Corporate profits, both in dollar terms and as a share of the economy, are at an all-time high. Additionally, worker productivity is also at an all-time high.
Yet, American workers are seeing the benefits of neither.
From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount, according to the Economic Policy Institute. And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.
Even as American workers have grown continually more productive, they aren't being fairly compensated for all their efforts.
For example, had the minimum wage kept pace with gains in the country's productivity since 1968, it would be $16.54 an hour today.
Sadly, for millions of workers, wages have flatlined. In fact, wage growth is near its lowest level in half a century. And stagnant wages have led to steadily worsening income inequality.
Wages have fallen to a record low as a share of America’s gross domestic product. Until 1975, wages almost always accounted for more than 50 percent of the nation’s GDP, but in 2012 wages fell to a record low of 43.5 percent. And that percentage has been falling steadily since 2001.
Meanwhile, fuel, food, health and education costs have all risen steadily. In other words, people are being squeezed from both ends.
Companies have boosted profits to record levels by employing as few workers as possible, at as low a pay rate as possible. Money that should be paid to workers for their labors is instead being siphoned off to further enrich wealthy CEOs and other top corporate officers.
Today, American CEOs get paid 354 times more than the typical worker. But back in the 1980s, CEOs "only" got paid 42 times more.
So, while corporations reap all the benefits of record profits, American workers continue to suffer and decline.
The US cannot return to the higher growth rates of the past if workers keep getting a smaller share of profits, while watching their purchasing power continually diminish.
Historically, from 1948 through 2013, the United States annual GDP growth rate averaged 3.21 percent.
Yet, over the last two decades, as with many other developed nations, US growth rates have been decreasing. In the 1950’s and 60’s the average growth rate was above 4 percent. In the 70’s and 80’s it dropped to around 3 percent. But in the last ten years, the average rate has been below 2 percent.
It should surprise no one that the US economy has reached the 4 percent growth mark in just two of the 19 quarters since the Great Recession ended. Call it the new normal.
I've made the same argument repeatedly: Absent adequate and fair wages, the US economy will remain incapable of growing in a way that was previously considered normal or acceptable. In the current environment, demand and consumption are inadequate to sustain previous growth rates.
Put it this way: If you owned a car dealership, would you rather have one rich customer that can afford a $100,000 car, or 10 customers that can afford $25,000 cars?
We are seeing what happens when too much wealth — too big a slice of record corporate profits — is hoarded by the moneyed corporate class.
Great article. The myopic greed of the wealthy and ruling elite is actually self destructive, as you well pointed out in this quote.
ReplyDelete"Put it this way: If you owned a car dealership, would you rather have one rich customer that can afford a $100,000 car, or 10 customers that can afford $25,000 cars? "
This greed is BAD BUSINESS!! Myopic greed is killing America.
As a wise man once said, "The capitalist will sell you the rope with which you intend to hang him".
I like the article. A lot of us have known this instinctively. It's just common sense - - more expendable income, the more an economy can grow.
ReplyDeleteThis seems reasonable superficially but I also see that pension equity assets have grown from about 21% of GDP in 1985 to about 62% of GDP today, presumably increasing the capital stock in the process. This growth should continue for quite some time as a large part of the population nears retirement and their pensions/401k’s reinvest their earnings.
ReplyDeleteThis would seem to be the kind of thing that would be needed if the retired population was funding its own retirement, and the profits supporting baby boomer retirees would need to pull up the profit-to-wage ratio if the whole private pension scheme has a chance of delivering the promise of continued economic growth with a shrinking labor force.
So much of the increase in profits actually belongs to those workers that are contributing to their 401k's and to those that still have pensions. Not necessarily a symptom of runaway capitalism.
Defined benefit pensions now cover 18 percent of private-sector workers, down from 35 percent in the early 1990s, according to the Bureau of Labor Statistics.
Delete401(k) plans have proven to be a poor substitute, as the typical household approaching retirement has less than two years’ worth of income saved in these accounts, according to a Federal Reserve survey.
But retirement is not really the focus here. The issue is that wage growth is near its lowest level in half a century, and wages are at a record low as a share of America’s gross domestic product.
Yet, corporate profits -- both in dollar terms and as a share of the economy -- are at an all-time high, and CEO pay is at a record high. So, the money is there; it's just been siphoned off and hoarded at the top.
As I noted, "Absent adequate and fair wages, the US economy will remain incapable of growing in a way that was previously considered normal or acceptable. In the current environment, demand and consumption are inadequate to sustain previous growth rates."
I think a significant part of the problem comes from the gradual but accelerating economic competition from peoples who were not really part of the world economy in the first half of the 20th century. Whereas it was possible for an American auto worker to earn a good living for a family in 1950, that is not true today. It started to go away around 1970 and accelerated in the 1990s/2000s. A corollary to this has been the growing need for consumer credit to sustain the consumer economy and recycle the excess income at the top. This situation is unsustainable and dangerous to the social compact in the United States and other "first world" countries. Nobody seems to be talking about this.
ReplyDelete