Labor in a World of Financial Capitalism

The traditional hostility between labor unions and the world of finance should not obscure their common interest in using financial tools in an expansive and creative way. We live in an age of financial capitalism, and the only intelligent way forward – for unions and other workers’ associations – is for these bodies to help their members make increasingly sophisticated use of the tools of risk management.

The traditional boundaries between labor and capital are becoming blurred. For example, companies increasingly augment standard wage packages with stock options, even for rank-and-file employees. In the United States, the Labor Department reports that in 2003, 14% of US workers in firms with 100 or more employees were offered stock options. Expect more such packages in the future.

The problem is, most employees do not fully understand options or stocks and do not know how to evaluate them. A recent paper by MIT Professors Nittai Bergman and Derk Jenter suggests that management tends to award employee options when employees are excessively optimistic about the outlook for company stock – thereby in effect opportunistically substituting overpriced options for full pay.

Unions and workers associations are the natural vehicles to monitor such behavior, but they must invest in the expertise to do so effectively. They should not stand in the way of compensation that includes stock options, or that otherwise create financial risks for their employees. But they should make sure that such programs are administered in employees’ interest, because companies that encourage their employees to hold options or to invest directly in the company’s stock are asking them to take on some of the company’s risks.