Monday, April 05, 2010

Profits, Wages and Unemployment

Figures that surprise
Mar 22nd 2010, 14:25 by Buttonwood

IF YOU need an explanation as to why political discontent is so widespread on both sides of the Atlantic, take a look at figures compiled by Dhaval Joshi of the hedge fund RAB Capital. This recovery has benefited companies a lot and workers not at all.

In the US, Joshi calculates that, in cash terms, national income has risen $200 billion since the depths of the recession in March 2009. But corporate profits have risen by $280 billion over that period, while wages are down by $90 billion. One would have to go back to the 1950s to find profits outperforming wages in absolute (cash) terms, and even then it was on a much smaller scale. In Britain, national income rose $27 billion in the last two quarters of last year. Profits were up £24 billion and wages just £2 billion.

The latest issue has a piece on this puzzle; US productivity has outpaced European largely because the US has been quicker to sack workers. This is a decidedly mixed blessing. In theory, it is good for resources (including labour) to be relloacted to more productive use. Thus it would be OK if the workers were quickly rehired by new, growing industries or if they were at least retrained, but there is little sign of such a positive development.

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