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American Airlines gave its workers a raise. Wall Street freaked out.

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This is why we can’t have nice things.

American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.

Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success.

“This is frustrating. Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”

Indeed, major financial players were so outraged by American’s decision to pay higher wages that they punished airline stocks across the board. American itself took it hardest on the chin, of course, but the consensus among stock analysts was that higher pay at American could signal higher pay at other airlines too, with negative consequences for the overall industry.

But taking a broader view, this blinkered Wall Street perspective on labor compensation is, arguably, exactly what’s gone wrong with the American economy. Any given company obviously benefits when it’s able to get away with paying its workforce less. But one company’s workers are another company’s customers. A world in which labor never gets paid is ultimately one in which nobody has much of anything but leftovers.

Wall Street analysts hate the idea of paying workers

JP Morgan’s Jamie Baker was even more scathing than Crissey.

"We are troubled by AAL's wealth transfer of nearly $1 billion to its labor groups,” he wrote, suggesting that the move was not just contestable as a matter of business strategy, but somehow obviously illegitimate.

The argument from American’s managers and unions, by contrast, is that the raises are a question of basic fairness and long-term sustainability. The ups-and-downs of various bankruptcies and mergers had created a situation where American was paying pilots and flight attendants less than its direct competitors Delta and United. Now that American had emerged from bankruptcy and was profitable again, that created an obvious morale problem. What’s more, while the unions had no way to force a raise in 2017, the collective bargaining agreement is set to expire in two years, so ultimately a showdown was inevitable.

By that view, the raise represents American making a demonstration of good faith to its workforce to keep people happy and set the table for an eventual negotiation.

Baker, however, takes a darker view, saying that not only does the raise increase costs, it “establishes a worrying precedent, in our view, both for American and the industry."

Labor’s share of income has been declining

Baker is certainly correct that for workers to get a larger slice of the pie would be a dramatic new precedent relative to recent trends. As a report last year from the Organization for Economic Cooperation and Development shows, in both the United States and other rich countries workers as a whole have been receiving a smaller and smaller share of national income.

 OECD

Noah Smith of Bloomberg View recently wrote a column summarizing the various main theories professional economists have about why this is happening — monopoly power, global trade, robots, and landlords are the leading contenders for villain.

It’s less quantifiable, and thus not-beloved by academic economists, but my personal view is that what amounts to a management fad for treating workers poorly is an underrated factor here. The beating American took in the stock market — and the outraged tone of the analyst letters — is a clear sign of the constant pressure that modern companies are under to be as stingy as possible with their workforce.

Combine that pressure with what amounts to a 16-year span of objective labor market weakness and you have a whole cohort of corporate executives who’ve probably never even considered the possible merits of a different approach. And as we’re seeing, those who do are smacked down immediately.

A company like Apple that thinks nothing of investing money in environmental or accessibility initiatives would never dream of taking a similarly high-minded attitude toward labor issues, even though it obviously could make Apple Store retail employees as well-paid as any manufacturing worker from the “good old days” if it wanted to.

Low pay leads to collective economic weakness

One big problem here is that even if obsessive cost-cutting is a good strategy for any given business, it’s a terrible strategy for a national economy.

Broad-based income growth creates broad-based business opportunities. The vast majority of Americans earn a living supplying services to other Americans, so when wages don’t rise we struggle to find economic opportunities. As the rich get richer, they still find limits to what they can realistically consume, plowing money instead into financial assets. That creates low interest rates that the government could take advantage of to go deeply into debt and massively expand public sector employment.

But politicians, with some good reason, are reluctant to embrace a growth strategy that’s so heavily dependent on debt and centralized control.

A far better approach would be something more like a generalization of the American Airlines model. Profitable companies could pay workers more and shareholders less, leading to more spending on the products made by other companies. Those companies would then see their revenue, profits, and wages rise and people might find themselves buying more plane tickets. That’s how functioning market economies used to work, and in the end even executives and shareholders ended up just fine.

