Labor share and corporate profits are two sides of the same distribution. In the national accounts, if labor’s claim on value added falls, profits rise mechanically. The past few decades, especially after the new millennium, have been defined by a margin structure where labor share is compressed by globalization, technology and weaker bargaining power.

That, in turn, leaves profits structurally high relative to output.

The current configuration is unusual because profits remain elevated even with higher rates and slowing growth, which means margins are being defended at the expense of wage gains!

The tension is rather obvious: if policy or inflation pressure shifts more income toward labor, it comes directly out of earnings capacity and resets the level of sustainable profits.

https://i.redd.it/cfrh8f755uof1.jpeg

by MonetaryCommentary

9 comments

  1. Layoffs, it’s a corporate hack to boost the share price and executives bags.

  2. Why doesn’t everyone looking at this graph look at the right hand side percentage.

    Labor gets, according to this poster, nearly 100% of nonfarm business income…

  3. How to win the weight loss challenge corporate style: cut your legs and arms

  4. How do they do this? They do it with Reaganomics – practiced by Republicans and Democrats alike.

  5. If I read this correctly, companies are making more and progressively pay laborers less. So the top execs take home big bonuses, and the little guys get layoffs and wage cuts. Is this correct?

  6. So, if this trend continues, does that mean that the laborers are progressively losing their power to negotiate a wage while the execs gain increasing power to minimize labor costs because fewer people are needed?

    This seems to violate the theory that capitalism leads us to a good place where high efficiency means we can all earn more because the execs get larger rewards and share, and also socialist theory because laborers are not able to negotiate higher wages and benefits because they are needed less.

    What are we headed towards?

  7. P=W+I+R

    Total Production = Wages + Interest (to Capital) + Rent.

    In economics, total production (P) gets split into three buckets: wages to workers (W), interest to investors (I), and rent to landowners (R). The problem is that rent and interest get taken first, leaving wages as whatever’s left over. That’s why corporate profits can rise while worker pay stalls. A land value tax fixes the imbalance by channeling unearned land rent back into the community, instead of letting it concentrate at the top.

    Land value tax fixes the imbalance by putting the value created by the community back into the community, instead of letting landlords and corporations pocket it all.

  8. Misleading chart — one axis scales with inflation, the other does not.

  9. One big thing this chart misses is growth. If the economy hadn’t expanded over this period, a falling labor share would be truly alarming. But it did grow a lot, which is why both real pay and living standards rose while corporate profits also hit highs. A smaller slice of a much bigger pie can still leaves workers better off.

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