November 26, 2014
The gods of national income accounting gave us some good news for Thanksgiving but it seems no one noticed. The data on corporate profits released in yesterday’s GDP report showed that the slight downward trend in shares in recent quarters is continuing. The profit share of net corporate income was 20.5 percent in the third quarter, down from a peak of 21.2 percent in the second quarter of 2013. Quarterly data are erratic but if we take a four quarter moving average we get the share was 20.2 percent in the four quarters ending with the third quarter, down from 21.0 percent in the four quarter average ending in the fourth quarter of 2013. That still up considerably from the 16.7 percent average since 1950, but clearly a step in the right direction. (Most of the drop is on the financial side, the profit share in the non-financial sector is still close to its peak.)
The shift away from profits could mean that workers will finally start to see some of the benefits of growth. However, there are two important cautions. First, most of the upward redistribution from 1980 to the present was not from wages to profits but rather from wages to high end workers. CEOs and hedge fund managers are getting labor income, or at least it is classified that way in the national income accounts.
The other point is that the economy is still not growing especially fast, in spite of what you read in the newspaper. GDP is up just 2.4 percent from the third quarter of last year. That is better than nothing, but with the labor force growing by close to 2.0 percent over this period, that doesn’t leave much room for wage growth even without upward redistribution.
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