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Snapshot for May 27, 2004.

When do workers get their share?

Despite recent good news on employment growth, the current economic recovery, now approaching its third year, remains the most unbalanced on record in respect to the distribution of income gains between corporate profits and labor compensation. Essentially, rapid gains in productivity have been translating into higher corporate profits without increasing the wage and salary income of American workers.

The chart below shows growth in corporate profits and total labor compensation (the sum of all paychecks and employee benefits in the U.S. economy) over the last 12 quarters; measuring profit growth since the peak of the last recovery in the first quarter of 2001.*

Corporate profits have risen 62.2% since the peak, compared to average growth of 13.9% at the same point in the last eight recoveries that have lasted as long as the current one. This is the fastest rate of profit growth in a recovery since World War II.

Total labor compensation has also turned in a historic performance: growing only 2.8%, the slowest growth in any recovery since World War II and well under the historical average of 9.9%.

Most of this growth in total labor compensation has been accounted for by rising non-wage payments, like health care and pension benefits. Rapidly rising health care costs and pension funding requirements imply that these higher benefit payments are not translating into increased living standards for workers, but are rather just covering the higher costs of health care and pension funding. Growth in total wage and salary income, the primary source of take-home pay for workers, has actually been negative for private-sector workers: -0.6%, versus the 7.2% gain that is the average increase in private wage and salary income at this point in a recovery.

These are ominous signs, suggesting a new march toward greater inequality in the American economy. Worse, the growth in profits combined with a drop in wage and salary incomes suggest that the recovery has a narrow base, with most American consumers only able to increase their purchasing power through debt. Wage growth is not just fair, it is also necessary for a more sustainable recovery.

*This recession/recovery period is also notable for being the first on record where corporate profits were higher in the trough quarter than in the peak quarter.

Source: National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA).

This Snapshot was written by EPI economist Josh Bivens.