Wall Street Frets That You're Getting Paid Too Much


Business Week:

Wall Street Frets That You’re Getting Paid Too Much

Wall Street money managers are worried about two things: that they won’t get paid enough and that ordinary Americans will get paid too much.The fight over who gets what from the bonus pool is an unseemly annual rite at Wall Street firms. Last year the average bonus paid to securities industries employees in New York City was $164,000, the most since the financial crisis, according to New York State Comptroller Thomas DiNapoli.

In contrast, concern over rising pay for the rest of America is a monthly, not annual, ritual. Today the Bureau of Labor Statistics reported that average hourly earnings in July were flat, vs. an expected 0.2 percent increase. They’re up only 2 percent over the past year. However, hawks pointed out that the Employment Cost Index—which covers both wages and benefits—rose a more-than-expected 0.7 percent in the second quarter, its biggest rise since 2008.

“Wages are trending up, and once wage inflation takes hold, it continues for four to five years,” says Torsten Slok, chief international economist at Deutsche Bank. Slok notes that a survey by the National Federation of Independent Business finds an increased share of companies—around 15 percent—are “planning to raise wages up significantly in recent months.” He says in a chartbook for clients: “A broad-based pickup in wages in the pipeline.”

For Wall Street, the risk is that higher wage growth will lead to more inflation, which will push up interest rates, which will push down stock prices. The rate-setters of the Federal Reserve think that unemployment can fall to 5.4 percent before inflation starts to be a problem. Slok says inflation could come much sooner, citing academic studies that put the inflationary threshold anywhere from 6 percent unemployment all the way up to 7.2 percent.

I wonder why pay raises are referred to as “wage inflation”?


It’s not pay raises - that would be an increase in salary based on performance, tenure or taking on more responsibility. Wage inflation is an increase in what a job pays with** no change** in skills, tenure or performance. It is often tied to minimum wage. If the wage paid to an entry level, newly hired employee with no previous experience or skills goes up, that’s wage inflation. But it also applies to jobs throughout the spectrum. There are some tech jobs such as engineers where the entry level pay of a new college graduate has gone up 20% in the last several years. There isn’t any difference in the quality of the education, the skills the new employee will do or the minimum skills required to be hired. It’s just wage inflation.

In a stable economy (no inflation), wages for some in-demand jobs will go up and others, such as those in declining industries, will go down. But if the** average** is trending up, especially over several economic cycles, inflation is almost inevitable for everything else due the built-in increase in the cost of goods sold.


It doesn’t seem to me there’s much in the way of wage inflation going on.

However, it might be true and probably is true at some levels. Over the last couple of decades, it has seemed to me that some employers are getting more production out of fewer people. Some of that has to do with technology. Some of it is simply a matter of certain people having greater levels of responsibility and work to do.

It has seemed to me some of those people have gotten wage hikes; some of them kind of amazing. But I’m not sure it represents inflation, and I doubt it’s widespread.

I remember having had a relationship with a printing company; a very major one. The whole work situation was very odd. Some of those workers were very highly skilled, and most were at least reasonably so. Well, the big rush in printing was always in the summer because school books were one of their big products. People who were getting pretty good pay to begin with would work 80 hour weeks and more during that period. Then, during the winter, work slowed to a crawl, but the employer kept the skilled people on anyway, but only assigned regular hours. People also had long paid vacations, but only during the winter. It was astonishing to me how much those people made in a year’s time. Imagine 40 hours a week or more on overtime at an hourly that was high to start with, week after week!

And this place was state of the art. I remember when they brought in some new process from Germany. It increased production quite a lot, but without adding a single employee to the labor force.

But the company absolutely had to have those particular employees, especially the “master printers” and machine maintenance people. Printing is mechanized well beyond what most would think it is. And there were people moving up all the time to replace those top skilled people as they retired. So, fine, they paid them a lot and didn’t much care that they did.

And it wasn’t unionized either. Now and then some malcontent would get a petition together, but it would fail to get enough votes.

Skills matter. And as technology advances, it matters more and more. I’m familiar with a company that makes banking software. Starting salaries are extremely good for most jobs. It’s interesting where they get a lot of their employees. They get lots of them from banks; people who understand banking. Then they train them on the software technology. All of those people left their respective banks for higher wages at the software company than they were ever likely to get in banking.



Okay, thanx for the explanation.
But as far as I can see, any kind of bad news is good news for Wall St. Price of oil goes up? Fine. Interest rates rise? No problem. Famine? Yee-hah! Commodity traders chomp at the bit.
But the 1st hint of people making a little more money and it’s “Oh, noes!” It can’t be good news? Some college grads might be able to pay off their loans, people might buy new cars instead of used?

You stated wage inflation is “is an increase in what a job pays with** no change** in skills, tenure or performance”. Shall we apply that to high ranking executives, CEOs, CCOOs, &c.? They can destroy a company and the bonuses keep coming – until the day they get fired (with suitable golden parachute).


Yes, of course it applies to CEO’s and to professional athletes and to Hollywood A-listers. But the numbers of people in those categories are very small.

I am not taking a position on the Wall Street reaction. I am only pointing out that “wage inflation” is not the same as individuals making more money or getting raises. And yes, it would be great if more people could pay off their student loans. But economists also look out for the very real danger of price inflation for consumer goods. I don’t know how old you are but I remember the last time we had runaway inflation where every pay check bought less and less at the grocery store. That 5% pay raise is more likely to get eaten up (no pun intended) by higher prices for food and energy than leave any extra for a new car (which will cost more too).


I wonder why wage inflation is so dangerous for us slugs that get an increase of 0.7 percent increase, but isn’t for the Wall Street crowd that gets an average $164,000 bonus every year. I think it is some kind of mind control to get our attention off of that large bonus. By the way Wall Street I don’t think you need to worry about me. My SS check only increased $24.00 dollars a month this year.


Wage inflation is paying higher wages without an increase in productivity. That can include an increase in skills and performance. Generally tenure is rewarded with advancement and a pay increase. High ranking excs operate in a whole different sphere. If you had stock in Acme Whatever and your return was 11% on your investment would you care what their CEO was paid. I wouldn’t.


Good. Maybe the WS guys can go out and get real jobs and real pay raises.


Considering the inflation of goods that’s been happening, “wage inflation” is long overdue!


Because the powers that be want to convince the people that they are the cause of higher prices. Meanwhile Wall Street is making all sorts of money during this depression and still living the high life.

Inflation should be viewed as an increase in the supply of money. That increase has to go to a limited group initially. Those people experience the benefit of ‘extra’ money at older prices. As that ‘extra’ money moves its way through the economy prices for everyday goods go up. They are bid up by the extra money. The average worker finds he can buy less and less. Eventually his wages do go up so that he can just stay even.

Inflation is not a necessary economic reality. It is the result of the monetary system we have that benefits the state and its financiers, the banksters.


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