Even the chairman of the Federal Reserve wants to share the wealth. The headline of the New York Times’ account of Jerome Powell’s message to Congress: “The economy can get a lot better for workers.”
The latest Returns on Investment podcast takes on the challenge of how investors can help make sure workers get a better shake. In a low-unemployment economy, it’s not only jobs, but quality jobs that are needed to drive broader prosperity that is inclusive of workers of all ages and skills.
The Fed chair, reports The Times’ Neil Irwin, “seemed open to the possibility that workers should reclaim a higher share of the nation’s economic output” (h/t Tim O’Reilly’s Next:Economy newsletter). Wages, especially minimum wages, have lagged the recovery. The labor force participation rate remains near record lows. Many workers are juggling multiple jobs in the gig economy. Trade and technology disrupt workforces.
A dramatic shift in the wealth split between workers and owners (read: shareholders), could signal a new kind of new economy. That means going beyond merely counting the quantity of jobs, but lifting their quality as well. It means treating labor not as a liability on corporate balance sheets, as is current practice, but as an asset, and optimizing for the value of that asset.
Making the ‘S’ in ESG stand for ‘Share the Wealth’ (podcast)
The podcast’s roundtable regulars take up impact investing strategies to create jobs that provides good benefits, living wages and safe working conditions. Additionally, “quality jobs” provide equal opportunity and equal pay and training and career development opportunity. For real value creation, promote work-life balance and an engaging and transparent workplace culture. A leading champion of the approach is Zeynep Ton, president of the nonprofit Good Jobs Institute, which has assembled case studies of companies that pay employees more, are more productive and more profitable.
“It does provide a much more popular underpinning for this whole impact investing proposition, which risks getting pigeonholed as an elite affectation of rich people trying to feel good about themselves,” I argued in the discussion. “The proof in the pudding is whether poor people get a better deal.”
The discussion is getting good play among economists, and even presidential candidates, who are asking “Does capitalism work? Does it actually deliver for the people who do the work?”
HCAP Partners, a San Diego-based manager of about $300 million in assets, has an explicit strategy of job improvement. One of its investors is the Ford Foundation, which has a “quality jobs” investment strategy as part of its $1 billion mission-related investment mandate. The notion is that competitive companies need employees who are engaged in a superior way, which requires superior human capital investment.
“I worry that the case studies detract from what’s happening in the macro economy and the broader changes that need to happen to change the momentum of where things are going,” said Imogen Rose-Smith, an investment fellow with the University of California. “The real danger here is are we creating a panacea of feel-good stories.”
Ford Foundation: Spotting mispriced risks in affordable housing, quality jobs and diverse managers (podcast)
Issues of the quality of jobs, and the recognition of the value of workers, are becoming only more urgent as automation and artificial intelligence are integrated into all workplaces. Consider the seemingly conventional wisdom, per McKinsey, that automation could render one-third of U.S. workers jobless by 2030, and 60% of occupations could be at least 30% automated.
But even as millions of trucking jobs are at risk from autonomous big-rigs, trucking companies have to scramble to fill available runs. Employers from growers to construction trades can’t find enough skilled workers to fill urgent vacancies. That disequilibrium presents an opportunity to upskill the workforce and redress gaps caused by successive waves of layoffs, budget cuts and austerity.
As many as 85% of the jobs of 2030 have not been invented yet, and will likely require skills workers don’t yet have, according to the Huffington Post. In Powell’s testimony, he stressed that low jobless rates make employers to be more willing to hire less qualified workers and spend money training them, a benefit both to those people as well as the economy as a whole.
The Fed’s implicit approval makes mainstream a proposition that might otherwise be dismissed as class-mongering – that for workers’ pay to rise, shareholders will have to get a smaller share of corporate profits. Focusing on workers’ share of the nation’s economic output – and of corporate profits – makes explicit what’s really at stake: class struggle.
The direction of such split of the economy’s spoils could be the overarching metric by which to judge the impact of “ESG” (for environmental, social and governance) factors, and especially the ‘S’ factors that measure working conditions and social equity.
For impact investors, driving such social equity begins at home. Even the standard “two and 20” compensation structure of private-equity and venture-capital funds exacerbates the wealth division. As Delilah Rothenberg points out in the manifesto of her “Pre-distribution Initiative,” the wealth of the fund manager grows exponentially faster than the wealth of portfolio companies’ workers, exacerbating wealth inequality.
Explain’s Liquidnet’s Brian Walsh, “Instead of waiting until after that cycle of value creation has concluded and trying to tax those fund managers more, or trying to redistribute after the money has been earned and taxed, why not “predistribute,” and create new incentives for fund managers so that those workers share, beyond just better wages, the financial upside of the value they create?”
Walsh closed by quoting United Nations Sustainable Development Goal No. 8: “To promote sustained and inclusive sustainable economic growth, full and productive employment, and decent work for all.”
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