Robber Barons Revisited, Revised

My post earlier this week, tracing corporate profits and wages as a share of gross domestic product, offered a crude measure of the growing share claimed by profit and the declining share claimed by workers.  But, as my real economist friends Larry Mishel and Dean Baker point out, there is a lot of background noise on both sides of this equation.

  • GDP includes a lot of economic activity for which the distribution of wages and profits is irrelevant, including production by the government and nonprofit sectors, the imputed value of owner-occupied housing [1]), and the share of gross output (growing since the early 1970s) that goes to depreciation, to replacing worn-out capital goods.[2]
  • The wage and salary side of the equation includes many of the stock options reported on executives’ w-2 forms as wages, and does not include (in the series I used in the previous post) the employers’ share of non-wage compensation—including payroll taxes, health care, and pensions.

So, to get rid of as much of this noise as we can, we have to narrow our attention to the distribution of corporate sector income: how much goes to profits, how much to wages and benefits?  This is the approach taken by Larry and his colleagues at EPI [3], whose calculations are reflected in the graph below [4].  Of note here is the higher share claimed by corporate profits in the first postwar decades, falling off in the 1970s.  This, at least in part, animated the business assault on the institutions and policies of the New Deal.  As that assault progressed, the share claimed by corporate profits grew–most remarkably across the last business cycle, which has pushed profits to their highest share since World War II.

  1. [1] In GDP, the purchase of a new house is treated as an investment; the ownership of the home is treated as a productive activity in which a service is assumed to flow from the house to the occupant over the economic life of the house
  2. [2]  Dean Baker, The Productivity to Paycheck Gap: What the Data Show (CEPR, 2007)
  3. [3] See Lawrence Mishel and Heidi Shierholz, Sustained, high joblessness causes lasting damage to wages, benefits, income, and wealth (EPI, August 2011)
  4. [4] These numbers still include some stock options on the wage side; EPI is working on an adjustment to the data that would weed these out
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