In gearing up for the long weekend and Labor Day holiday, I find myself thinking about labor and human capital. Labor day is a celebration of labor unions and workers rights. Unfortunately, we have been seeing those protections erode. The balance of power between corporations and their workers is out of whack and hurts businesses in the long run.
I was struck by a statistic I saw today by Just Capital that over 90% of the S&P market cap is made up of “intangibles”. What does that mean? It means that the value of a company used to be in their land, buildings or machines but now the value is in their labor force. It’s in their ideas, their service and their efforts. It seems like the natural conclusion is then that is where a company's investment should be going. But it is not.
Employees should be paid fairly for the work that they do. However, we see that both income and wealth inequality has continued to grow in the US. CEO pay ratio to their median employees is often used to illustrate this point. In 1965 that ratio was 20 to 1 and in 2021 it was 399 to 1. That is a big jump.
Employees should be paid equitably. Yet the gender wage gap has all but stagnated at 82 cents to the dollar. We are seeing a bit more progress in the racial wealth gap over the last five years but we had further to go. The median black wage earner is now 79 cents to the dollar of the median white wage earner.
Employees should both feel safe and be safe in their jobs. Companies have a responsibility and interest in providing safe work environments. A study by the American Psychological Association in April 2023 found that 57% of respondents said they were experiencing negative impacts as a result of workplace stress. Nearly a quarter of workers worldwide have experienced workplace violence or harassment according to the International Labor Organization.
Fundamentally, things are getting harder for workers and the organizing bodies that once advocated on their behalf have lost power and reach. Labor unions were created to advance the interests of workers around wages, benefits, safety, scheduling and other common challenges. They gave us the 40 hour work week, reduced child labor and improved working conditions.
In 2022, only 10.1% of workers were members of unions. There are plenty of reasons that unions have fallen out of favor including their bureaucratic approach, perceived corruption, changing demographics and attitudes. I am not saying they are the answer but I am saying that we need to find one.
The shifts in the nature of work today and projected in the future with the rise of the gig economy and non-traditional employment agreements also disempower workers to band together. More workers aren’t considered employees and therefore don’t have benefits or legal protections.
I read about the projected reductions in labor force participation as a result of technological advances, AI and automation. While on one hand I am fascinated by the tools and advancements and use them. I am also very worried that it will cause even greater disparity and foment discontent. Neither of which we need more of in the current state of the country or the world.
For all of these reasons, we do what we do. At Tablecloth we help investors take a deep look at the funds and companies that they invest in. Human Capital is at the center of those analyses. Giving information to decision makers about the costs to their businesses by not valuing and investing in their workforce that is useful and actionable. We provide insights into areas of risk or vulnerability for businesses. Business leadership and investors can be a part of the solution and also build stronger, more profitable and better businesses.