Corporate profits

Workers’ wages in pursuit of corporate profits – Out of the ordinary

The 2010 total of 62.1% is nowhere near the record share of 54.5% set in 1929, the first year for which figures are available. But it’s the lowest for any full year since 1965. In the first quarter of 2011, it slipped again, to 61.7%.

National income, as calculated by the Commerce Department, is similar to gross domestic product but excludes some items, including an estimate of depreciation. In addition to those shown in the graphs, there are other categories included in national income, including rental income and net interest income, so the figures shown do not add up to 100%.

One way to look at recent trends is to compare total income figures for 2010 with those for 2006, before the economy began to slide into recession. In nominal dollars, unadjusted for inflation, national income was 6.7% higher in 2010, a gain that fell short of the 8.2% rise in the price index to the consumption.

Total employee compensation, including benefits, increased 6.6%, although salaries and wages increased only 5.6%. Corporate profits rose 11.9%, while homeowners’ incomes fell 8.5%. Corporate profits have more than kept up with inflation. The other categories of income were not.

It can be misleading to look at income shares without looking at their magnitude. A small slice of a big cake can be bigger than a big slice of a cupcake. The peak share of wages and salaries, 59.7%, came in 1932. Workers’ compensation was plunging at that time, but not as rapidly as corporate profits. The companies as a group lost money that year.

Nevertheless, President John F. Kennedy’s observation that a rising tide lifts all boats is no longer as true as it once was.

There have been 10 years when corporate profits as a share of national income exceeded 13% – 1941, ’42, ’43, ’50, ’51, ’55, ’65, ’66, 2006 and 2010. In eight of those years, the economy, measured by real gross national product, grew at a rate greater than 6%.

The exceptions were 2006, when real growth was only 2.7%, and 2010, when it was 3%.

Similarly, in the past, unemployment was generally low when corporate profits were high. In 2006, the unemployment rate ended the year at 4.4 percent – and that was higher than it had been in other post-war years when the business share of income national was high. At the end of 2010, the unemployment rate was 9.4%. On Friday, the government announced that the rate was 9.1% in July.