John Lewis Slashes Profits Payout Bonus – Why Inequality Falls In Recessions

The John Lewis Partnership has a rather unusual structure – the firm is owned by those who work in it, the partners. OK, this isn’t that unusual, a firm of solicitors operates the same way. But it’s unusual for something as large and capital intensive as a retail chain. The side effect of this ownership structure is that when there are profits they’re paid out to those staff. We can call it a dividend, a profit share, a bonus, but it’s what it is – the profits being paid out to the owners.

This bonus has just been cut to 3% this year, the lowest since the 1950s. The reason is the intense competition on the High Street, largely driven by the irruption of online selling. This is also the explanation for why inequality falls in recessions:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] John Lewis has paid out its lowest bonus to staff since the 1950s as profits plunged last year amid “challenging” trading. The retail partnership – which includes Waitrose supermarkets – said staff would receive a 3% bonus, the lowest since 1953 when workers got no bonus. Profits at the partnership sank last year by more than 45% to £160m. It blamed poor home sales, discounting, higher IT costs and the cost of opening two new stores last year for the drop. [/perfectpullquote]

Profits are more variable than wages – it that bonus that’s being slashed, not wages, isn’t it. As it happens the richer among us gain rather more of their incomes from profits than do the poorer among us. So, when profits vary more that has a greater impact on the incomes of the rich than on those of the poor. A recession is when profits drop – thus rich peoples’ incomes drop more in recessions and inequality decreases.

All a good reason not to entirely focus on reducing inequality of course. For it is actually true that if we all get poorer in a shrinking economy then that inequality is decreasing. And maybe it’s good that inequality reduces but perhaps not that all get poorer.