The Political Economy of the Wage Fight

August 30th, 2013 at 3:29 pm

Over at the NYT Economix blog.

Like I said, I was struck yesterday by the juxtaposition of bank profitability and striking fast food workers, leavened throughout the day by all this criticism of the strikers for their lack of understanding of the underlying economic dynamics.

[For example, here’s an otherworldly debate on the topic from Kudlow and Co. last night.]

In the Time piece I reference the record levels of profits as a share of national income versus compensation, a symptom of the income inequality that has again asserted its presence in this as in the last few recoveries.  Here’s the picture that goes with that observation:


Source: BEA (NIPA tbl 1.12)

As the figure shows, the pattern of recent business cycles is the profit share is pro-cyclical and the comp share, counter-cyclical.  But here’s the kicker: note that the profit share doesn’t just recover from its cyclical lows; it surpasses them, as it has done already in this recovery, while the compensation share just keeps carving out new lows.  And, for the record, compensation itself has of course become more unequally distributed, so these data present only a partial view of the growing inequality problem.

It’s a picture of an economy that has been continuously unforthcoming to those who depend on the paychecks as opposed to their portfolios.

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7 comments in reply to "The Political Economy of the Wage Fight"

  1. Paul Jameson says:

    Good Economix posting, and typical discussion on Kudlow. My response to their arguments has always been, “you guys are pretending that we’ve never raised the minimum wage before, and you always make the same arguments against raising it, hoping that we’d forget that you raised the same objections all the previous times that we’ve raised the minimum wage and your dire predictions failed to materialize. Either come up with a new argument or stop arguing against raising the minimum wage!”

  2. perplexed says:

    So what’s the rents share? Oh yeah, that’s the one that exceeds the mathematical ability of economists to measure isn’t it?


  3. Nick Batzdorf says:

    Are the economics of raising the minimum wage different from raising wages in one industry?

    I’m wholeheartedly in favor of both (because the moral arguments are identical), but it seems to me that across-the-board raises will not result in the job losses that this will – even if it’s better for the economy overall.

    • Jared Bernstein says:

      Right–as I note in the piece, it’s important that min wg increases are across the board to avoid any competitive disadvantages.

  4. save_the_rustbelt says:

    As long as the very smart people (VSPs) are primarily concerned with jobs for overseas workers and undocumented workers here the labor market is going to be very weak. Thus real wages will continue to be weak.

    (Has Obama fixed NAFTA yet?)

    The rewards of rapid globalization with large regard for the financial class.

  5. jfb2252 says:

    I suggest you replot the graph with the left axis running from 54%-70% (16% delta) and the right axis 0-16% as you have it. As plotted the left axis shows a 14% delta while the right 16%. Not good.