June decision to move its headquarters to NYC – are shrinking the state’s already narrow tax base. Now that Gov. Malloy’s strategy of enticing companies to stay with a mix of tax cuts and the promise of state aid has failed, the state is in desperate need of a new leader to find a way to lure businesses back into the state. The question is who would even want that job?

Sears Canada Pays Execs Bonuses While Laid-Off Workers Get No Severance

After filing for bankruptcy protection in an Ontario court last month, Sears Canada said Friday that it plans to dole out big bonuses to senior management while the retailer trudges through a painful restructuring, even as thousands of laid-off workers aren"t being paid promised severance.

According to court documents, Sears - which promised to close 59 stores and eliminate 2,900 jobs across the country as part of a court-supervised restructuring process - will pay up to $7.6 million in retention bonuses to 43 executives and senior managers at the company"s head office in Toronto – the same management team that lead the company as sales plummeted and it spiraled into insolvency. As CBC News reports, that works out to an average of $176,744 per employee, although it"s unlikely the money will be divided up so evenly.

Meanwhile, the company said it won"t be paying lower-level employees a severance, which could equate to a loss of tens of thousands of dollars per person. Predictably, the news isn"t going over well with the company"s laid-off workers.

"Why aren"t they able to pay us out the severance if they have this [bonus] money?" says Zobeida Maharaj, a laid-off senior operations manager who spent 28 years working for Sears in the Toronto area.

"They have no moral values, no compassion, nothing in their hearts."

Sears argues that the hefty paydays are necessary to keep the management team from jumping ship as the company restructures.

Sears Canada points out that the bonus payments — known as the Key Employee Retention Program (KERP) — have been approved by the Ontario Superior Court. Offering cash incentives during restructuring is common and often necessary to retain key employees, the company said.

"A lack of a KERP in this scenario would potentially result in a worse outcome and negatively impact a variety of stakeholders," spokesperson Joel Shaffer told CBC News.

In a revelatory twist, the managers who guided the company into bankruptcy stand to profit handsomely by doing so; many could reap enormous bonus payments beyond those mentioned above, including incentive-based payoffs, if they can bring the company through bankruptcy intact.

“The executives and senior managers tasked with guiding Sears through the restructuring will earn up to an additional 25 per cent to 100 per cent, on top of their base salary.

Most will get their bonuses in quarterly installments, receiving 75 per cent of their payments within six months. The final 25 per cent won"t be paid out until a successful restructuring is complete.

Sears also plans to pay retention bonuses of up to $1.6 million to 116 senior store employees who will oversee liquidation sales at locations that are closing. That amount works out to an average of $13,793 each and will be contingent on certain sales targets.”

But try explaining to recently unemployed Sears workers why the compay should be allowed to pay out these bonuses before the severence payments promised to them and thousands of their peers.

[Zobeida ] Maharaj says she can understand paying retention bonuses to store employees working on the front lines. But she argues the big payouts to higher-ups at head office are unfair when ex-workers like her have lost their severance.

"I"m shocked as to how they got this grant permitted to have these people — these headquarters [big-wigs] — fill their pockets even more on the suffering of Sears employees," says Maharaj. "We"re just the little ants at the bottom."

Rosa Dalessandro also wonders why there"s money to pay Sears executives when she"s losing severance that amounts to about a year"s salary.

"It"s very upsetting," says the former Toronto-based sales manager, who worked for the company for 20 years.

Dalessandro was laid off in March and Sears cut off her severance payments last month. This week, the retailer also cut her benefits and she got hit with an unexpected $400 dental bill.

"I"m opening all the bills right now and I"m like, "Wow, wow, wow," because you don"t have money coming in. It"s really affected me and my family," says Dalessandro.

"It"s almost like what they took from us, they"re giving to the executives downtown."

Sears management argues that the bonuses are necessary to ensure that important employees stick around to help rebuild the company as it struggles through bankruptcy.

While it may sound "cold and heartless" to some workers, putting money aside to keep key employees is considered a prudent move, says employment lawyer Adrian Ishak. "These KERPS are a necessary evil."

When a company is insolvent, Ishak explains, creditors line up to try to recoup their losses. While laid-off employees are considered low priority, retention bonuses for key staff — if approved by the court — often get top priority because those employees are needed to help restructure the company.

"Where you really need to incentivize are people at the top levels, those who are going to be responsible for elaborating the plan, as well as implementing it," says Ishak, a partner with Rubin Thomlinson LLP in Toronto.

