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Are Corporations Really Hogging Workers’ Wages?

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Posted on Apr 9, 2014

Photo by puroticorico (CC BY-SA 2.0)

By Andrew Kliman

(Page 2)

Although the compensation of many workers did lag behind productivity to some degree, it was misleading measurement that produced the whopping 40 percent gap the EPI tells us existed as of 2011. The truth is, it just isn’t the case that “the economy” could have afforded to close the supposed gap by increasing employee “compensation” in tandem with employee “productivity” as these terms are defined by the EPI. All we need to do to understand this is to add the supposedly missing compensation and see what happens.

The graph below looks at how income generated in production by U.S. businesses and nonprofits between 1972 and 2011 was divided up. The blue part is the percentage used to pay employees. (Before the recession of 2008 it was visibly stable. This fact alone indicates that, on average, employee compensation wasn’t declining compared with employee productivity.) The orange area represents non-income taxes, transfer payments such as fines and court settlements; the green, interest to lenders and various kinds of rents and royalties classified as rental income. The purple area is the supposedly missing compensation of production and nonsupervisory workers, the portion—40 percent as of 2011—that the EPI claims they would have been paid had they received the full benefits of their increased productivity.

Sources: See note 2.

In 2007, 2008 and 2009, the sum of these four types of income exceeded 100 percent. This means that if workers’ compensation had kept pace with productivity as these terms are defined by the EPI, then nothing—actually less than nothing—would have been left for the companies themselves. Profits paid to corporations and the income received by self-employed people and owners of unincorporated companies would have been negative. Thus, I don’t think it can reasonably be said that “the economy” could have afforded the alleged missing compensation.

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Furthermore, this analysis probably understates the consequences of closing the productivity/compensation gap because it excludes farmworkers as well as the approximately 20 percent of workers who are not counted as holding production or nonsupervisory positions.

Another graph shows what would have happened to the profits made by corporations and the incomes of unincorporated owners and the self-employed if typical workers had received their supposedly missing compensation. Profits and other business income have been relatively stable during the last four decades, but they would have declined precipitously if typical workers had received the compensation that the EPI regards as missing. By 2001, business income would have essentially disappeared, and between 2007 and 2009, would have been negative, as the graph shows.

Sources: See note 2.


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