Profits, Profits Everywhere…Compensation?…Not So Much

May 25th, 2012 at 2:43 pm

While poking around in the profits data yesterday, I got interested in a broader look at what’s been going on re the shares of income growth attributable to profits and compensation.

Such information is especially compelling right now, because as I discussed on an MSNBC segment with Martin Bashir (and as Paul K amps up today), Wall St and the profiteers in general seem deeply pissed off at everyone, especially the President.  You’d thus maybe think they’ve been doing quite badly and the expense of wage earners.  And you’d thus be quite wrong.

First, here are overall corporate profits and compensation as a share of national income since the recession began in 2007q4.  Now, this isn’t all black and white, because you’ve got rich people earning comp and pension funds whose returns depend partly on corp profits.  But pair this figure up with the fact that the stock market is way up under the President, and based on the numbers, the animosity doesn’t make sense.

Source: NIPA Table 1.12.

In fact, this pattern of decline in labor share and increase in profit shares is particularly notable in the US right now.  The following figures from the IMF show that even as it has declined over the last couple of years, labor share remains quite elevated in Europe relative to pre-recession levels (top figure).  In the US, the decline has accelerated.

Source: IMF

The middle figure from the IMF shows that profit growth has been uniquely strong this time around in the US, accounting for most of the growth in nominal GDP.  That’s quite different from the patterns in both earlier US recoveries and those of European economies.

Looking at the bottom IMF graph, while I bristle when people make the foolish fiscal point that “we’re Greece”—not even close, as a passing glance at borrowing costs of gov’t debt will reveal—when it comes to the loss in labor share…um…we kinda are…Greece, that is.

Finally, if we look at the US data just from the corporate sector, where I can break things down in more interesting ways, we see that the 4.6 percentage point increase in profit share since the recession has come largely from the financial sector—the beneficiaries of the bailouts!—and that the compensation share in that sector has been severely whacked.

Source: NIPA Table 1.14

OK, that’s a lot of numbers and trends but they all say the same thing: even with the black/white caveat above, it is clearly the case that the narrow slice of families whose incomes depend on financial profits are doing a lot better than those who depend on their paychecks.

For the President, it must feel like you’re driving down the road and you see this injured Doberman Pinscher.  You nurse it back to health at which point it attacks you.

(H/t’s to IDG, HS)

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One comment in reply to "Profits, Profits Everywhere…Compensation?…Not So Much"

  1. Rima Regas says:

    Fine, fine piece! Thank you. I have a request… Could you write something about student loans and the interest rates students have been paying? Whenever there is a discussion of student debt, and whether or not there should be debt-forgiveness, I often see nasty commentariat from people who don’t believe the accounts they see of people who started out with a loan of $25K and end up, years later, with $45K to repay. As in the housing crisis, some (usually on the right) say that the stories either aren’t true or students have been repaying pennies a month all along.

    Have a wonderful long weekend!