Friday, May 28, 2004
When do workers get their share?
Despite recent good news on employment growth, the current economic recovery, now approaching its third year, remains the most unbalanced on record in respect to the distribution of income gains between corporate profits and labor compensation. Essentially, rapid gains in productivity have been translating into higher corporate profits without increasing the wage and salary income of American workers.
The chart below shows growth
profits and total labor compensation
(the sum of all paychecks and employee benefits in the U.S. economy)
over the last 12 quarters; measuring profit growth since the peak of
the last recovery in the first quarter of 2001.* [...]
recession/recovery period is also
notable for being the first on record where corporate profits were
higher in the trough quarter than in the peak quarter.
Source: National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA).
This Snapshot was written by EPI economist Josh Bivens.
Recent data show a major shift in the balance between corporate income and labor compensation. As a share of the economy labor compensation has not been this low in almost 40 years (since 1966), and after-tax corporate profits are at the highest levels ever recorded by the Bureau of Economic Analysis.
Since it's peak in 2001, as a
share of gross domestic product (GDP),
labor compensation has decreased by about 4 percent (from 67 to 63
percent) and corporate profits have increased by about 4 percent (from
8 to 12 percent) — see chart below. After taxes, corporate profits
reached 9.6 percent of GDP — the highest level recorded dating back to
(Components are percent of GDP; source: graphic adopted from National Economic Trends, St. Louis Federal reserve.)
An interesting perspective on this is offered by Jonathan Evans, a
UH-60 Blackhawk pilot, in his Livejournal
post. He does not write specifically about the recent Labor
Department figures, but the principle is the same.
[...] How we invest our resources as a nation is a moral question. We vote with our money by revealing our cultural references dictating those enterprises that are worthy of investment and those that are not. The federal military budget is $400 billion this year. The Corporation for National and Community Service, which encompasses AmeriCorps and is the only substantial service program that offers an alternative to the military, squeaked out $940 million (a little less than a quarter of a percent of the military budget). [...]
A different perspective is offered by Christian E. Weller and Radha
Chaurushiya in their article, Upside-Down'
Economy Takes a Bite out of Middle Class Wallets. (See full
report, the basis for their article, in this
247KB PDF) They show the economic impact of the shrinking
compensation for labor. They add some insight into the
implications of the fact that much of the economic recovery has been
fueled by consumer credit. As credit card defaults and mortgage
foreclosures attain record levels, the prognosis for a sustainable
recovery is dim.
This means that it is way too early to think of Bush's economic
policy as a good thing; and way to early to consider switching your
vote to the Republican Party on economic grounds.
Now, why, you might ask, is The Corpus Callosum interested in
economics? The answer is: I am interested in economics only when
the economy is bad. As an applied neuroscientist, a large part of
my job is to keep people at work, or to get them back to work.
When everyone else's job is stressful, it makes my job more
difficult. The current economic conditions not only make for a
tight job market; it makes existing jobs more stressful. Although
we can be proud of the fact that the US worker is the most productive,
on average, in the world, and that the productivity of the US working
is increasing, these statistics come
with a cost.
(Note: The Rest of the Story/Corpus Callosum has moved. Visit the new site here.)
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