The profit share (in the second chart) is the highest it’s been in the postwar period, while the labor share (in the first chart) has fallen to its lowest level.
This is precisely what mainstream economists—both neoclassical and Keynesian—don’t want to talk about: the profit share is high because the labor share is low. The data indicate that, both in the run-up to the crash of 2007-08 and now during the Second Great Depression, the rate of exploitation in the United States has been increasing.
Once again, class rears its ugly head.
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The message here is an important one, worthy of stress. But … a technical quibble: the two graphs don’t really show what is usually meant by the wage and profit “shares.” Instead they show, respectively, (total wage compensation/GDP) and (corporate profits/GDP). Distributive shares are usually defined as fractions of social net income or value added, not GDP, so that the sum of shares is 100%, by definition. Here, the scale of the measures is hard to read, but checking the source makes it clear that the sum of the current values in each of the graphs is 0.55, considerably less that 1.00. The difference is accounted for, basically, by (a) other forms of income beyond the two measures here, and (b) all the other factors that enter into the NIPA accounting difference between domestic or national income and GDP.
A cleaner sense of the trends is had by looking at the ratio of “profit” to “wages” (appropriately measured). That graph looks somewhat different, although it still makes broadly the same point: profit is rising and payments to employees are falling as income shares. Hence, my comment is something of a “quibble.”
But not entirely: the graph on the left above would give the impression that worker incomes have been more-or-less continuously in decline since about 1970 (the peak, as shown). But that periodization has more to do with the denominator of the ratio than the numerator. In reality, it is only in the period after 1980 that the shift in shares really gets going, and most of it has occurred in the last ten years (so the graph on the right is a better guide in this sense).
Also, FWIW, that more recent period is when the shift *within* the profit share, towards greater returns to financial (FIRE) sectors, is more pronounced, which raises numerous accounting questions concerning NIPA data (and trends) in general. For example, why should accelerating bonuses in the financial sector be automatically accounted for as an equivalent acceleration in value added, and in GDP (as is done), rather than as simply the capture by one sector of value or income that could and would otherwise have been reaped elsewhere? Accounting choices like this will have the effect of accentuating the differences between the two graphs above (where GDP is the measure in the denominator). But … that’s an issue for another day.
You’re right, Bruce.
One problem stems from relying on charts compiled by someone else, since for reasons I don’t understand the FRED site has decent data series (like profits and wages) but doesn’t allow calculations (like profit and wage shares in terms of net income)—and I didn’t have the time to do my own calculations and graphing.
The second, more significant problem is in the national income data themselves, in which both wages and profits in FIRE are counted as value added within that sector instead of transfers or captures of value added created elsewhere. So, yes, the opposite movements of the profit/GDP and wage/GDP ratios are more indicative of the possibility of a rising rate of exploitation from the mid-1970s onward than they are confirmations of that trend.
[…] the dots among the falling wage share, rising inequality, and asset price inflation. And just this past July, I pointed out that mainstream economists—both neoclassical and Keynesian—didn’t want to […]