If key staff manage to successfully restructure Sears, he adds, it will be the best-case scenario for the company"s creditors. "If it"s a continuing enterprise, there will be far fewer losers," he says.

But perhaps the most outrageous injustices can be found at the highest level of Sears senior management, where CEO Eddie Lambert has spent years laying claim to the company’s assets.

As we’ve reported, previously if Sears Canada were to go bankrupt, Lambert - also the company"s largest shareholder - loses his equity stake, but he remains the company’s principal creditor. Already, Lampert has effectively laid claim to enormous amounts of the company’s assets through loans he’s made. His hedge fund, ESL Investments, also owns large stakes in Lands’ End and a Real Estate Investment Trust that gained control of some of Sears’ best properties in a $2.8 billion deal back in 2015, then leased them back to the company.

As is the case in many bankruptcy filings, the owners and managers of the company protected themselves while the company floundered. Now, Sears employees will need to make do without thousands of dollars in wages they had been anticipating.
 

Huge Miss: Only 138K Jobs Added In May; April Revised Much Lower As Wages Disappoint

As previewed last night, the jobs "whisper" risk was to the downside, and in what was a very disappointing print released moments ago by the BLS, the whisper was spot on with only 138K jobs added in May, far below the 185K estimate, and below the lowest estimate of 140K. This was the second lowest print going back all the way to last October. Additionally, April"s big beat of 211K was revised substantially lower to only 174K, suggesting that any expectation the Fed may have had of "evidence" the recent economic slowdown was transitory was just crushed.

The change in total payrolls for March was revised down from +79,000 to +50,000, and the change for April was revised down from +211,000 to +174,000. With these revisions, employment gains in March and April combined were 66,000 less than previously reported. This means that over the past 3 months, job gains have averaged 121,000 per month, a far cry from the 181,000 average jobs added over the past 12 months.

To be sure, as SouthBay Research points out, a big reason for the unexpected miss was the sharp seasonal adjustment favtor, which was the biggest going back to the financial crisis days:

Not helping the Trump agenda, manufacturing jobs declined sharply, posting the weakest growth of 2017.

Looking at the Household survey revealed an even uglier picture as the number of employed workers declined by 233K to 152,923, the lowest since March.

Even worse for wage watchers, while the average hourly earnings rose by 0.2% monthly, the annual increase also missed printing at 0.2%, with April revised from 0.3% to 0.2%, while the annual increase was 2.5%, also missing the expectations of a 2.5% print. This was the lowest annual increase in average hourly earnings since March 2016.

On an absolute basis, the rebound in average hourly earnings has now fizzled completely.

While there was a silver lining in the unemployment rate which declined again to 4.3% from 4.4%, a bigger problem emerged in the participation rate which took a big step lower from 62.9% to 62.7%.

More details from the report:

Total nonfarm payroll employment increased by 138,000 in May, compared with an average monthly gain of 181,000 over the prior 12 months. In May, job gains occurred in health care and mining. 

Employment in health care rose by 24,000 in May. Hospitals added 7,000 jobs over the month, and employment in ambulatory health care services continued to trend up (+13,000). Job growth in health care has averaged 22,000 per month thus far in 2017, compared with an average monthly gain of 32,000 in 2016.

Mining added 7,000 jobs in May. Employment in mining has risen by 47,000 since reaching a recent low point in October 2016, with most of the gain in support activities for mining.

In May, employment in professional and business services continued to trend up (+38,000). The industry has added an average of 46,000 jobs per month thus far this year, in line with the average monthly job gain in 2016. 

Employment in food services and drinking places also continued to trend up in May (+30,000) and has grown by 267,000 over the past 12 months. 

Employment in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, and government, showed little change over the month.  

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in May. In manufacturing, the workweek also was unchanged at 40.7 hours, while overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down by 0.1 hour to 33.6 hours. 

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.22. Over the year, average hourly earnings have risen by 63 cents, or 2.5 percent. In May, average hourly earnings of private-sector production and nonsupervisory employees increased by 3 cents to $22.00. 

The change in total nonfarm payroll employment for March was revised down from +79,000 to +50,000, and the change for April was revised down from +211,000 to +174,000. With these revisions, employment gains in March and April combined were 66,000 less than previously reported. Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors. Over the past 3 months, job gains have averaged 121,000 per month. 

