Corporate profits have rarely swept up a bigger share of the nation’s wealth, and workers have rarely shared a smaller one.
The lopsided split is especially pronounced given how low the official unemployment rate has sunk. Throughout the recession and much of its aftermath, when many Americans were grateful to receive a paycheck instead of a pink slip, jobs and raises were in short supply. Now, complaints of labor shortages are as common as tweets. For the first time in a long while, workers have some leverage to push for more.
Yet many are far from making up all the lost ground. Hourly earnings have moved forward at a crawl, with higher prices giving workers less buying power than they had last summer. Last-minute scheduling, no-poaching and noncompete clauses, and the use of independent contractors are popular tactics that put workers at a disadvantage. Threats to move operations overseas, where labor is cheaper, continue to loom.
And in the background, the nation’s central bankers stand poised to raise interest rates and deliberately rein in growth if wages climb too rapidly.
Workers, understandably, may feel they are getting a raw deal.
“Sure, you can get a job slinging hamburgers somewhere or working in a warehouse,” said Christina Jones, 53, of Mobile, Ala. Ms. Jones spent eight months searching for a job with living wages and benefits, after getting laid off from a paper company where she had worked for nearly 13 years. Dozens of interviews later, she landed work last month at a concrete crushing company as an accounts payable clerk for $14 an hour — two-thirds her previous salary.
“You hear, ‘Oh, the unemployment rate is as low as it’s ever been,’” Ms. Jones said, but “it was discouraging.”
Businesses have been more successful at regaining losses from the downturn. Since the recession ended in 2009, corporate profits have grown at an annualized rate of 6.5 percent. Several sectors have done much better. On Friday, for example, banks like JPMorgan Chase and Citigroup reported outsize double-digit earnings in the second quarter.
Yearly wage growth has yet to hit 3 percent. And when it does, the Federal Reserve — which has a mandate to keep inflation under control even as it is supposed to maximize employment — can be expected to tap the brakes.
As Fed policymakers have explained, allowing the economy to run too hot “could lead eventually to a significant economic downturn.” And persistent wage increases, unlike growing profit margins, are considered a signal that the heat is on.
The bank’s primary method of cooling the economy is to dampen spending and investing by raising interest rates and making it more expensive to borrow money — an antidote that could hurt profits in some sectors as well as trim payrolls. The thinking goes like this: Better to inflict some pain now, in the form of higher joblessness and sluggish wage growth, than to allow more pain later.
After keeping benchmark interest rates at near-zero levels during the recession, the Fed has been gradually nudging them up. So far this year, it has raised rates twice.
With tariffs piling up and potentially pushing prices higher, odds are that the Fed will push through two more increases before 2018 ends. The Labor Department reported this week that one inflation measure, the Consumer Price Index, had increased 2.9 percent in 12 months — the highest level in six years.
Discomfort with a tight labor market and growing worker bargaining power is to some degree baked into the Fed’s makeup. Pressure to raise wages during expansions will inevitably be seen as precursors to insidious inflationary pressure.
The conventional wisdom that higher wages inevitably lead to higher prices, however, is flimsy, some economists argue.
“It theoretically makes sense,” Michael R. Strain, an economist at the conservative American Enterprise Institute, said of the link between wage increases and inflation, “but empirically, it’s increasingly difficult to find a real strong link.”
A study by the Federal Reserve Bank of Cleveland, for example, concluded that “the connections among wages, prices, and economic activity are more akin to a tangled web than a straight line,” and that “the ability of wages to help predict future inflation is limited.”
Regardless, there is plenty of evidence that workers have yet to receive their fair share of this most recent expansion — or even the previous one.
Since the century’s start, labor’s share of the nation’s income has sunk to the lowest levels in decades.
In 2000, when the jobless rate last fell below 4 percent, corporations pulled in 8.3 percent of the nation’s total income in the form of profits; wages and salaries across the entire work force accounted for roughly 66 percent.
Now, the jobless rate is again fluttering below 4 percent. But corporate profits account for 13.2 percent of the nation’s income. Workers’ compensation has fallen to 62 percent.
If workers’ share had not shrunk, they would have had an additional $532 billion, or about $3,400 each, said Jared Bernstein, an economic adviser to former Vice President Joseph R. Biden Jr. And at this point in the recovery, shifting some of those corporate profits to workers would have no effect on inflation, he noted.
In the tug of war between workers and investors, Americans living on a paycheck have seldom been left with a shorter end of the rope.
Fredy Amador has spent years working for various temporary help agencies, packing boxes of baby clothes, quality-checking packages of popcorn and doing other work at warehouses across the Chicago area. Despite what he says are frequent promises of permanent work, he has never been able to escape temp status.
Recently, his situation got worse. He used to receive holidays and paid vacations, he said, but the agency that offered them lost its contract to another firm that did not. “They want to avoid all the benefits,” said Mr. Amador.
Mr. Amador, 34, said he earns $12 an hour, far less than the $20 an hour or more earned by permanent employees doing similar work. For extra money, he drives for the ride-hailing service Lyft on the weekends. “Even if you have really good skills, you have to start as a temp,” said Mr. Amador, who moved to the United States from Honduras 12 years ago. “They never give you an opportunity to move on.”
Economists have offered various explanations for why workers are not doing better: the steady weakening of labor unions, the ability of American companies to find cheaper labor abroad or automate further, piddling productivity growth and the rise of superstar companies that are extremely efficient with a relatively small labor force.
The recent tax overhaul has further pumped up corporate earnings. Promises that lower tax bills for businesses would translate into higher wages have yet to materialize. Higher gas and medical care costs have eaten away at whatever gains most workers have made.
Nor are those extra profits going into business expansion. Since the first of the year, American companies including Apple, Wells Fargo and McDonald’s have announced nearly $680 billion in buybacks of their own stock, according to the research firm TrimTabs. In essence, they are directing a majority of the windfall to investors and chief executives, who tend to have large stock-based compensation packages.
Profits are also financing foreign mergers and acquisitions. “A lot of U.S. businesses are looking abroad to see what they can buy,” said Jason Gerlis, managing director of TMF Group U.S.A., a global consulting firm, “because it’s easier to finance or capitalize offshore.”
The reason is a change in the tax law that limited interest deductibility on domestic investments, but not on those abroad. International deals in the first half of 2018 nearly doubled compared with the same period last year.
The United States may be leading other big industrialized countries in economic growth, but its labor force does not fare well in comparison. American workers’ share of their country’s total output fell much sharper and faster than the average reported by the Organization for Economic Cooperation and Development. The United States also had a larger proportion of low-wage workers than nearly every other member.
When the economy was struggling, employers became accustomed to inboxes flooded with résumés and snaking lines of eager applicants. Many may have forgotten, or never learned how, to compete for workers.
When it comes to complaints of a labor shortage, as Neel Kashkari, president of the Minneapolis Fed, has said: “If you’re not raising wages, then it just sounds like whining.”
Follow Patricia Cohen on Twitter: @PatcohenNYT
Ben Casselman
