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The wages of caution

With unemployment hovering around 9 percent a full two years after the economy turned the corner, the current expansion has been called a "jobless recovery." But it also should be called a "wageless recovery."
That’s the conclusion reached by a team of researchers from Northeastern University who studied the economy’s growth since the end of the 18-month Great Recession in June 2009. What’s more, they say this recovery is unlike any other in more than six decades because of the "absence of any positive share of national income growth due to wages and salaries received by American workers."
The study’s authors-Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma-write that from the start of the recovery through the end of the first quarter of 2011, national income increased by $505 billion. But none of that growth came from a rise in aggregate wages and salaries.
So what accounted for nearly all of the growth? Pretax corporate profits, which rose by $465 billion-or 92 percent of the total.
The researchers compare this recovery to other post-recession periods since 1975. Of the four, only one-2001-03-saw corporate profits account for more than half (53 percent) of national income growth. And in 1991-92, corporate profits’ share was minus 1 percent, while aggregate wages and salaries accounted for 50 percent.
To explain why the current recovery is different, the researchers point to productivity growth of roughly 5.7 percent over the seven-quarter period ended March 31. While impressive, they write, these improvements "have not yielded any increase in the real hourly or weekly earnings of the average U.S. worker. These gains in labor productivity have primarily been used to boost aggregate corporate profits to a degree not seen … since before World War II."
This study does not examine what’s become of the increased profits, but the Federal Reserve’s recent quarterly flow-of-funds reports paint a clear picture: Corporate cash as a percentage of total assets has risen to the highest level in a half-century.

After the shocks of the financial crisis, it’s not surprising that many employers have chosen to play it safe. But without willingness to invest, add staff and boost wages, momentum for this recovery will be hard to achieve.

7/1/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.


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