Saturday, May 10, 2014
Corporate Profits vs. Wages: The Great Divide
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.