6/26/2004

Corporating are gaining in Profits while Labors aren't seeing a cent of it

In Corporate Profits at Record Highs, While Labor Compensation at 38-year Lows John Irons brings up an interesting point about Corporations making more profits starting in 2001 and that labor compensation has decreased by about 4 percent which has brought it down to 63 percent but at the same time corporate profits have increased by about 4 percent taking them up to 12 percent. After all is said and done, (taxes being the said and done) profits reached 9.6 percent of GDP which is the highest it’s been dating back to 1947.

The economy has grown over the past year showing sings that the recession may be at last over. This would cause the American people to hope that the increased production would find its way into their pockets. But that doesn’t seem to be the case because lower proportion of national income is going towards labor.

The recovery from the recession doesn't seem to be a real one because its affects aren't widespread in the economy. Has the recession really come to a stop or have a few big business come into relief and their pocketbooks are feeling a little heaver then usual. Will the trend continue for them or will they begin to fell it like the rest of us Americans.

I know I personally have felt the affects of the recession. Here in Cedar there isn't a large quantity of jobs available and jobs are hard to come by unless you want to drive 45 min to St. George to have a better chance of finding a job. With no job I’m much tighter with my money and don’t spend it as easily if I had a job and knew I had some kind of paycheck coming in every two weeks. I’m not helping the economy out but it’s not really helping me either.

7 comments:

Rolf Tiblin said...

One of the reasons that labor compensation is going down is the farming out of so many jobs to other countries. The labor force in those countries can be paid a small percentage in comparison to the cost of a worker here in the United States. Hence the need for more educated people (i.e. you in a few years) in the workplace using their brains instead of their backs. The United States is in a state of evolution in the workplace and we are only in the beginning stages of that evolution. We are the lucky ones getting on the bandwagon while it's just taking off. That fact will put us in a position to be the leaders when things have completely evolved. Those that can figure out how to evolve best will be the ones that will ultimately get the most gains.
Don't sell yourself short and throw in the towel like you've done in your last paragragh. You're here for school and during that time any job will do. There's plenty of jobs for students. Think about the gains your education will get you when you're done. Remember what Dr. Tufte has taught us about the short and long run.

pretzel said...

If what Rolf Tiblin says is true, and the outsourcing of jobs is contributing to labor wages going down, then I tend to agree with Tiblin's theory that the trend to hire smarter people is going up. If this is the case, then we shouldn't be worried about not getting a good job right now. Right now, we can be easily replaced. After our schooling, hopefully our jobs will be less outsourceable (if that's a word). Then we can make up for lost wages now by making our billions in the future (alright, so maybe thousands).

I'm right there with ya, Kid. I have two more years of schooling before I'm going to feel like I'm more in demand and that a corporation actually prefers me to just anybody.

Dr. Tufte said...

This post is macroeconomic in nature. Also, there are a couple of spelling errors. I'm letting both of these slide as I figure out how to run a class blog efficiently.

A lot has been made of this bit of data in the blog world. I'm not sure what to make of it, so I'm being pretty conservative about what I say. My inclination is not to make too much of it. These shares of GDP that get paid to labor or profit are pretty stable over time. It also is not clear at all that the 63% paid to labor and the 12% to profit are being paid to different people - lots of people have both types of income. If it isn't, then this may be a quirk of data reporting. The increasing tendency of firms to employ people as private contractors would tend to support that view.

As to the economy, it has been growing for almost three years, and that's actually how long the recession has been over for too.

As to the perception that the economy isn't doing well, it takes several quarters for the perceptual hangover of a recession to pass. Even so, I think it is a pretty even recovery - state tax revenues have been going up for about two years, and that is indicative of a broad-based recovery.

As to employment in Cedar, I'm sympathetic to the complaint. Adequate and reasonable paying jobs for students are a problem. On the other hand, I know two human resources people at firms that pay good money, and they can't find enough decent workers here.

With respect to Rolf Tiblin's comment, there is more to jobs going overseas. Managers have to figure out where they get more productivity for a given wage. This cuts both ways: we outsource, and firms in other countries insource to the U.S. for the same reasons. We just don't hear about the latter because it is good news.

With respect to Pretzel's comments, I said in a comment on an earlier post (that I'm too swamped to dig up) that benefits and profits tend to accrue to 1) those who have fixed as opposed to movable resources, and 2) those who recognize patterns as opposed to following rules. Education that you can use is a fixed resource, and classes that avoid rote work will serve you the best.

Dr. Tufte said...

Tim Worstall pointed out in an e-mail that he posted one answer to the behavior of profits and wages in a post entitled "Lefty Economics" at his self-titled blog.

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Jordan said...

Dr. Tufte said:

"As to the perception that the economy isn't doing well, it takes several quarters for the perceptual hangover of a recession to pass. Even so, I think it is a pretty even recovery - state tax revenues have been going up for about two years, and that is indicative of a broad-based recovery."

To add to that, not everyone is as affected by a recession as others. Those who lost jobs are affected quite a bit. But the rest of us don't seem to be hurt that much. While it may take a while for those who suffered to bounce back, there isn't really an adjustment period for everyone else.

Dr. Tufte said...

This is called the distributional aspect of recessions. The pain is not distributed evenly across a recession, and your pain is likely to be highly correlated with your pain from past recessions.