The Wageless, Profitable Economy
Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.
According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.
The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.
“The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome,” wrote the report’s authors, Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma.
According to the Bureau of Labor Statistics, average real hourly earnings for all employees actually declined by 1.1 percent from June 2009, when the recovery began, to May 2011, the month for which the most recent earnings numbers are available.
The authors said another factor explaining the weak performance for aggregate wages and salaries was the slow growth in weekly hours during the recovery. At the same time, worker productivity has grown just under 6 percent since the recovery began, helping to keep employment down while lifting corporate profits, the study said.
Professor Sum noted that the aggregate wage and salary figures exclude employer contributions to benefits and payroll taxes, while they include bonuses, overtime, commissions and tips.
He said that nonwage benefits rose in real terms by $27 billion during the first seven quarters of the recovery. “These small gains were exactly offset by a similar $27 billion loss in real wages and salaries over the same time period based on newly released data from the Bureau of Economic Analysis,” he said. “It was a wageless and jobless recovery.”
The study called that $27 billion loss in aggregate wages and salaries during the seven quarters after the recovery began “the first ever such decline in any post-World War II recovery.”
The study said that of the previous recoveries since the 1970s, the recovery following the 2000-1 recession was next worst in terms of the share of increased income going to wages and salaries. The study found that 15 percent of income growth went to aggregate wages and salaries in the six quarters after the recovery began following that recession, while 53 percent went to corporate profits. The growth in national income can also go to net interest, rental income or proprietors’ income.
The story was very different for the recovery that began in 1991. In that recovery, 50 percent of the growth in national income went to wages and salaries during the first six quarters after the recession ended, while corporate profits actually fell by 1 percent during that period.
With regard to corporate profits, the report noted that the preliminary estimate for the first quarter of 2011 was $1.668 trillion, an increase of $465 billion of just under 40 percent since the recovery began.
“Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative,” the report concludes. “The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.”
No surprises in there, but I thought this article put things together into an easy read. Whenever I read something about this, I think of this passage from Toward Soviet America:
If the capitalists have callously forced the toiling masses into starvation conditions they have, however, very carefully looked after their own interests. “During the first nine months of 1930, our national industrial and business system was able to and did pay $432,000,000 more in dividends and $191,000,000 more in interest than it did in 1929; in the first nine months of 1931, the second year of the depression, it paid $347,000,000 more in dividends and $338,000,000 more in interest than it did in the first nine months of 1929.”6 The Publishers Financial Bureau, (New York American, Mar. 19, 1932), states that the industrial dividends paid in 1931 are “the largest for any year previous to 1929.” Anna Rochester says: “In September, 1931, the New York Times reported that of 5,000 companies, 50% had continued dividend payments without reduction; 20% were paying smaller dividends; and only 30% had omitted payments entirely. . . . For October, 1931, the total dividends plus bond interest by a large group of corporations were only 4% below the high record of October, 1930.”7 Besides, every appeal of the bankers and other capitalists to the government for assistance has met with immediate response. The two billion dollar Reconstruction Finance Corporation has been organized and the Glass-Steagall inflation bill is being prepared to absorb the worthless paper of the banks and to underwrite the dividends of industrial corporations. And in the new Federal taxes the capitalists are further shielded from the economic effects of their own bankruptcy.