Myths Of Lagging Wages

Studies which have been widely reported recently in the media purport to show that wages paid to U.S. workers have declined while corporate profits have increased. But more reliable studies show that the opposite is true.

Here are some of the latest findings:

• Labor's share of national income has grown by about 4 percent since 1959.

• Also, it has remained above 70 percent since the late 1960s.

• While corporate profits have been erratic over the past 30 years, they have hovered between 10 and 12 percent of national income for most of the 1960s and into the 1970s.

• In the 1980s, profits dropped to less than 8 percent of national income.

• During the 1990s, they have returned to almost 9 percent -- still well below 1960s levels.

Part of the problem of arriving at reliable figures is that some economists use the Consumer Price Index to adjust compensation for inflation. But using the more reliable implicit price deflator, which is used to derive real measures of output and productivity, we find that:

• Real hourly compensation grew by 0.9 percent between 1993 and 1994 -- as opposed to 0.1 percent as calculated from the CPI.

• While real hourly compensation growth has slowed since 1959 in the non-farm business sector, this is due to a slowing in productivity growth.

• From 1959 to 1972, output per hour in the non-farm business sector grew at a 2.4 percent average annual rate, the same as hourly compensation.

• l But from 1973 to 1994, productivity growth slowed to 1 percent per year, just above compensation's growth rate.

Sources: Kenneth P. Voytek (National Alliance of Business), "The Myth of Lagging Wages," Investor's business Daily, January 8, 1996.