Economy and Jobs Watch: Corporate Profits at Record Highs, While Labor Compensation at 38-year lows

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Published On: 05/17/2004 06:00 PM

Recent data show a major shift in the balance between corporate income and labor compensation. As a share of the economy labor compensation has not been this low in almost 40 years (since 1966), and after-tax corporate profits are at the highest levels ever recorded by the Bureau of Economic Analysis.

Since it's peak in 2001, as a share of gross domestic product (GDP), labor compensation has decreased by about 4 percent (from 67 to 63 percent) and corporate profits have increased by about 4 percent (from 8 to 12 percent) - see chart below. After taxes, corporate profits reached 9.6 percent of GDP - the highest level recorded dating back to 1947.

Over the past year, the overall economy, as measured by GDP, has grown consistently at a rate of about 5 percent, and is seen by many to be a sign that the economy has, at long last, come out of the 2001 recession. The conventional wisdom is that increased overall production will eventually make its way into the pocketbooks of ordinary Americans. However, this recovery appears to be different - in part because of the dismal performance of employment in the post-recession period - but also because it appears that a lower proportion of national income is going towards labor. An economic recovery is not real unless there is widespread participation in the economy, and the economic benefits accrue to a broad base of Americans. The current recovery appears to be failing that test.