"Reverse Pay Gap?" Female CEOs Make More Than Male Peers

The latest blow to the mainstream media’s misleading narrative about the relationship between gender and compensation has been delivered by the Wall Street Journal’s annual report on CEO pay, which revealed that - country to popular perception - female CEOs of S&P 500 companies actually earn more than their male peers.

In what WSJ described as “an unusual reversal of the gender pay gap,” the paper found that last year, 21 female CEOs of S&P 500 companies received a median compensation package of $13.8 million, compared with $11.6 million for 382 male chief executives.

Contrary to popular belief, women who make it to the top rung on the corporate ladder likely find that their gender – if it has any impact at all – likely works in their favor because, as the WSJ delicately suggests, corporate boards don’t want to risk a PR disaster by underpaying a female chief executive.

Or as Robin Ferracone, head of Farient Advisors LLC, puts it: “Boards don’t want to shortchange their female CEO in today’s environment, when pay equality is such an issue.”

Female CEOs also benefit from the perception that “these women must be exceptional” because so few reach the corner office, Heidi Hartman, president of the Institute for Women’s Policy Research, told WSJ.

Male executives still outnumber their female peers by a considerable margin, but WSJ found that female CEOs made more money than male execs during six of the last seven years. What’s more, for the first time in history, three female CEOs rank among the top 10 highest paid corporate execs. They are Meg Whitman at Hewlett Packard Enterprise Co., Virginia “Ginni” Rometty at International Business Machines Corp. and Indra Nooyi at PepsiCo Inc.

Women-led companies also posted higher returns, on average, than male-led firms. As WSJ reports, S&P 500 businesses now run by women generated a median total shareholder return of 18.4% in 2016, compared with 15.7% for those commanded by men. Returns at female-led firms outpaced returns at male-run companies in three of the previous five years.

Of course compensation still varies widely based on the firm’s performance: At HP Enterprise, which posted a total return of 55% last year, CEO Meg Whitman earned $35.6 million during the year ended Oct. 31 – more than twice what she earned a year earlier when she was running the combined Hewlett-Packard Co.

Though, as WSJ noted, Whitman’s latest package included a special equity grant tied to the debut of HP Enterprise. Aside from such one-time items, “Meg’s target compensation has remained unchanged over the past three years,’’ a company spokeswoman said, describing part of her package.

Mylan NV had the lowest one-year return among women-led companies at minus 29%, and longtime CEO Heather Bresch’s compensation fell to $13.8 million down from $18.9 million the previous year.

To be sure, not all female CEOs are immune to criticism about bloated pay packages: IBM CEO Ginni Rometty earned $32.7 million last year, up from $19.8 million a year earlier, while her company saw revenue decline for the 20th straight quarter.
Her 2016 package included 1.5 million stock options, which she can’t fully exercise unless IBM’s stock price increases as much as 25%, according to the company’s proxy, but she can hold on to those options for 10 years.
About 46% of votes cast at this spring’s annual meeting opposed the company’s executive pay practices, which represents a record level of IBM investor opposition for a “say-on-pay” vote.
 

Boeing To Lay Off "Hundreds" Of Engineers

President Trump will not be amused. In a letter to employees, Boeing VP John Hamilton announces that the company will lay off "hundreds" of engineers as soon as this week, affecting Washington and "other enterprise locations."

As Bloomberg headlines show:

• *BOEING TO SEND NOTICES FOR INVOLUNTARY LAYOFFS APRIL 21


• *BOEING ENGINEERING LAYOFFS PLANNED FOR JUNE 23, 2017

The timing is interesting as the Ex-Im Bank discussions hot up and comes just 2 months after Trump visited Boeing"s South Carolina plant.

Standing in front of a new Boeing 787-10 Dreamliner passenger aircraft made at in North Charleston, Trump repeated his campaign promises to promote American production that partly fueled his dizzying path to the White House. He warned of a "substantial penalty" for companies that move jobs out of the United States.

"We want products made by our workers in our factories stamped with those four magnificent words — made in the USA," Trump said.

The share price is entirely unimpressed...

CEO Pay Soars In 2016 As Employee Wages Continue To Stagnate

CEO pay increases took a brief pause in 2015 dropping to a paltry median of just $10.8 million with most getting a pay cut or a raise of less than 1.5%.  But, as the Wall Street Journal points out this morning, the CEO"s of America can once again rest assured that their families will not starve to death as 2016 pay soared nearly 7% setting a post-recession record.

