Corporate profits are high, wages are low

Just before Thanksgiving, the Bureau of Economic Analysis released its third quarter analysis.  The trends continue to be striking.  Wages and salaries (as a percent of GDP) are at their lowest levels since 1929 — 43.7%.  Meanwhile, corporate profits are at their highest level since 1929 — now at 10.3% of GDP.

Graphic: N.Y. Times. Data Source: Bureau of Economic Analysis

On a pure dollar basis, wages and salaries have only increased 1.8% since the fourth quarter of 2007, while after-tax corporate profits have increased 49% over that time.

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11 Responses to “Corporate profits are high, wages are low”

  1. These numbers are extremely misleading. 50% of GDP and employment in non farm GDP come from small businesses. And how do the 10% unemployed fit into these numbers. But if you must believe them, note how things did get much worse after the Democrats controlled the WH, House and Senate. There’s your hope and change in a nutshell. Either you buy this crap, and think gee the Democrats really screwed us, or you can join reality, and note that these figures are extremely misleading. Corporate wages are far less than half of the workforce wages, with the majority being small business by far. 99.7% of employers are small businesses. If overall wages are low, you might be barking up the wrong tree. But if the unemployed worker’s wages (unenployment payments) are included in this number, than you have an even bigger mess, factually.

    • I don’t see how the figures are misleading. The BEA uses common methodology to look at the historical trends, through times of good economic performance and bad. If you disagree with the methodology and would like to present numbers that you think tell the real story, I’ll be happy to publish it. The current corporate profits methodology is available here: http://bea.gov/scb/pdf/national/nipa/methpap/methpap2.pdf It takes into account both large businesses and small businesses, so I’m not sure the exact point you’re trying to make regarding that.

      As far as who’s to blame for the problem, I believe both parties are to blame. Neither party has all the answers, and it’s going to take some pieces from Column A and some pieces from Column B to get this country back to where it needs to be.

      [EDIT, 11 a.m.]: I would also add that these numbers square with the other macroeconomic data out there — showing companies with huge cash reserves and household income since the recession on the decline.

      • The link you’ve provided doesn’t explain the graphs from above.

      • Further more, the source is an analytics company, as hired by the NYT, not the BEA, using parameters given by the NYT. I’ve certainly seen graphs like your second one before, and it’s productivity in most cases. Unfortunately, we don’t know all that went into this graph, so we can’t say it’s an increase in productivity, or an indication of how mweny people are out of work. As I said, these graphs without the underlying details, are extremely misleading, and are designed to paint a picture that screams agenda, where as your report link might not.

        • The historical data is all available on the BEA website for your review. The relevant figures are included in “Section 1” of the data. Here’s a link:

          http://bea.gov//national/nipaweb/DownSS2.asp

          I don’t think, frankly, that productivity explains what’s going on at all. In the post-WW2 period, productivity and wages tracked closely until about the mid-1970s. Since then, it’s diverged substantially.

          I’d be cautious about screaming “agenda” until you actually present evidence — instead of broad assertions — that something is amiss here.

  2. See tab 11200. National workers income. This is the data used in your graph. The assertion that national Income as percentage of GDP, is extremely misleading due to the number of unemployed. Wages have not fallen off. Jobs have fallen off. There is a huge difference between the two measures. The numbers are purposely being slanted to fit an agenda. If you want to imply that wages are falling, you compare the number of workers to the number of people working. 9 and 10 percent unemployment will certainly bring down overall income, but that does not mean the employed are getting paid any less. I’m not making broad assertions. This is what I do for a living. I collate data like this for analyical purposes, and this data is being twisted, which of course leads me to ask why it is protrayed in a false light. And I consider the source. The NY Times is a very liberal publication, and ANY graph displayed there has to be taken with a grain of salt.

    • A couple of things here, John.

      The data isn’t being twisted. You’re arguing against a point that wasn’t made — either by me or the N.Y. Times. I never asserted that individual workers were being paid less. The graphs and my post clearly label what is being shown here as wages and salaries as a percent of GDP. Yes, unemployment plays a real role in that.

      However, I do think that the trend — even in good economic times — indicates that there’s more going on here than just unemployment. Generally speaking, going back to the late 1960’s you see drops in income coming out of every recession than never get fully made back up (except for a brief blip at the end of the Clinton Administration that was more than wiped out by the 2000-01 recession and 9/11). In the G.W. Bush Administration, unemployment was under 6% for nearly five years, but we saw no real growth in wage income as a percentage of the economy.

      Wages and salaries were still a larger percentage of the economy back in the early 1980s — the last time we had unemployment at these levels. if you look at the historical data, wages and salaries were a larger percentage of the economy in the Great Depression, and our labor force participation rate is higher today by seven or eight points.

      There’s lot of reasons why this is the case, and reasonable people can disagree about whether it’s a problem and if so, what we should do to fix it.

      • Your right, there is something going on here. It’s called productivity. In a recession cycle, companies are forced to find efficiencies where they can. They run leaner than before, and produce more with less. It’s a combination of automation and efficiency,

        Total workers income rose every year until 2009 and even 2010 has not returned to 2008 levels. Even in the horrible year of 2008, when te crash occurred, we still, as a nation, brought home more income. It wasn’t until 2009 under full Democratic control, that we fell. It will be interesting to see if 2011 results will finally get us back to Bush era income.

  3. See, that’s where you’re missing the point. Of course wages and productivity split apart. A machine doesn’t get a wage. And your title does suggest lower wages, by the way, but this graph doesn’t show it either.

    The tools are better than they were. Even in my industry. I can create far more analytics and data pumps than I did in the old days. In fact, I’ve built some of my own automation tools, too help generate code faster. This may hurt my billings, but because I can crank out so much more in s shorter period of time, more people want to hire me.

    The food processing lines I used to supervise had 25 employees per shift per line. When I last toured the old facility, they were down to 8, and they were cranking out 3 times as much product.

    • Tools and equipment have always been improving, though. That doesn’t explain why productivity and wages tracked until about 35 years ago. There’s lots of reasons for this — technology being one of them, globalization being one of them, as well as an increase in retained corporate profits being one of them.

      The problem is that median incomes over this time have grown much more slowly than they did before. Meanwhile, incomes at the top of the scale have grown much, much more quickly. That’s a problem for the economy, because while the wealthy consume more, they don’t consume on a factor comparable to their income. Your average millionaire doesn’t consume 10x as much as a person who makes 100,000. And our economy is driven by consumer demand.

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