Posts Tagged ‘profits’

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July 2, 2014

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This is Gabriel Zucman’s estimate of the percentage of U.S. corporate profits that has been reinvested in the main tax havens outside the United States.

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With 217,000 new jobs created in May, the U.S. economy is finally—finally, after 50 months!—back to the pre-recession employment level.

Except it isn’t. Not by a long shot. Not when we consider the “jobs gap”—which we can calculate in one of two ways: by the amount of time it will take at this rate to get back to pre-recession employment levels while also absorbing the people who enter the labor force each month (4 years) or by the difference between payroll employment and the number of jobs needed to keep up with the growth in the potential labor force (6.9 million jobs).

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And that’s not even considering the kinds of jobs that have been created or the pay for those jobs or the percentage of the unemployed who have been without a job for 27 weeks or more.

Or, for that matter, the fact that all those how have been lucky enough to keep their jobs or to get a new job are forced to have the freedom to work for a small number of employers who are able to capture and do what they will with the profits their workers create.

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A couple of weeks back I wrote that, when mainstream economists debate the causes of inflation, they focus only on labor costs and forget all about profits.

It’s as if the only cost of production is the price of labor, and the price of capital is entirely irrelevant. Therefore, if and when wages rise, they expect the overall level of prices to go up. In other words, the presumption is that capital will get its “normal” rate of return, which can only be safeguarded from wage increases by raising the price of output.

Well, today on the Wall Street Journal web site, Josh Bivens pushes back and argues that

what’s really striking about price growth since the end of the Great Recession is how much of it has been driven by rising profits, not rising labor costs. In fact, labor costs have been essentially flat between the end of the Great Recession and the first quarter of 2014. Profits earned per unit sold, on the other hand, have been rising at an average annual growth rate of nearly 9% since the recovery’s beginning. To the degree that there is any inflationary pressure in the U.S. economy over that time, it is surely not coming from labor costs. . .

prices in the non-financial corporate sector rose an average of 1% per year since the end of the Great Recession. But fully 100% of this increase can be explained by rising unit profits. Unit labor costs can account for 8% of price growth over this period while the other influences account for negative by 8% of the rise in price growth.

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