Median pay for the chief executives of 104 of the biggest American companies rose 6.8% for fiscal 2016 to $11.5 million, on track to set a postrecession record, according to a Wall Street Journal analysis.

Twice as many companies increased their chiefs’ pay as reduced it, though a few high-profile bosses took substantial pay cuts, including Apple Inc.’s Tim Cook and General Electric Co.’s Jeff Immelt.

The higher pay was doled out as the stock market notched strong gains and corporate profits rebounded over the course of 2016. “If ever there was going to be a good year for CEO pay, it was going to be 2016,” said David Yermack, a finance professor at New York University’s Stern School of Business who studies executive pay.

As usual, operating results had limited impact on CEO earnings potential and some of the largest payouts went to CEO"s who were fired in 2016.

Some of the biggest paydays went to companies in transition—or even turmoil. Philippe Dauman, who was forced out as chief of media giant Viacom Inc. in August, made $93 million during the year. The total includes $58 million of exit payments, promised under his 2015 employment agreement. A Viacom spokesman declined to comment.

At Johnson Controls International PLC, Alex Molinaroli made $46.4 million in the year ended Sept. 30, more than double the $21.7 million he made the prior year. Last fall, he split off an auto-parts business that accounted for a significant part of Johnson Controls’ revenue and closed a $14 billion merger with Tyco International PLC. A Johnson Controls spokesman declined to comment.

Meg Whitman made $35.6 million in the year ended Oct. 31 as chief executive of Hewlett Packard Enterprise Co., which was created when she split Hewlett-Packard Co. into two companies in late 2015. That is more than double the $17.1 million she made a year earlier at the combined company.

Her latest package included a special equity grant tied to the launch of HP Enterprise. Aside from such one-time items, “Meg’s target compensation has remained unchanged over the past three years,’’ an HP Enterprise spokeswoman said, referring to a portion of the CEO’s pay package.

Thomas Falk of Kimberly-Clark Corp. received a 29% raise, compared with a 21% pay cut in 2015 and bringing his total compensation to $15.7 million in 2016 from $15.4 million two years earlier.

Mr. Falk’s raise came even as the maker of Huggies diapers and Kleenex tissues posted a shareholder return of -7.7% last year compared with 14% a year earlier.

A Kimberly-Clark spokesman said the company considers its three-year shareholder return of 25% and five-year return of 90% better measures of Mr. Falk’s performance.

And here"s how the top 20 highest paid CEO"s in America made out in 2016:

Much of the higher pay was awarded in various forms of restricted stock or stock options. The compensation increases have come about because rising equity awards have more than made up for declines in cash incentive pay, according to a separate analysis by Institutional Shareholder Services, the large proxy advisory firm.

While cash bonuses have fallen about 1.4% among the companies that have filed pay disclosures, stock awards have risen 7.4% and option awards have risen 3%, noted John Roe, head of analytics at ISS.

Of course, that"s hardly any consolation for the average American worker who just saw his real earnings collapse over the past two years and actually turn negative in 2017.

Payrolls Preview: Expect An Upside Surprise (Thanks To The Weather)

Despite ADP"s blowout print this week, consensus January payrolls is 175k (somewhat below the 6- and 12-month averages), but Goldman Sachs expects a higher 200k print thanks to a combination of lower-than-usual year-end layoffs, favorable weather effects, and further improvement in labor market indicators.

Notably, Bloomberg Intelligence explains that over the past decade, consensus has tended to overestimate the January payrolls gain, but it appears to have corrected this bias over the past five years -- a period in which the average miss has been less than 5k. As such, the current consensus forecast implies a significantly weaker outcome than was suggested by the latest ADP employment survey, which showed a 246k increase in private payrolls.

The seasonal adjustment of the payroll data turns sharply negative in January, as recurring winter layoffs commence in a range of sectors. In recent years, the seasonal adjustment factor for January has averaged near -3036k. (In other words, employers typically layoff 3 million workers in January.)

Furthermore, as Goldman notes, the report will also be accompanied by the annual benchmark revision to the establishment survey as well as the annual introduction of new population controls in the household survey.

Overall Goldman forecasts that nonfarm payroll employment increased 200k in January, after an increase of 156k in December and 204k in November. Labor market indicators generally strengthened last month, with a drop in jobless claims between the survey periods to four-decade-lows and further improvement in the employment components of many service-sector and manufacturing surveys. The key labor market subcomponent of the consumer confidence report also rose to levels close to cycle highs. We also expect two temporary factors to boost January employment growth relative to surrounding months, specifically a weather-related rebound (on the order of 20-40k) and lower-than-usual year-end layoffs in the retail sector. On the negative side, we expect some pullback in transportation and warehousing payrolls following elevated growth in December, itself likely related to the secular shift toward online holiday sales.