With the unemployment rate finally down to a reasonably low level after years of painfully slow improvement, there’s a chance we just may get it. But for it to happen, economic elites will have to learn to live with a world where labor really does get paid first.

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InShaneee
21 hours ago
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Chicago, IL
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Saturn's weird "Flying Saucer" moon

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Saturn's moon Atlas is said to look like a flying saucer. The Cassini probe took a close look on its way to Titan, whizzing 7,000km from the tiny world. To me it looks like one of those soft, dusty banana-flavored chews you get in the very cheapest candy bags.

These raw, unprocessed images of Saturn's moon, Atlas, were taken on April 12, 2017, by NASA's Cassini spacecraft. The flyby had a close-approach distance of about 7,000 miles (11,000 kilometers). These images are the closest ever taken of Atlas and will help to characterize its shape and geology. Atlas (19 miles, or 30 kilometers across) orbits Saturn just outside the A ring -- the outermost of the planet's bright, main rings.

Here's the full animation, from NASA:

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InShaneee
1 day ago
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Apple agrees to provide songs for teens’ favorite lip-syncing app Musical.ly

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Apple is reportedly partnering with Musical.ly, the lip-syncing video app that’s become a popular social network for younger teens. The deal will see Apple Music providing the songs for the service, offering snippets of tracks for users to record themselves pretending to sing, while also promoting Apple’s own streaming service inside the app. The partnership comes as Musical.ly expands to 90 new countries, with licensing agreements allowing it to increase the number of territories it supports from 30 to 120.

The deal is something of a step up for the Shanghai-based Musical.ly, which had previously relied solely on British provider 7digital (which it will still be working with) to provide songs...

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InShaneee
1 day ago
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What happens legally if you shoot someone's drone out of the sky?

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Probably not much, as Brad Jones learned over Easter when a neighbor allegedly blasted his DJI Phantom. Even if his prime suspect confessed, there's not much precedent for prosecutions. (more…)
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InShaneee
2 days ago
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1 public comment
fxer
2 days ago
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Seems like it would still be destruction of property but what the shit do I know
Bend, Oregon
freeAgent
2 days ago
Also, in many cases, I would think that it's reckless use of a firearm to shoot into the air in a populated area.

Newswire: The Trump administration continues its war on net neutrality

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Because it’s 2017, and nothing can just stay god-damned fixed anymore, it looks like the hard-won fight for net neutrality is about to be reignited and potentially overturned. The New York Times reports that FCC chairman Ajit Pai—who was appointed to the commission’s head spot earlier this year by President Donald Trump—has outlined his long-promised plan to overturn the rules regarding internet data usage that were put in place under the Obama administration in 2015.

In case you’ve forgotten what net neutrality was—having prematurely filed it away in the tiny “solved” drawer where you keep the world’s problems that have actually been satisfactorily resolved—it’s basically the idea that internet providers have to treat all data the same, regardless of who’s creating it. (The usual nightmare scenario being a company like Comcast throttling back Netflix’s network speeds to squeeze out ...

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InShaneee
3 days ago
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Great Job, Internet!: Sushi gateway California roll was actually born in Canada

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Today sushi is well-established as a popular restaurant destination in the U.S. and Canada, but as a Great Big Story video points out, it wasn’t always so. In 1971, picky North Americans limited their Japanese menu items to tempura and teriyaki. it wasn’t even the raw-fish aspect of sushi that turned most people off (although that probably didn’t help): It was the seaweed. Nobody wanted to eat a lunch wrapped in kelp.

Genius Japanese-Canadian chef Hidekazu Tojo then came up with a sushi roll that put the rice on the outside, the seaweed on the inside, thereby covering up the possibly offensive dark green shade. He then inserted the roll with some palatable flavors like avocado, cooked crab, and cucumber. He called it the “inside-out roll,” but this dish soon got a new name because so many people who ordered it came from L.A. The ...

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InShaneee
3 days ago
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