Will wages ever catch up to corporate profits?

Did you know that just four years after the worst recession in U.S. history, U.S. corporate profits are among the highest ever?

Kind of makes you scratch your head a little, after so many years of doom and gloom, it’s hard to imagine that U.S. corporations are humming at unprecedented levels. Sure doesn’t feel like it, at least when translated to the average worker.

Yet CNN Money reports that in the third quarter of last year, corporate earnings were $1.74 trillion, up 18.6 percent from a year ago. The after-tax profits are at their greatest percentage in Gross Domestic Product (GDP) history.

Surely all these records profits must trickle down to the average worker, right? Not so, not even close. As a matter of fact, CNN reports that workers wages have fallen to the LOWEST ever share of GDP. It said a separate government reading shows that total wages have now fallen to a record low of 43.5 percent of GDP; whereas until 1975 wages had accounted for at least half of GDP, and reached as high as 49 percent before a 2001 recession.

Profits bottomed during the recent recession at 4.6 percent of GDP, but have now risen to 11.1 percent, above the average 8 percent during the previous economic expansion.

So why haven’t wages mirrored the record profits? Analysts point out that overall economic growth has greatly outpaced growth in hourly wages and job creation since the Great Recession, and that wages are determined by what’s going on in the labor market.

CNN quoted economists as saying, “It makes no sense to hire more people until you have demand for your stuff.” I think this raises a question that at what point will corporate profits continue to skyrocket if consumers’ purchasing power continues to erode?  At what point won’t there be “demand for stuff?”

Yahoo News recently ran an article comparing a minimum wage earner at McDonald’s to the company’s CEO. This particular worker in Chicago makes $8.25 per hour, the minimum in Illinois, whereas it quotes McDonald’s President and CEO Jim Skinner made $8.75 million last year. It would take more than 100 years working non-stop at the minimum wage to earn what Skinner made in one year. The article noted that the pay gap between fast-food CEOs and workers doubled in the last 10 years alone, and at the same time McDonald’s lobbied heavily against minimum-wage increases.

In fact, the company spent $6 billion on share repurchases and dividends last year, the equivalent of $14,285 per restaurant worker employed by the company.

Those who believe the rich are getting richer are armed with this statistic: The 1.2 million households whose incomes put them in the top 1 percent of the U.S. saw their earnings increase 5.5 percent last year, according to census estimates. Whereas earnings fell 1.7 percent for the 97 million households in the bottom 80 percent (those who made less than $101,583).

Businesses and taxes are a relevant topic in Minnesota this year as the legislature debates the merits of potential tax increases, such as on previously untaxed various business services, proposed in the governor’s budget. Legislators often cater to business interest, as they right probably should considering the tie between business success and job creation. But sometimes, as these statistics show, businesses can do quite well while labor and wages lag behind.

With record profits, it seems corporations and CEOs are doing not just well but better than ever. Here’s hoping that in 2013 some of that record wealth can be spread to the millions of workers who it now appears were the real victims of the Great Recession, not the companies that were rescued because they were “too big to fail.”

 

Contact Aaron Brom at aaron.brom@ecm-inc.com

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