Factors arguing for a stronger report:

• Weather rebound from December. Our analysis of NOAA (National Oceanic and Atmospheric Administration) weather station data suggests that unusually high snowfall during the December payroll survey period may have reduced job growth by roughly 20-40k. As shown in the left panel of Exhibit 1, snowfall in early January was much more in line with seasonal norms, suggesting scope for a weather-related rebound. Updating this analysis to incorporate regional granularity from the December state and local employment survey bolsters the case for January improvement, in our view. In addition to a 3k drop in the weather-sensitive construction category, the softness in overall December payrolls was particularly pronounced in the East North Central and Pacific regions, two parts of the country where snowfall was above seasonal norms during the week of December 17th. More specifically, in the right panel of Exhibit 1 we show that below-trend December payroll growth occurred in several states that also exhibited unusually high snowfall (in the weeks relevant for December payroll growth). Michigan, Illinois, Wisconsin, and Indiana stand out as four relatively large states where payrolls may have been depressed by weather in December.

Exhibit 1: Weather Likely to Boost January Payrolls Relative to December

Source: Source: National Centers for Environmental Information, National Oceanic and Atmospheric Administration, Department of Labor, Goldman Sachs Global Investment Research

• Jobless claims and retail layoffs. Initial claims for unemployment insurance benefits moved lower, averaging a four-decade-low 248k during the four weeks between the December and January payroll survey periods. While seasonally adjustment difficulties likely account for much of the drop, we believe some of the decline reflects underlying labor market improvement and relatively fewer January retail layoffs – both of which would suggest scope for a rebound in January payrolls growth.


• ADP. The payroll processing firm ADP reported a 246k rise in private payroll employment in January, up from +151k in December and well above expectations of +168k. In past research, we have found that large surprises in the ADP report tend to be predictive of the subsequent nonfarm payroll surprise. Additionally, we believe the above-trend growth in ADP construction employment (+25k) provides evidence for a rebound in weather-sensitive payrolls categories.

• Manufacturing sector surveys. The employment components of manufacturing surveys generally improved in December, with most now in expansionary territory. The ISM manufacturing employment component rose to a 30-month high (+3.3pt to 56.1), and the Philly Fed (+9.2pt to +12.8), Dallas Fed (+9.5pt to +6.1), Richmond Fed (+9pt to +8), and Empire State (+10.5pt to -1.7) employment indices also improved. On the negative side, the Kansas City Fed (-2pt to +6) employment component softened, and the Chicago PMI employment index declined into contractionary territory. Manufacturing payroll employment rose 17k in December, its first increase in five months.


• Service sector surveys. Most of the employment components of service sector surveys improved or remained at encouraging levels in January. The Philly Fed non-manufacturing employment index rose to a 1-year high (+2.8pt to +19.5) and the New York Fed index increased to an 18-month high (+4.5pt to +16.9, SA by GS). Meanwhile, the Richmond Fed (-4pt to +8.0) and Dallas Fed (-2.1pt to +4.8) measures pulled back modestly to levels still consistent with expansion. The ISM non-manufacturing survey will be released tomorrow, though the December employment index of 52.7 was consistent with moderate growth in service-sector jobs. Service sector payroll employment increased 132k in December and has increased 167k on average over the last six months.


• Job availability. The Conference Board’s Help Wanted Online (HWOL) report showed an increase in online job postings for a second consecutive month in January, though their total job ad count remains 9.5% lower on a year-over-year basis (vs. -8.8% in December and -14.9% in November). We place a limited weight on this indicator at the moment in light of research by Fed economists, which suggests the HWOL ad count has been depressed by higher prices for online job ads.

Arguing for a weaker report:

• Transportation jobs. Transportation and warehousing payrolls have seen elevated growth in December in recent years followed by softer growth or outright declines the next month, a phenomenon that may be driven by a secular shift toward online holiday sales. This winter seems to be exhibiting the same pattern, as transportation payrolls increased at an above-trend pace of +15k in December. With the holidays now behind us, we expect tomorrow’s report to show restrained growth or a modest decline in this category.


