How Is This Economic Recovery Unlike the Rest?

A recent study by a team of economists at Northeastern University’s Center for Labor Market Studies argues that the current economic recovery is the worst since World War II for worker pay and job growth — but the best for corporate profits. The headline:

Over this six-quarter period [from Q2 of 2009 to Q4 of 2010], corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income.

That’s right. Of the $528 billion in real national income gained between the second quarter of 2009 and the fourth quarter of 2010, pre-tax corporate profits accounted for $464 billion, while wages rose by just $7 billion. If you extend that out to the first quarter of 2011:

[C]orporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.

Wowsers. Here’s how those percentages compare to previous recoveries measured by the first six quarters of economic growth (Roman numerals designating the quarters):

  • 1975 I – 1976 II
    Corporate Profits Share of Growth in National Income: 32%
    Aggregate Wage and Salary Share of Growth in National Income: 38%
  • 1982 IV – 1984 II
    Corporate Profits Share of Growth in National Income: 28%
    Aggregate Wage and Salary Share of Growth in National Income: 25%
  • 1991 I – 1992 III
    Corporate Profits Share of Growth in National Income: -1%
    Aggregate Wage and Salary Share of Growth in National Income: 50%
  • 2001 IV – 2003 II
    Corporate Profits Share of Growth in National Income: 53%
    Aggregate Wage and Salary Share of Growth in National Income: 15%

HT: Roya Wolverson

 

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  1. Clifton Griffin says:

    Perhaps businesses are adapting to these things over time and taking cues from past downturns?

    It’s hard to say, but I suspect there will be delayed benefits from this for American workers.

    Uncertainty is driving businesses to run as lean as they can, lest they go under in a double dip (which it seems most people think is very possible). If and when things stabilize, I think we’ll see those cash reserves reinvested in expansion and competitive wages.

    When business is down 20% in 2 years, the last thing you’re thinking about is hiring more people.

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    • Mike says:

      Workers will never get their rights back, or their wages.

      I am at a company where we work 1-2 hours unpaid overtime every day. The company says even wage workers making $15 and less per hour are Exempt employees. But everyone is afraid to speak out because they know the company will find a “legal” way to fire them for demanding FLSA be followed.

      The only hope is to move to management and on to ownership. Workers are screwed.

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  2. john Davidson says:

    I think the main reason is structural. Jobs are being outsourced to cheaper labour and companies are more computerized (roboticized). With job insecurities and a clamping down on supports to ordinary people consumer demand does not encourage companies to hire more people. A lot of rethinking is required, but I only see old style thinking at the top (actually mostly in opposition to the top).

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    • steve says:

      I will let Krugman do the talking;

      “So where’s the evidence of a structural rise in unemployment in America? Wage growth is slowing; core inflation is falling; clearly, we’re not hitting an inflationary wall right now. Maybe the wall is closer than it seems — but then you look for evidence of skills in short supply, regions without enough workers, and so on, and it isn’t there.

      As far as I can tell, the only economists who believe that we’re suffering largely from a rise in structural unemployment are those who are ideologically committed to the view that the demand side of the economy doesn’t matter — and so by definition, in their universe, any large rise in unemployment must be structural.”

      Zing

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  3. Mike B says:

    I am sure that many people would like to blame Corporations for some sort of greed here, but the honest truth is that they have been practicing a form of lazy altruism for the last decade, keeping workers on the payroll that long ceased adding values. Businesses are investing heavily in information technology and automation because these new technologies make all sorts of non-creative, repetitive or algorithmic work completely unnecessary. Some might thing that corporations have some sort of responsibility to keep human on the payroll, but these sorts of actions will either result in the death of the business (think GM or Bethlehem Steel), or a massive labor shock at some point down the road.

    Every employee needs to be on notice that if their work role no longer adds value compared with what can be automated or outsourced then they need to improve their skills BEFORE their job is eliminated. The time to jump off the ship is before is hits the iceburg, not after. The Government has a role to provide increased education and training opportunities to displaced workers and businesses should be incentivized to invest in their human capitol by giving them the skills they need to be useful in other positions, but at the end of the day we all must take responsibility and ensure that we are serving a useful role in the economy. Times have changed and workers cannot rely on becoming a well compensated “cog” as a long term career path. Using a person as a cog is inefficient and unsustainable. The fact that we currently have too many cogs and not enough machines that need them is the result of a public policy failure, not corporate greed.

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    • DaveyNC says:

      Hidden due to low comment rating. Click here to see.

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      • TH says:

        My husband actually works in construction for Intel, and one of his buddies has been working for the past 2+ years building a fab in China. What may not be entirely apparent from that stark statement about an extra billion dollars, is that constructing a fab China requires a helluva lot less investment in terms of public safety. Here in the US we require waste water treatment and double-containment for lines that carry dangerous chemicals. We spend extra money to pour concrete to be smooth when cured, instead of using an army of workers to hand-polish it after the fact, inhaling silica particles all the while.

        Also, Otellini is talking about building and running some of the most advanced, intricate and expensive factories in the world to begin with. It’s not the kind of case you can easily extend and generalize to other kinds of businesses.

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      • DaveyNC says:

        Whether the Chinese adhere to our safety or environmental requirements is beside the point. Intel can get a better, quicker return building in China.

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      • Mike B says:

        No, it’s exactly the point. If the cost of the job is reducing living standards to that of China, is that cost worth paying? Yeah if you use slave labor and poison the environment of course production costs will be lower, but perhaps there is a way the developed world can prevent a race the the basement with the developing world using import tariffs that apply the cost of environmental degradation and worker safety at the border.

