Cash-Rich Companies Should Pay People More

A blog about business and economics.
July 19 2013 1:41 PM

Companies With "Cash on the Sidelines" Should Pay Their Workers More

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American companies have been piling up more and more cash lately, which perversely has become a talking point for why the government should make public policy friendlier to large rich established companies. Sen. Tom Coburn yesterday lamented that Congress has not been "doing the things to create the confidence, to create the certainty in the business community that will allow the significant capital that's sitting on the sidelines to be invested, which would create some of the growth that you're hoping to do."

I think a less ridiculous viewpoint would be to say that the enormous volume of cash on hand that many companies have obtained goes to show that they should pay their workers more. The case against simply pressuring companies to raise wages, after all, is that operating surpluses are where tomorrow's investments come from. And that makes perfect sense. Over the long term, the way you get rising wages is from full employment, innovation, and capital deepening. You don't get any of those things by simply putting more money in the pockets of already employed workers. So to the extent that managers are running lean and mean operations in order to fund the Next Great Thing, I say good for them.

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But if you're just throwing another bag of $100 bills on the old corporate treasury and whining about "uncertainty" then why not take that cash off the sidelines and put it into the hands of the team that brought in the revenue? Raise wages! Pay a bonus! Do a share buyback and then give the staff equity in the company! I mean, why not? Because you heard in business school that the best thing is always to pay people as little as possible? That's dumb. If you can think of something better to do with the money that you have to go hire some people to execute, then by all means—hire the people.

But to run a profitable business and then just do nothing with the surplus? Why? Back in the day when we had labor unions in the private sector this would go without saying. If profits soar, people are going to say "give us some of the money or else we're going on strike and the profits will vanish." That doesn't mean the management has to give in, but they have to come up with something to say in response. "No, we won't give you the money because we're doing blah blah blah with it and that'll be better for the long run because such and such." That's management. You've got money, you come up with something to do with it. This idea that somehow the United States Congress needs to step in and create "certainty" so that you know what to invest in is ridiculous. Either come up with an investment, or cough up the money.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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