Is Lack of Competition Killing Americans’ Pay?

An interesting article in the Wall Street Journal ties fat corporate profits to a lack of competitiveness in American industry which eventually leads to skimpy worker pay:

Never before have American companies seen so much of their sales drift down to the bottom line. In 12 months that ended in the second quarter, U.S. after-tax corporate profits as a share of gross domestic product, a measure of profit margins across the entire economy, came to 10.9%, according to the Commerce Department. That was the highest level according to records going back to 1929. Nor are there signs of erosion: S&P Dow Jones Indices estimates profits at companies in the S&P 500 as a share of sales hit a high in the third quarter…

Why aren't historically wide profit margins getting competed away? One reason may be that there isn't a lot of up-and-coming competition…

To some extent, the dearth of young businesses reflects an environment in which keeping your day job seems wiser than starting something new. But in a lending environment in which funding for newer, smaller businesses is constrained, many would-be entrepreneurs are willing but not able. Facing fewer newcomers, established businesses have one less reason to spend more on wages and equipment; why put effort into building a moat that isn't needed? This is great for profits but not the long-term health of the economy.

2 thoughts on “Is Lack of Competition Killing Americans’ Pay?

  1. Kim Williams

    Something is a muck. Prosperity, no doubt has a history of making us ‘fat and happy.’ Perhaps the prosperous leadership of large business is forcing us to play it safe. Time for some David and Goliath thinking (stealing from Gladwell) and innovation from the ground up….

  2. Jon Lowder

    You’re right. One thing I think we need to look at is how to create incentives for employment over profits. How do we push corporations large and small to value employing people and paying them well over fat profit margins and excessive executive pay? If we can figure that out then maybe we can create solid long term economic growth for the majority rather than the minority, and if we can do that then we stand a chance of not seeing our economy eat its own tail.


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