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    • Ulysses says:

      Some of what you say is true, but one thing is certain at this point and that’s that businesses do not grow based on how much money is in the bank. If they did, jobs would be growing right now. Instead, they grow based on demand. And there aren’t enough people working to drive the demand needed to add jobs. We need to get back to normal employment numbers. But how?

      This is where the government steps in by bringing in more revenue and pumping it back into the economy. The bottom line is corporations are getting off easy right now because of a presumption that we need to keep them flush with cash so that they might spend it. But they haven’t done that: unemployment is stagnant and wages have been so for a very long time.

      - Every dollar of tax cuts produces a modest boost of $0.25 to $0.67 in consumer spending.
      - Every dollar of added deficit produces of the same $1.00 in consumer spending.

      It’s pretty clear what’s productive and what’s counterproductive (right now) for getting out of this thing.

      ref: http://www.slate.com/id/2296578/

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    • Brian says:

      I wouldn’t call laying off workers and outsourcing a job as lazy altruism.

      Businesses will just take time to adjust to the new global economic and political conditions, that often favor corporations at the expense of American workers.

      There are some labor unions that had too much power, but many of the jobs that are being eliminated do add value to businesses. They are being undercut by an almost limitless supply of foreign workers who work for a fraction of the costs. This is how corporations can increase their profits significantly, while wages remain stagnant.

      I agree that workers should try to improve their skills and figure out how to add more value, but it is unrealistic to assume that all American workers have to be 10x more productive than the average Chinese worker to justify being paid 10x more, especially when you factor in the costs of living.

      Outsourcing the most inefficient jobs is beneficial to the US economy, but corporations and politicians are taking this idea too far by running huge trade deficits and undermining our own labor force. The system is unbalanced as evidence the discrepancy of corporate profit growth compared to workers wages.

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      • Mike B says:

        The practice of keeping low value workers on the payroll for the last decade was lazy altruism. Many Corporations didn’t want to go through the short term pain of replacing their administrative assistants with Outlook or their HR department with whatever software does that, but when push came to shove and the economy was imploding they realized that there were far cheaper alternatives to living breathing people.

        If you look at the statistics you will see that there has been solid recovery for high skill jobs and low skill service type jobs (at low wages). The middle skill jobs are middle wages are the ones that got hammered because foreigners now have the skills to perform them or IT has reached a point where they can be replaced entirely.

        When I watch news reports on the employment crisis, especially among the middle class, they go to job fairs and interview people and you see the same thing again and again. People in HR, communications, sales, middle management, etc all with years of experience and unable to find a job. Why? Because these soft-skill jobs are no longer useful as they used to be. What can’t be automated can be outsourced or contracted for far less. None of these people did anything that directly added value. They were all overhead, kept on board thanks to institutional inertia from the era when workers were cheap and stuff was expensive.

        Americans can compete with China, even with their current bag of unfair trading practices, because we are more productive, less corrupt, easier to manage and there aren’t the hassles with shipping things across the Pacific Ocean. Today we are producing the same GDP as we did in 2008 with millions fewer workers. That can be considered a massive success, but the problem is kickstarting the displaced workers back into some form of economic activity. As costs in China rise some of those jobs will come back. If domestic consumers learn to value quality over cost, again, jobs will return, but for many unemployed their jobs are gone not due to China, but due to the march of progress. Even if China were to vanish their jobs would never return because of automation and productivity increases from their fellow workers.

        We’re so screwed right now because we have few good options. People can’t just reboot their lives and go get the college degree that can get them a good job. In fact many people cling to their old way of life, earning a middle class wage assembling widgets or pushing papers in between trips to the watercooler. I am not saying that being unemployed their fault, but waiting out their 99 weeks of unemployment because they can’t find the same class of job isn’t helping.

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  4. Bevan says:

    Hidden due to low comment rating. Click here to see.

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  5. Enter your name says:

    They mean “…the worst since World War II for worker pay and job growth COUNTING JOBS PHYSICALLY IN THE UNITED STATES ONLY”, as if this wasn’t a global economy, and as if those rising profits in multinational corporations couldn’t possibly be associated with rising wages and increased jobs in other countries. (Sorry about the all-caps; I couldn’t figure out how else to show the words I was adding.)

    I don’t understand why we still pretend that a job, if located in Malaysia, and allowing an Asian man to feed, clothe, house, and educate his family of five is nothing, but that the same job, if located in Detroit, and allowing a white or black man to feed, clothe, house, and educate his family of five, is incredibly important. The only people this difference really matters to is the individuals in question, since both of them would like to work at a job with a living wage. On the global scale, it’s still one man with a decent job and an income sufficient to care for the basic needs of five humans (and still many more who want a job like that). The nationality and location of the person who holds the job has no moral significance.

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  6. frankenduf says:

    lack of unions- duh

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  7. Steevn says:

    Could most of the profits simply be coming from businesses cutting expenses?

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  8. Mike says:

    Why can’t we just give more tax breaks to companies that do hire, instead of saying we will lower corporate tax rates and just hoping they hire.

    If you incentivize hiring, more people will be hired. If you incentivize profits more profits will be made, and maybe more hiring will ensue (but only maybe).

    Incentivizing hiring is a great way to get more people in the work force and increase total compensation for workers. Also employees who are working are constantly learning about their field and can later add more and more value to the economy. People on unemployment are simply a drag.

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