Monday, May 22, 2023

Labor has gained since the pandemic, but corporations have been sucking up the lion’s share of those gains


 - by New Deal democrat

I neglected to add a link to my Weekly Indicators piece at Seeking Alpha on Saturday, so here it is.

Also, I’ve been trying to understand why, with all of the long and short leading indicators lined up in almost classic formation, no recession has started yet. I discussed that in another piece at Seeking Alpha as well (basically, a big decline in gas prices can do wonders for consumers, and the still-tight labor market is keeping wages ahead of inflation (especially since consumer inflation is being bigly distorted upward by how house prices and apartment rents are calculated).

And on the score of average American wage-earners keeping ahead of inflation, I thought I’d make a few observations in light of the question of whether monopoly pricing is a big part of the continuation of higher inflation, pace Menzie Chinn at Econbrowser.

First of all, yes average working and middle class Americans have been keeping ahead of inflation, especially as measured since before the pandemic started, as this first graph below does for real average hourly earnings (blue), real aggregate payrolls (purple), and real personal income (gray):

Real average hourly earnings are up 1.9% compared with right before the pandemic, real aggregate payrolls are up 4.5%, and real personal income is up 4.0%. 

And as the below longer term graph shows, all three of these measures are at new highs compared with any time before the pandemic:

So, to reiterate: yes, average Americans have done significantly better financially since the pandemic started, thanks in very large part to the two rounds of stimulus in 2020 and 2021 that acted as bridges during the time that part of the economy (restaurants and entertainment venues) were largely shut down.

But now . . . Let’s put that in perspective of how well corporations have done since the pandemic.

The first below graph is the exact same graph as the first one above, but with the addition of corporate profits after taxes (red), also deflated using CPI for uniformity):

All of a sudden those consumer gains are reduced to squiggles, as corporate profits increased by over 80% compared with right before the pandemic at their highest, and are still over 50% higher.

And here is the longer term version of that graph as well:

There were (justified!) complaints about corporate profits hiving off almost all the economic gains going all the way back to the 1990s - which now look like molehills compared with recent mountains.

Another good way of looking at this is by way of labor’s share of productivity gains, normed to 100 as of the last Quarter just before the pandemic started:

Labor share did increase sharply, and is still ahead of where it was at the end of 2019 by 1.2%. Even as of the last measurement (Q1 2023), it is still ahead of any time during the last expansion of 2009-2019.

But measured over the longer term, labor share is still pitiful:

And even by 1990 labor’s share of productivity gains had been gradually going down ever since the end of WW2.

To put it simply: labor was gifted with massive stimulus in response to the pandemic in 2020 and 2021. And over time corporations with market power have been sucking up the lion’s share of those gains.