Things are good for Google Executive Chairman Eric Schmidt. With $8.3 billion in his bank account, he’s the 49th wealthiest person in America. And he spent the week at the Davos World Economic Forum to celebrate.
During Schmidt’s Davos fireside chat, which was reported on by Henry Blodget at Business Insider, Schmidt had this to say, in the context of a discussion of income inequality:
“The stagnation in middle-class wages is not just a middle-class problem. It’s an economic problem. And it’s one of the main reasons that global economic growth is so lousy.
Why do stagnant middle-class wages hurt the economy?
Because the middle-class folks whose wages are stagnant are the global economy’s biggest spenders.”
He hit the nail right on the head. Wages for the vast majority of Americans have been basically flat for the last 40 years. To be specific, wages for the median worker have increased by just 5.0 percent between 1979 and 2012. During that time, workers gained a lot of education, and the economy as a whole became 75.4 percent more productive—we now produce more per hour worked than we ever have. Yet the typical American worker is being paid almost no more than his or her counterpart a half century ago.
Schmidt is certainly not the first person to say this, but he joins venture capitalist Nick Hanauer in a group more elite than Davos: business executives publicly sounding the alarm on middle class wages. These executives recognize that without broad based wage growth they aren’t going to have any more customers with enough money to spend on their companies’ products. Consumer spending is the engine of the economy, and the economy grows or shrinks when consumer demand for goods changes. What increases demand at a time like this? People getting raises. In the recovery from the Great Recession from 2009 to 2013, wages for the entire bottom 90 percent of the wage distribution fell. Weak wage growth for most workers is holding back the recovery.
So I tip my hat to Eric Schmidt for recognizing this. It’s in keeping with Google’s unofficial motto, “Don’t Be Evil.” I hope more of his friends at Davos will carry that banner.
But Schmidt hasn’t always adhered to the “Don’t Be Evil” maxim.
On the same day we heard about Schmidt’s epiphany, there were some particularly detailed stories coming out of Silicon Valley. Our wage champion Schmidt was just named in a class action suit as the ring leader of a wage fixing conspiracy run by the Valley’s elite CEOs. A primer on the suit from PandoDaily:
“In early 2005, as demand for Silicon Valley engineers began booming, Apple’s Steve Jobs sealed a secret and illegal pact with Google’s Eric Schmidt to artificially push their workers’ wages lower by agreeing not to recruit each other’s employees, sharing wage scale information, and punishing violators. On February 27, 2005, Bill Campbell, a member of Apple’s board of directors and senior advisor to Google, emailed Jobs to confirm that Eric Schmidt ‘got directly involved and firmly stopped all efforts to recruit anyone from Apple.’
“Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information ‘verbally, since I don’t want to create a paper trail over which we can be sued later?’”
Needless to say, if this is true, it’s very illegal. Schmidt, along with CEOs from Apple, Intel, Adobe, Intuit, and Pixar reached a gentlemen’s agreement to make sure the tight labor market for software engineers at the time didn’t lead to increasing wages for their middle class employees—as it normally would without illegal interference. Among the provisions of the agreement, the companies agreed not to actively recruit one another’s employees, so to not give engineers any leverage to ask for higher pay. They also assured one another that if, say, a Google employee managed to get a job at Apple without being recruited, Google wouldn’t counter Apple’s offer and risk bidding up wages.
Apple’s Steve Jobs seemed to take particular pleasure in enforcing this agreement, threatening to steal a huge chunk of Adobe’s team if Adobe CEO Bruce Chizen didn’t agree to Jobs’s and Schmidt’s terms. Everything fit together nicely because the leaders of these companies were all on one anothers’ boards. The cozy relationship allowed the companies to share and analyze pay data to make sure everyone was in line with the suppressed wages.
The whole tale, which details schemes dating back decades and includes Meg Whitman and George Lucas, is described thoroughly over at PandoDaily.
So who do we believe? Good Eric Schmidt or Evil Eric Schmidt? For someone rightly concerned about stagnant middle class wages, it’s hard to imagine Schmidt actively engaged in a corporate conspiracy to stunt the wages of his own employees. Hopefully this lawsuit will help focus some attention on the broader issue of flat wages across the economy. And in the meantime, a familiar reminder to Eric Schmidt: Don’t Be Evil.