The recent discussion of growing corporate cash holdings is pushing me to explore the relationship between cash holdings, wholesale lending by non-financial firms, and inequality. I’ve spent part of my weekend figuring out which statistics are best for the analysis I have in mind, but the only consolidated source I’m regularly pointed to is the Bureau of Labor Statistic’s major sector productivity index. If anybody can point me to a better source (and which data to use), I’d be much obliged. (Also, if I’m misrepresenting what the data means don’t hesitate to tell me.)
I’m trying to find evidence for the theory that an increasing volume of wholesale lending by non-financial to financial firms has sacrificed, to some extent, investment aiming at increasing workers’ productivity. Slower productivity growth implies slower wage growth, and if we assume that returns to industry are heterogeneous amongst sectors then it’s possible that the financial sector has seen higher returns at the expense of wage earners. If one were to ascribe to the Mises–Hayek theory of industrial fluctuations, as I do, (or even Minsky’s financial instability hypothesis), then this would be a secondary consequence of an excess supply of fiduciary media (i.e. a bubble).
I don’t know if my hypothesis is supported by the data I’ve been looking at, but the data is nonetheless interesting,
We see in the graph above the empirical evidence for paradoxical inequality. The black line follows productivity, referred to by the BLS as “output per hour.” The solid blue line plots real wages. Notice the relative stagnation of real wages between ~1970–2000. While productivity growth during that period certainly doesn’t seem stellar, the evidence suggests that real wages have risen less than productivity. But, looking at the broken blue line, nominal wages have risen with productivity.
What does this mean? I have no idea. My guess is that the data agrees with me that whatever has shifted the distribution of income between wage earners and capitalists is to be found outside of the nonfinancial firm, having more to do with a macroeconomic phenomenon. It also suggests that looking at wages can be too narrow of a scope, and that factors outside of the control of the firms themselves have eroded the purchasing power of wages. Also, although this is almost completely unrelated, one interpretation of the numbers between ~2007–12 is that the rise in productivity, without a rise in employment, is most likely the outcome of a growing substitution of capital for labor, because of nominal wage growth stripping productivity growth. The fact that real wages have stagnated despite the disproportional rise in nominal wages may mean that the real value of the non-financial firm has eroded along with real wages.
The empirical relationships are interesting, but I’m struggling in putting the pieces together.