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Excessive CEO Pay and Job Losses: Are They Linked?

By Carl M. Cannon - November 5, 2011

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It’s not only conservatives making this claim. In wording so bland it was almost Orwellian, the non-partisan Congressional Budget Office asserted in a report last year that the new law will result in a reduction in “the amount of labor used in the economy.”

And before he died, liberal icon Steve Jobs warned Obama that he’d be a one-term president if he didn’t become more business-friendly. According to a new biography of the Apple founder, Jobs complained to Obama how much harder it was to open a factory in the United States than China because of high costs and onerous government requirements.

Yet not everyone is buying these explanations. Responding to Mitt Romney’s 59-point plan to kick-start the economy if he is elected president, former Secretary of Labor Robert Reich wrote recently: “Remember, corporations are now showing record profits. They’re sitting on $2 trillion of cash. Why it is Romney believes they need more money and lower costs in order to create jobs is one of the wonders of the universe.”

Reich’s pithy point suggests another possible explanation for the stagnant job market: Corporate greed -- or, to be more specific, greed on the part of those who run large corporations.

It was international news when Bank of America proposed -- and this week backed away from -- a $5 monthly fee on debit cards. But it created only a ripple in the financial press when Kenneth D. Lewis, the ousted Bank of America chief executive officer, took pension benefits estimated at $53 million with him when he left in 2009. Earlier this year, Brian Moynihan, Lewis’ replacement at CEO, and three other executives were awarded about $33 million in stock. (One of those executives, Thomas Montag, who came to Bank of America in the merger with Merrill Lynch, was paid $29.9 million in total compensation in 2009.)

Shortly after the stock bonuses were paid in 2011, the financial giant began effecting layoffs: 2,500 at first; then an announced 3,500 in the third quarter of the year. Then, in September, the bank announced that it had plans to shed some 30,000 jobs -- 10 percent of its worldwide workforce.

“Mind you this is the financial giant that paid its global banking and markets president nearly $30 million dollars last year -- and this year turned around and announced it's going to fire 30,000 workers!” thundered AFL-CIO President Richard Trumka recently. “My question is, just when is enough, enough?”

There’s an even more disturbing question than that, and it’s this: Are these huge compensation packages themselves one of the reasons corporations are shedding jobs -- and not hiring new workers?

* * * *

For three decades, good jobs have been disappearing in this country, part of a sweeping historic trend that would have occurred, at least in part, regardless of executive pay levels.

In the 1980s manufacturing jobs, many of them unionized, in a host of mature industries -- steel mills, textile plants, logging, auto manufacturing -- began departing the U.S. in droves. These jobs were casualties of mechanization, modernization, increases in productivity, and the phenomenon of globalization. It was cheaper to hire workers in other countries.

In the 1990s, this trend moved up the food chain to college graduates and middle management, even those with highly technical skills. Professor Lazonick has charted this phenomenon through a single company, IBM, which turned 100 years old this year.

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Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

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