While corporate profits soar, American wages stagnate


Just in time for Labor Day, there are a couple of related news stories in the Sunday papers today. The Arizona Republic is almost celebratory of the fact that U.S. corporations excel at getting more out of workers:

trickle downOne of the major economic forces of the past several decades has been the steady rise in productivity. Thanks to computers, better manufacturing processes and demands that everyone work harder and smarter, American companies are doing more with less.

Big U.S. companies, in particular, are squeezing plenty out of each worker. In fact, greater efficiency is one reason that many of these corporations have become so large and successful.

But American workers, the most productive workers in the world, are not sharing in the benefits from their labor and increased productivity as they once did.

[R]estrained hiring by Corporate America has been a significant reason the economic recovery has been sluggish. Companies instead have become more efficient. A Labor Day analysis of America’s 100 biggest corporations by The Arizona Republic shows that these firms average about $550,000 in revenue from each worker. That’s one reason corporate profit and stock-market values of these companies have never been higher.

“Innovation and productivity have allowed us to elevate standards of living without inflation,” said Jack Ablin, chief investment officer at BMO Private Bank. [This bankster is talking about his standard of living.] “The world has become more efficient.”

But the flip side is that productivity disparities might be contributing to the widening wealth divide. Skilled employees at highly productive companies enjoy better pay, benefits and job security. Another, less obvious implication, is that owners — that is, stockholders — have reaped the gains from productivity at least as much, and perhaps more so, than workers have.

This helps to explain why the stock market is hovering at record highs at the same time that two in five Americans say they would have trouble coming up with $2,000 in a pinch, as one recent survey revealed.

“People who own shares have benefited more than people who get paychecks,” Ablin said.

More on this economic disparity today in the Arizona Daily Star, Recession’s aftermath still has nation in anxious mood about economy, report says:

If the Labor Day parade committee chose a theme color for this year’s event, marchers might be wearing black to represent the years of lost ground in wages for workers at nearly every income level.

It also would reflect the gloomy national mood among workers, according to a report issued this week from Rutgers University in New Brunswick, N.J., titled After Great Recession, Americans are Unhappy, Worried and Pessimistic: Americans in the Aftermath of the Great Recession (Rutgers University).

Rutgers researchers found more than a third of workers report their finances have been permanently injured by the recession, with 16 percent of Americans, or 38 million people, reporting they were financially devastated and expect that damage to be permanent.

“The typical American worker lives a precarious and doleful existence — unhappy, poorly paid and fearful about losing his or her job, according to the opinions of fellow Americans who responded to this survey,” the team at Rutgers found.

Seventy percent of respondents described typical American workers as not secure in their jobs, and 68 percent said workers were highly stressed.

There are good reasons for that.

Another report by the Economic Policy Institute, a Washington, D.C.-based policy research group, issued in time for the Labor Day holiday, Workers’ Wages Stay Flat in 2014, found American workers haven’t had a pay raise in 35 years. A look at wages since 1947 found that, from 1947 to 1979, annual family incomes grew across the board between 2.2 percent and 2.5 percent.

Then, from 1979 to 2007, those in the bottom fifth of household income saw no change, adjusted for inflation. The second, third and fourth-fifths saw their income grow at less than 1 percent a year.

Meanwhile, those in the top fifth saw an increase of 1.5 percent, or more than twice that of people in the middle. Those at the top 5 percent experienced growth of more than 2 percent a year during that time.

But from 2007 to 2012, every group lost income except the top 5 percent, which experienced a slight increase.

Carl Van Horn, one of the authors of the Rutgers study, said the two independently produced reports reinforce each other. “One is the economic reality as portrayed by wages and the other is how people feel,” he said.

The reality is “there were lots of problems before the Great Recession, and the Great Recession made everything worse,” Van Horn said. “The recovery has been slow and uneven, and it has not brought about anything close to prosperity, so it did not allay any of the fears people had.”

It’s not an exaggeration to say people were traumatized by the Great Recession and its aftermath.

The team from Rutgers found 80 percent of Americans know someone who lost a job between 2008 and 2012, with 11 percent saying a member of their household lost a job. Still another quarter of the population reported a member of their extended family was fired.

Almost 35 years of faith based supply-side “trickle down” GOP economics has produced a massive redistribution of wealth in this country — a redistribution of wealth upwards from the working classes to the investor class. As Warren Buffett observed, “Actually, there’s been class warfare going on for the last 20 years, and my class has won.” `There’s been class warfare for the last 20 years, and my class won’.

