As a percentage of GDP, corporate profits are currently at an all time high, while wages are at an all time low using the same measurement. CNN Money explains why:
“That’s how it works,” said Robert Brusca, economist with FAO Research in New York, who said there is a natural tension between profits and the cost of labor. “If one gets bigger, the other gets smaller.”
Profits accounted for 11.1% of the U.S. economy last quarter, compared with an average of 8% during the previous economic expansion. They fell as low as 4.6% of GDP during the recession.
“Corporate profits took a big hit in the recession like everything else, but they’ve seen a massive bounce back,” said Heidi Shierholz, an economist with the Economic Policy Institute, a liberal think tank. “Wages are determined by what’s going on in the labor market and we haven’t seen a big bounce back there.”
She goes on to soberly analyze this trend, discarding the typical political hyperbole:
“It’s not because bad capitalists are keeping all the money,” said Brusca. He said that businesses with high labor costs have either gone under or moved offshore.
Shierholz said she doesn’t think it’s bad that business profits have risen. But the downward pressure on wages is hurting consumers’ ability to spend, and thus the need for businesses to hire more people.
“[Businesses] have a capacity to employ more people, but it makes no sense to hire more people until you have demand for your stuff,” she said.