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Labor's Edge: Views from the California Labor Movement

Corporate Profits Skyrocket at Expense of Workers’ Wages

By Steve Smith, Callifornia Labor Federation

Between the wall-to-wall coverage on the cable news networks of the Casey Anthony trial and the latest exploits of the Kardashian sisters, it’s unlikely that a new study showing that we have a wageless recovery under way will ever see the light of day. And that’s really too bad, because it happens to be one of the most important stories of the year.

The report, by economists at Northeastern University, found that while national income rose by $528 billion between mid-2009 and the end of 2010, 88% of that growth went to corporate profits and only 1% went to workers’ wages. What’s more, the share of income growth going to wages was far lower than in previous recoveries.

It’s no surprise that corporations are doing well. In fact, U.S. corporations had a record year in 2010. The Federal Reserve estimates that corporations are now sitting on $1.9 trillion (that’s right, trillion) in assets. Many corporate boards and Wall Street firms have resumed the good times of lavish executive bonuses and largesse that defined the pre-collapse years. The problem is, unemployment is hovering around 9%. And even more alarming, workers’ wages are actually going down, even as CEO bonuses skyrocket again.

The report’s authors -- Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma – didn’t sugarcoat what these numbers mean in terms of our economic recovery:

The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome.

New York Times reporter Steven Greenhouse:

Professor Sum noted that the aggregate wage and salary figures exclude employer contributions to benefits and payroll taxes, while they include bonuses, overtime, commissions and tips.

He said that nonwage benefits rose in real terms by $27 billion during the first seven quarters of the recovery. “These small gains were exactly offset by a similar $27 billion loss in real wages and salaries over the same time period based on newly released data from the Bureau of Economic Analysis,” he said. “It was a wageless and jobless recovery.”

The study called that $27 billion loss in aggregate wages and salaries during the seven quarters after the recovery began “the first ever such decline in any post-World War II recovery.”

Corporations have increased their profit margin by reducing their workforces and forcing their remaining workers to work longer and harder to pad the bottom line. And how are they repaying their workers? In many cases, by reducing wages and benefits under the guise of competitiveness.

Meanwhile, corporate America’s lobbyists are pressuring the US government to give them even more tax breaks, despite numerous reports that US companies are using loopholes to avoid taxes altogether in some cases. Most notably, GE, the nation’s biggest corporation, raked in $14.2 billion worldwide and paid no federal taxes.

The New York Times:

By taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.

So corporations want more tax breaks, bigger bonuses for top executives and they want workers to put in more hours for less money. That’s the recipe that’s created the highest rate of income inequality since the Great Depression.

Unless we see some significant policy shifts toward rebuilding the middle class and committing to a strong, vibrant union movement, the gap between corporate profit and workers’ wages will continue to grow, and our economic power as a nation -- no matter how much money Wal-Mart or Wall Street is making -- will continue to decline.

The Northeastern study concludes:

Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.

Posted on 07/05/2011Permalink

More posts by Steve Smith

Reader Discussion

that’s the capitalist system: the rich non-working owners get rich in direct proportion to the poverty of the working class.

The solution is socialism: worker ownership and control of the means of production, our economy, and our government

at 3:01 pm on Wed, Jul 20, 2011Posted by Pacigisto

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