• Early-month storms in the South. Despite fairly unremarkable snowfall on a national basis during early January, one counterargument against the case for a weather-related rebound is the early-month snowstorms in the South, a region less accustomed to severe winter weather. While admittedly a risk, we would note that these storms generally occurred the Friday and Saturday before the survey week, and our analysis of snow cover – the depth of snow recorded by weather stations on a given day – indicates that most of the snow accumulation had melted by the Monday or Tuesday of the survey week (see Exhibit 2). Accordingly, we believe the negative payrolls impact of these storms is likely to be fairly modest, though storm-related absences could exert some downward pressure on hours worked (for employees with multi-week pay periods).

Exhibit 2: Most of the Snow Accumulated in the Southern Winter Storms Had Melted by the Monday and Tuesday of the Payroll Survey Week

Source: Source: National Centers for Environmental Information, National Oceanic and Atmospheric Administration, Goldman Sachs Global Investment Research

• Seasonals. Since 2010, January payroll growth has surprised negatively relative to consensus in five of the seven instances, with an average miss of -18k. While this may suggest some downside risk at the margin, we would note that severe winter weather was likely a factor in some of these observations (2010 and 2011, for example).

Neutral factors:

• Federal Hiring Freeze. The new administration’s announced hiring freeze for Federal works took place on January 23rd, over a week after the January payrolls survey period had ended. As a result, we do not expect any negative impact on the January employment report. In fact, we see some possibility of a positive impact if, for example, some federal departments anticipated the hiring freeze and front-loaded employment growth accordingly. That being said, we doubt we will observe evidence of a material impact in the aggregate data.


• Job cuts. Announced layoffs reported by Challenger, Gray & Christmas after our seasonal adjustment declined by 5k to 36k in January, though the level of announced layoffs remains moderately above the October lows.

*  *  *

We believe that the unemployment rate is likely to fall one-tenth to 4.6% (from 4.716% unrounded) – which would mark a return to the cycle low – driven by reduced year-end retail layoffs and our expectation of broader labor market improvement in January. We forecast average hourly earnings to rise 0.3% month over month and 2.8% year over year, reflecting firming labor markets and state-level minimum wage hikes. Our estimate incorporates a boost of 10 basis points from minimum wage hikes, which affected 19 states and increased the effective national minimum wage by about $0.25 (to $8.50 per hour).

Tomorrow’s employment report will be accompanied by the annual benchmark revision to the establishment survey as well as the annual introduction of new population controls in the household survey. In September, the BLS released a preliminary estimate of the establishment survey revision, which suggested a downward adjustment of 150k to the level of March 2016 employment (or -12.5k per month from April 2015 to March 2016). This preliminary estimate appears broadly consistent with the trends in the Quarterly Census of Employment and Wages, from which the benchmark revision is primarily derived. We would note that the composition of September’s preliminary estimates was somewhat unfavorable, with a larger downward revision expected in private payrolls (-224k) – concentrated in professional services (-133k) and retail trade (-120k) – offset by an expected upward revision to the level of government employment (+74k).

As a reminder the entire world is long stocks, short vol, and short bonds, so any surprise tomorrow that would upset The Fed"s carefully choreographed 3-rate-hikes plan could spook a very one-sided ship.

But if that fails Buy The Fucking Payrolls Dip no matter what...

Job Openings, Hires, Quits And Layoffs All Rebounded In November

While too backward looking to be actionable (it reflects the labor situation with a 2 month delay), today"s JOLTs report showed little in terms of changes for "Janet Yellen"s favorite labor market indicator": the number of job openings was little changed at 5.522 million, below the 5.555 million expectation, but above a downward revised 5.451 million (from 5.534 million). 

Hires and separations were also little changed at 5.219 million (up from 5.160 million), and 5.028 million (up from 4.966 million), respectively. Within separations, the quits rate was unchanged at 2.1 percent and the layoffs and discharges rate was unchanged at 1.1%. That said, the pace of hiring appears to have tapered off, after hitting cycle highs in February 2016 at 5.5 million, and remaining at levels largely unchanged over the past 2 years.

As shown in the next chart, while the trailing pace of job additions has been modestly declining in the past two years, net hiring also appears to have plateaued.

Meanwhile, discharges and other layoffs jumped by 68,000 in November rising to 1.637 million after hitting cycle lows of 1.513 million in September.

The offsetting good news, however, is that being "quits", or the so-called take this job and shove it indicator, also rose, increasing by 41,000 to 3.064 million, just shy of the all time high reported last December when a total of 3.088 million workers quits their jobs on their own terms.