Working as designed: High profits and stagnant wages



A wonky point: some analysts choose to look at profits as a share of GDP, or the economy, but this is analytically incorrect. The profit share of GDP provides a nice shorthand method but it is flawed because there are sectors of the economy that have little capital income by their nature—government and the non-profit sector. Consequently, when these sectors expand or contract the overall share of profits in the economy shifts. There’s also the problem of the proprietary sector where the categorization of income is problematic (how much of the income obtained by the self-employed, for instance, is salary versus profit). That is why economists studying profitability (including, for instance, a paper by Martin Feldstein and Larry Summers and one by Jim Poterba) have always focused on the corporate sector. In any case, the profit (capital income) share of national income in 2011 (2012 data not yet available) was also historically high, but comparable or below the share in 1965-66, 1996-97, and 2006.

No matter how it is measured this economy has achieved something remarkable, the ability to generate large returns to owners of assets even when the economy remains far below full employment. This did not happen by accident my friends.