TECHNOLOGY AT WORK

February 2015
Citi GPS: Global Perspectives & Solutions
69
In the past 10 years, US-listed non-Financial
companies have seen a 119% increase in
EBIT but only a 31% increase in number of
employees
The dominant US-listed non-Financial companies generated EBIT (i.e. earnings before
interest and tax) of $1.3 trillion in 2013, up from $600 billion made 10 years earlier.
These same US blue chip companies employ 24 million workers, up from 18 million in
2003. That’s a much bigger increase in EBIT (+119%) than number of employees
(+31%). As a result, the ‘profits productivity’ of the US stock market has risen sharply.
EBIT per employee is up from $32,000 in 2004 to $53,000 in 2013 (Figure 51).
Figure 51. Non-Financials EBIT/employee ($)
Figure 52. Non-Financials EBIT margin
60,000
US EBIT / Employee
EM Asia EBIT / Employee
14%
13%
US
EM Asia
50,000
12%
40,000
11%
10%
30,000
9%
20,000
8%
7%
10,000
03 04 05 06 07 08 09 10 11 12 13
6%
03 04 05 06 07 08 09 10 11 12 13
Source: Worldscope, Factset, Citi Research
Source: Worldscope, Factset, Citi Research
Perhaps this reflects the impact of automation. US workers are being replaced by
increasingly sophisticated machines. These machines don’t take sick-leave. They
don’t ask for pay rises or take holidays. They don’t go on strike or demand better
working conditions. Even the tax system is tipped in favour of machines — capital
expenditure (capex) is tax-deductible in most countries. Hiring more workers usually
involves paying more payroll taxes.
Lower rates of unionisation in the US could
be a reason for the deteriorating bargaining
position of US workers while the shift of lowskilled
manufacturing is another important
driver
We can find plenty of evidence to suggest that the bargaining position of US
workers has deteriorated in recent years. Listed non-Financials EBIT are up 119%
since 2003, but hourly earnings in US manufacturing are up only 22%. Profit share
of GDP is up, wages share of GDP is down. Academic studies have attributed
some, but not all, of this to automation. 106 Lower rates of unionisation are also seen
as a reason. Globalisation, especially the shift of low-skilled manufacturing jobs to
Asia, is seen as another important driver. Overall, these factors seem to have been
more helpful for shareholders than workers. Despite a lacklustre economic recovery
since the financial crisis, US non-Financial profit margins are back around pre-crisis
highs (Figure 52).
We can then break the US market down by sector. Figure 53 shows that in 2013,
with the oil price above $100/bbl, the Energy sector generated the highest income
per employee. This highly profitable, automated and capital intensive industry
earned $200,000 per employee, up 78% since 2003. Of course the subsequent
collapse in the oil price will now be putting intense pressures on sector profits. Other
industries which have seen a sharp increase in profitability per employee, perhaps
indicating intensifying levels of automation, include Telecoms, Information
Technology and Materials.
106 For a summary of the current debate around the labour share of GDP, please see
Giovannoni (2014).
© 2015 Citigroup