NCPA - National Center for Policy Analysis


November 19, 2004

There have been reports suggesting that workers are not being paid enough in light of the recent upturn in corporate profits. But economist Alan Reynolds of the Cato Institute says that workers are not being left behind, adding that it's important to look at both wages as well as benefits.

Looking at data for the year ending in the third quarter of 2004, Reynolds notes that:

  • Compensation of employees was 64.1 percent of national income, while corporate profits amounted to 11.5 percent.
  • Hourly nonfarm compensation was up 3.7 percent, blending together a 6.9 percent rise in benefits with a 2.5 percent rise in wages.

Reynolds adds that, when part of proprietor's income is attributed to labor, labor's share of income has averaged 70.5 percent of national income over the past 50 years and has remained within a narrow range of that average.

Overall, the share going to corporate profits rises relative to workers during a recovery, while it declines sharply in recessions after interest rates and labor costs peak. Employees' share of declining national income looks high in recessions because profits are falling, not because pay is good.

Source: Alan Reynolds, "Mythology of wages vs. profits,", November 16, 2004.


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