Corporate Profits Rise…but Wages Fail to keep Pace with Inflation

Tuesday, February 28, 2012
American corporations continue to enjoy healthy profit margins, while the average worker is watching inflation outpace wages.
 
Earnings for businesses began to rebound in early 2010 and have continued to do well ever since. By the third quarter of last year, pre-tax corporate profits climbed to a record $1.97 trillion.
 
Meanwhile, the consumer price index, which is used to measure the rate of inflation, reveals that inflation went up 2.3% from last year to now. During this same period, average hourly earnings climbed only 1.5%.
 
Michael Feroli, chief U.S. economist at JPMorgan Chase, told Bloomberg that the decline in inflation-adjusted wages means it will be difficult for the economy to sustain growth because wage earners will not be able to increase their purchases of consumer goods. The tax cuts, stimulus spending and increases in social benefits by the federal government have helped make up for the weak earnings, but eventually the impact of those government fixes will level off.
-Noel Brinkerhoff
 
To Learn More:
Employment Cost Index - December 2011 (Bureau of Labor Statistics)

Recession Recovery Boosted Profits … but Not Wages (by Noel Brinkerhoff, AllGov) 

Comments

jeremiadjones 5 years ago
this is only part of the story. business earnings are swelled by quantitative easing and federal deficit spending, both of which devalue the dollars workers receive for their labor. meanwhile, the cpi grossly understates the true rate of inflation for working people; their inflation-adjusted wages are shrinking even faster than stated. consider also a harvard business school study of rental-housing affordability in 20 medium-sized cities for the period 2001-2009 which found that rents were static or up slightly, while median wages fell by about 15%: this reflects the fact that when a worker earning "legacy" wages loses his/her job, he/she rehires at the new, much lower prevailing wage. thus, even with the recent, election-year improvement in employment figures, many of these rehires are working for less than they did five or 10 years ago. needless to say, gov't remedies -- tax cuts, stimulus spending and extended benefits -- are not sustainable and only add to the workers' debt to foreign creditors while depreciating the value of their wages. and corporate profits remain dead money -- they aren't generating many new jobs because of the ongoing impoverishment of the people who constitute the demand side of the supply-demand equation. ... the picture is much worse than people seem to realize.

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