The hidden culprit behind stagnant wages – Nathan Wilmers

MIT Sloan Assistant Professor Nathan Wilmers

From The Hill

Slow wage growth since the Great Recession has been puzzling. As the economic recovery has clocked eight years of growth, unemployment has dropped, but real median wages have barely increased.

Commentators have looked for explanations in everything from the rise of artificial intelligence to the scarring effects of the decade-old economic crisis.

However, slow U.S. wage growth has a longer history. Relative to the rapid growth marking the post-World War II period, median real wages have grown little since the 1970s (except for the economic boom of the late 1990s).

A growing body of research points to the decline in worker bargaining power as a core explanation. The long membership decline of labor unions has made it harder for workers to demand higher pay.

Read More »

Jackie Wilbur on the Master of Finance Program: Confronting Global Challenges

In the last few months, the Occupy Wall Street movement has brought a lot of attention to the finance industry. However, MIT’s Sloan School of Management has been focused on this area for over 40 years. Our finance faculty have been conducting cutting-edge research, and rigorously teaching our students, ensuring that our finance students are prepared—both in theory and practice—to take on the types of leadership roles required in this area, particularly in light of the recent economic crisis.

Read More »

Erik Brynjolfsson: New e-book outlines promise and peril of digital revolution

MIT Sloan Prof. Erik Brynjolfsson

From Economics of Information Blog

Andy McAfee and I have just released a short e-book, Race Against the Machine. In it, we try to reconcile two important facts. 1) Technology continues to progress rapidly. In fact, the past decade has seen the fastest productivity growth since the 1960s, but 2) median wages and employment have both stagnated, leaving millions of people worse off than before. This presents a paradox: if technology and productivity are improving so much why are millions being left behind?

In the book, we document remarkable advances in digital technologies in particular. Innovations like IBM’s Watson, Google’s self-driving car, Apple’s Siri are turning science fiction into reality. Machines are doing more and more tasks that once only humans could do.

Read More »

Corporations hoard cash as a precautionary measure

Visiting Asst. Prof. David McLean

Academic studies have shown that over the past few decades, public firms are increasingly holding large amounts of cash. Curiously, much of this build up in cash savings can be attributed to cash saved from seasoned share issues, which are sales of equity by already public companies.

I examined the share-issuance cash savings of a large number of U.S. firms over a 38-year period. In the 1970s, $1.00 of issuance resulted in $0.23 of cash savings, yet in more recent years, that same $1.00 of issuance resulted in $0.60 of savings. Over my sample period, the amount of cash saved from share issuance increased at an average rate of 2.5% per year.

So what is going on here? My initial reaction was that the firms were issuing shares because their stock was mispriced, thereby taking advantage of naive investors. However, after digging deeper, I found that this was most likely not the case. It turns out that there are good economic reasons for firms to hold onto cash and even to issue shares for the purpose of cash savings.

Consider an emerging pharmaceutical company with a promising pipeline of projects. The company is still early in its lifecycle so its profits are marginal and its cash flows are volatile. The company spends a large amount on R&D and plans to continue doing so in the future. Because the company generates little cash flow, it depends on capital markets to finance its R&D spending.

Read More »

Yasheng Huang On China's growth

MIT Sloan Prof. Yasheng Huang

From Forbes India

There’s news of widespread corporate fraud among companies listed on overseas stock exchanges, even as the macroeconomic picture gets worrisome

It is dizzying how fast and how far the sentiments about China have changed. In the wake of the 2008 Great Recession, Western analysts then hailed Chinese response as daring, visionary and inspirational, especially when contrasted with the hesitancy of the US political establishment in tackling the multitude of its own economic challenges. This was to presage a dominant theme that was to emerge in the next two years in the Western media.

Read More »