Newspaper article International New York Times

U.S. Workers Get a Bit More of the Economic Pie -- and Shareholders Less

Newspaper article International New York Times

U.S. Workers Get a Bit More of the Economic Pie -- and Shareholders Less

Article excerpt

Employees are regaining some bargaining power lost in the recession, but not the power lost over the last three decades.

American workers are reaping fewer of the gains of a growing economy in the form of pay and benefits. Shareholders are reaping more in the form of corporate profits. That shift has been one of the most important economic stories of the last several decades, and it is the key to understanding stagnant wages for middle-class workers and a soaring stock market in the last quarter-century.

Here is what is less widely understood: That trend appears to be reversing itself.

It is early and the reversal may not last. And it certainly hasn't fully undone the shift underway since the 1980s. But the numbers are quite clear that in the last couple of years, workers have claimed a bigger piece of the economic pie and shareholders a smaller one.

The evidence available so far in 2016 -- steady growth in wages and weak earnings for publicly traded companies -- suggests that the reversal is continuing this year.

At the start of 2013, for example, 61 percent of national income went to pay and benefits for workers. But by the end of 2015, that had risen to 62.6 percent. (That said, in the early 1990s, that figure was around 66 percent.)

If the proportion of national income going to workers in early 2013 had stayed constant, there would now be $251 billion a year less flowing into Americans' paychecks than is the case. That is about $1,900 a year per household.

At the same time, corporate profits' share of national income has fallen, from 14.2 percent in the middle of 2014 to 12.1 percent by the end of 2015. That translates to $328 billion less in annual corporate profits than there would be if the earlier proportion had held.

You can pick different numerators and denominators to get at the same concept -- using just wages and salaries instead of total compensation, for example, or dividing by gross domestic product instead of the related concept of national income -- but the same basic pattern reveals itself.

And there is plenty of other anecdotal information and data consistent with the shift. Among the companies in the Standard & Poor's 500, first-quarter earnings are on track to be 7.6 percent lower than a year earlier. Weak earnings growth, and lately an outright contraction in corporate profits, are a culprit in a stock market that has largely moved sideways for more than two years.

A big part of the story is a steep decline in the profitability of the energy sector, reflecting a much lower price of oil and natural gas.

Total corporate profits were $64 billion lower in 2015 than in 2014. A fall in the profitability of the petroleum and coal products sector accounted for $40 billion of that.

There may be something broader going on that is holding back corporate profits beyond simply cheap oil. …

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