By historical standards, the economic recovery in the United States has been unfair. It has devoted too big a share of income growth to corporate profits, too little to workers.
Indeed, in 2004, wages and salaries received the lowest share of total national income ever recorded, with the data going back to 1929, the year the Great Depression began, note Isaac Shapiro and David Kamin, economists at the Center on Budget and Policy Priorities in Washington, in a new study. By contrast, corporate profits' share of national income last year, at 11.4 percent, was "exceptionally high," the study found. The trend has both political and economic implications. For example:
Wage earners suffer: Democrats will surely blame Republicans for the weak job and wage scene. "The distribution of earnings is becoming more unequal," complained Sen. Jack Reed (D) of Rhode Island earlier this month. Since last May, when the economy began creating jobs again, average hourly earnings of nonfarm production workers have actually fallen - by 0.7 percent - after adjusting for inflation.
Investors benefit: High corporate profits are always good news for investors. Last month, the Dow Industrial Average notched its biggest one-day gain since 2003. "There are many factors that affect stock market prices," notes Mr. Shapiro. "But robust corporate profits always help."
Social Security weakened: If wages were growing more robustly - and not so inequitably - the financing gap in the Social Security system would not be so big. In fact, economics, more than demographics, are causing a large part of the Social Security gap, says Jack Bivens, an economist at the pro-labor Economic Policy Institute in Washington.
In 1983, the year of the last major reform of the system, payroll taxes were imposed on 90 percent of all earnings. But over the past four years, the cap has covered only an average of 85 percent of earnings. That's because the cap - $90,000 this year - has not been increased sufficiently to make up for the more rapid growth in income of prosperous Americans.
"This erosion of the taxable base of Social Security, driven by rising earnings inequality, has greatly exacerbated the long-run outlook of the system," Mr. Bivens notes in a new study. Raising the cap so it again covers 90 percent of earnings would cover 40 percent of the gap in financing over the 75-year planning period used by the Social Security Administration, says Bivens.