American workers used to enjoy the fruits of their labor and benefited from increased productivity. But corporate America, which has transformed from an industrial economy to a service economy over the past 35 years, figured out ways to keep all the profits and not share the benefits of increased productivity with American workers. Joseph Stiglitz: The Book of Jobs (Vanity Fair, January 2012):

The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade.

There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

* * *

Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level—that is, the slashing of budgets in the face of recession—has hit education especially hard, just as it has decimated the government sector as a whole. Nearly 700,000 state- and local-government jobs have disappeared during the past four years, mirroring what happened in the Depression. As in 1937, deficit hawks today call for balanced budgets and more and more cutbacks. Instead of pushing forward a structural transition that is inevitable—instead of investing in the right kinds of human capital, technology, and infrastructure, which will eventually pull us where we need to be—the government is holding back. Current strategies can have only one outcome: they will ensure that the Long Slump will be longer and deeper than it ever needed to be.

Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt. But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today.

* * *

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. The good news (in a sense) is that the United States has under-invested in infrastructure, technology, and education for decades, so the return on additional investment is high, while the cost of capital is at an unprecedented low. If we borrow today to finance high-return investments, our debt-to-G.D.P. ratio—the usual measure of debt sustainability—will be markedly improved. If we simultaneously increased taxes—for instance, on the top 1 percent of all households, measured by income—our debt sustainability would be improved even more.

Until Americans wake up to the fact that they have been sold snake oil in faith based supply-side “trickle down” GOP economics and demand a fundamental change in economic and monetary policies, American workers will continue to see their economic situation decline. These policies are the root of all our economic problems. Continuing these policies, expecting a different result, is the very definition of insanity.


  1. It took a long while but I knew it would be somewhere in your message: A big part of the answer is to raise taxes. That is ALWAYS the answer for Democrats. Your source thinks if we could only do what we did 80 years ago to recover from the Great Depression without preparing for war everything would be honkey-dory. What he forgets is that we did try infrastructure development early on as means of getting our economy jump started (remember the WPA, the NRA, the TVA and the massive building projects that went along with them?) but none of them worked. It took a world war to get the economy going. Things haven’t changed and if we think they have, we are dreaming.

    Actually, I am wrong in saying that. Things have changed: We are a much weaker people. We have niether the strength nor the courage to suffer through the horrors of a major war. And we are too weak willed to actually go on a major infrastructure building spree (remember OSHA, the EPA, the Endangered Species Act and litigation attorneys?) because somebody would get hurt or killed or inconvenienced.

  2. An important point made from one of the wage analyses in the Economic Policy Institute (EPI) study noted here, wage change analysis by education level of workers, gives the lie to the oft repeated notion that unemployment is the fault of workers not having stayed in school, or longer in college. Elise Gould’s EPI study looks at wages not only over time and income level, but also by gender, by yearly income as well as hourly rate, as well as by education level. The yearly income comparisons over time, for example, verify Robert Reich’s notion that to make up for stagnant wages, families from 1979 on worked more, with wives going to work, second jobs, but also longer work hours.
    The EPI analysis over recent years by education level shows that a college degree or not, or at least a high school degree, still didn’t mean wages would go up to keep employees. No wonder those with even STEM degrees are continuing to struggle. Here are some data from recent wage rates over years when supposedly jobs have demanded education.
    High School Wage change
    2009 to 1014 – 1,.3 %
    2013 to 2014 – 1.1 %
    Some College
    2009 to 1014 – 1.4 %
    2013 to 2014 – 1.0 %
    2009 to 1014 – 0.8 %
    2013 to 2014 – 1.6 %
    Advanced Degree
    2009 to 1014 – 0.8 %
    2013 to 2014 – 2.7 %
    Data: Report; Wages Incomes & Wealth; Elise Gould; EPI Aug. 27, 2014
    “On the whole,” argues Gould, “the broad wage trends by education level over the last decade and a half make clear that wage inequality cannot be readily explained by stories about educational credentials and technology; wage inequality has increased steadily, yet even those with a college diploma or advanced degree have experienced lackluster wage growth.”
    [noted in Bloomberg Business Week; http://www.businessweek.com/articles/2014-08-27/for-every-education-level-real-wages-have-gone-down-this-year-so-far%5D

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