Tuesday, April 23, 2019
Home Business Workers are finally seeing higher wages, but it's a fraction of the...

Workers are finally seeing higher wages, but it's a fraction of the company's record profits

The big news Friday is that for the first time since 2009, wages will rise over 3 percent. After years of sluggish wage growth, this is a significant milestone, and most economists say workers are likely to make strong profits for the foreseeable future.

The good news comes with two reservations.

The first is the 3.1 percent annual growth rate, which the Labor Department had slightly inflated on Friday due to some hurricane effects. Do you remember the really bad hurricanes in autumn 2017? In October 2017, wages were depressing, and when the Labor Ministry calculated the annual change in wages in October, it looked normal after a larger jump, as the figure was low last year. However, economists still believe that there will probably be more months with wage growth of more than three years.

The second drawback is that while wage growth is improving, it is still well below the norm and comes at a time when US companies are making record profits.

"I do not want to downplay the optimistic story here. It gets better. Wages are consolidating on a nominal basis for workers, "said Ernie Tedeschi, head of financial analysis at Evercore ISI and a former Obama administration economist. "But looking back, wage growth in 2000 was much higher."

(Washington Post)

In the 1990s, dot-com's wage growth was regularly 3.5 to 4 percent per month. These numbers seem dreamy today. (And after the cost of rising costs has been adjusted, employees are only up about 0.8 percent on Friday's numbers.)

Corporate earnings are at an all-time high, according to Howard Silverblatt of S & P Dow Jones Indices and government data. Numerous tax cuts have allowed companies to increase profitability, say many analysts and executives. However, companies spend a lot of cash on share repurchases and dividends, leaving only a little more to workers.

This is part of a long-term trend. Workers no longer receive the same "piece of cake" as in the 1950s-1990s. The share of work in business income has been steady since 2001 and sharply lower in the Great Recession. While corporate profits have since recovered and reached new highs, according to the Labor Department, the proportion of workers is not even as far back as it was before the crisis.

(Washington Post)

The bottom line is that workers spend nine years at a time when corporate earnings are off the charts. The most recent data on this phenomenon comes from the quarter that just ended in September, and it shows more of it: the workers still receive a low income share.

"Corporate earnings have never been so clear and staff compensation has been withdrawn for so long," a recent blog entry by the Federal Reserve Bank of St. Louis wrote.


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