It's far from that simple. Pay equity is probably the biggest reason. In 1960, the average chief executive earned 40 times as much as the average worker. By 1990, the average CEO earned 107 times as much. In the following decade, this ratio rose to 525:1 before settling back to 301:1. Various sources give slightly different ratios, but all are in general agreement that the ratio of executive compensation to the pay of ordinary workers has grown dramatically over the past four decades.
Prove it. There is no direct correlation between stock market investment and job creation. Here is what Forbes said about it.
“Both on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers,” write Wiens and Jackson, “losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs.”
“New businesses account for nearly all net new job creation and almost 20 percent of gross job creation, whereas small businesses do not have a significant impact on job growth when age is accounted for.”
Investment in established publicly-owned companies doesn't create new jobs. Why is net investment at a measly 4 per cent of output when pre-tax corporate profits are now at record highs – more than 12 per cent of GDP?
"In standard economic theory, this makes no sense. When profits go up, companies should be seizing investment opportunities to lay the groundwork for even more profits in future. In turn, that investment should create jobs, generate more capital goods and lead to higher wages. That’s how capitalism is meant to work.
“From 2004 to 2013, 454 companies in the S&P 500 Index expended 51 percent of their profits, or $3.4 trillion, on repurchases, on top of 35 percent of profits on dividends… More than three-quarters of compensation for the 500 highest-paid executives came from stock options and stock awards.”
“So who gains from open-market repurchases? Their sole purpose is to give a company’s stock price a manipulative boost, and prime beneficiaries are the corporate executives who decide to do them… For corporate executives, stock-based pay is a ticket to membership in the 0.1 percent top-income club. So why do we let executives manipulate the stock market?”
New, mostly privately-owned companies are the job creators. So if the Fed’s money doesn’t go into job creation or investment, where does it all go? One part of the answer is that the firms are just sitting on the money, often parked overseas. Another part of the answer is given by William Lazonick in the New York Times: an astonishing amount goes to share buybacks.
How CEOs Became Takers, Not Makers
