But that hasn't happened in the cycle since then.

As of today, worker compensation is only 45.4 % of GDP, and that calculation isn't off the back of my lunch napkin but by Nigel Gault, Global Insight's widely-followed managing director of North American macroeconomics.

Doesn't sound like much of a drop? Each percentage point equals $133 billion out of the collective pockets of workers. Also consider that wages and salaries as a share of GDP are now equal to their lowest level since 1929, the incept date for the data we're using.

Meanwhile, corporate profits as a share of GDP rose to 12.4 percent today.

How high is that? It's the highest since 1950. In 2000, at the height of the bubble economy, profits were only 11 percent.

This reversal of fortunes between business income and the income of the workers businesses employ is one of the most disturbing distoritions of the Bush II economy.

I have not been a supporter of the Economic Policy Institute -- and they don't use this yardstick for wages -- but how can you avoid concluding that, in aggrregate, these numbers justify the EPI's attacks on the national jobs recovery as a "wageless" one?

However, there is another factor that might have raised the return on capital relative to labour in a lasting way, namely the integration of China and India into the world economy, along with their vast supply of cheap labour. To the extent that this increases the global ratio of labour to capital, it will lift the relative return to capital. Outsourcing may not have destroyed many jobs in developed economies, but the threat that firms could produce offshore helps to keep a lid on wages. As a result, the share of profits in national income could stay relatively high for a period. Labour's share would remain low, though workers may still be better off if the cake itself is growing faster. But this is not a reason to expect profits to continue to grow faster than GDP; indeed, in a competitive market profit margins will eventually narrow. Even if outsourcing reduces costs, competition will eventually force firms to reduce prices, distributing the benefits back to consumers and workers. [More]

Labels: economics