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Corporate Profits at Record Highs, While Labor Compensation at 38-year Lows

OMB Watch – Economy and Jobs Watch: Corporate Profits at Record Highs, While Labor Compensation at 38-year Lows

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 1947.

(Components are percent of GDP; source: graphic adopted from National Economic Trends, St. Louis Federal reserve.)

Over the past year, the overall economy, as measured by GDP, has
grown consistently at a rate of about 5 percent, and is seen by many to
be a sign that the economy has, at long last, come out of the 2001
recession. The conventional wisdom is that increased overall production
will eventually make its way into the pocketbooks of ordinary
Americans. However, this recovery appears to be different in part
because of the dismal performance of employment in the postrecession
period but also because it appears that a lower proportion of
national income is going towards labor.

An economic recovery is not real unless there is widespread
participation in the economy, and the economic benefits accrue to a
broad base of Americans. The current recovery appears to be failing
that test.


Filed under: Data, Economics, Economy, Policy, Recession



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