Economic snapshot | Wages Incomes and Wealth

Corporate profits growing far faster than worker compensation

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A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for November 29, 2000

Corporate profits growing far faster than worker compensation

One of the most important and beneficial recent economic trends is the faster growth rate of productivity. This key measure of how efficiently the economy is producing has sped up by about 1% per year since the mid-1990s. While that doesn’t sound like a lot, in historical terms, it’s quite large and important. In essence, faster growing productivity means more income generated per hour of work, and thus larger slices can be served from a growing economic pie.

Growth in profits and compensation

The question, however, is how are the benefits of faster productivity growth being distributed? The chart shows that most of the growth has gone to profits, as opposed to compensation. The series in the chart compare the growth in compensation to that of profits, controlling for productivity growth, in the non-financial corporate sector.1 Clearly, since about 1993, profits have been growing much more quickly than compensation, relative to productivity’s growth rate, meaning that the benefits of productivity growth are accruing more to holders of capital than to workers. Also, the graph belies any notion of wage pressure, a stated concern of the Federal Reserve. Relative to productivity, profits appear to have accelerated much more quickly than compensation over the 1990s.

Notes
1. This sector, which accounts for slightly more than half of GDP, is the only one for which the Bureau of Labor Statistics reports unit profits. In the financial sector, national accounts do not allow profits (such as income from interest) to be separated out from compensation. Unit labor costs measure compensation growth relative to productivity; unit profits measure the growth of profits relative to productivity.

This week’s Snapshot by EPI economist Jared Bernstein.

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