Where is all the money? The Wageless, Profitable Recovery

http://economix.blogs.nytimes.com/2011/06/30/the-wageless-profitable-recovery /
The Wageless, Profitable Recovery By STEVEN GREENHOUSE
Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.
According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.
The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.
“The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome,” wrote the report’s authors, Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma.
According to the Bureau of Labor Statistics, average real hourly earnings for all employees actually declined by 1.1 percent from June 2009, when the recovery began, to May 2011, the month for which the most recent earnings numbers are available.
The authors said another factor explaining the weak performance for aggregate wages and salaries was the slow growth in weekly hours during the recovery. At the same time, worker productivity has grown just under 6 percent since the recovery began, helping to keep employment down while lifting corporate profits, the study said.
Professor Sum noted that the aggregate wage and salary figures exclude employer contributions to benefits and payroll taxes, while they include bonuses, overtime, commissions and tips.
He said that nonwage benefits rose in real terms by $27 billion during the first seven quarters of the recovery. “These small gains were exactly offset by a similar $27 billion loss in real wages and salaries over the same time period based on newly released data from the Bureau of Economic Analysis,” he said. “It was a wageless and jobless recovery.”
The study called that $27 billion loss in aggregate wages and salaries during the seven quarters after the recovery began “the first ever such decline in any post-World War II recovery.”
The study said that of the previous recoveries since the 1970s, the recovery following the 2000-1 recession was next worst in terms of the share of increased income going to wages and salaries. The study found that 15 percent of income growth went to aggregate wages and salaries in the six quarters after the recovery began following that recession, while 53 percent went to corporate profits. The growth in national income can also go to net interest, rental income or proprietors’ income.
The story was very different for the recovery that began in 1991. In that recovery, 50 percent of the growth in national income went to wages and salaries during the first six quarters after the recession ended, while corporate profits actually fell by 1 percent during that period.
With regard to corporate profits, the report noted that the preliminary estimate for the first quarter of 2011 was $1.668 trillion, an increase of $465 billion of just under 40 percent since the recovery began.
“Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative,” the report concludes. “The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.”
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Home Guy wrote:

On a related note:
Microsoft, Apple, Google ask Congress for tax holiday http://blog.seattlepi.com/microsoft/2011/06/20/microsoft-apple-google-ask-congress-for-tax-holiday /
Microsoft is among several U.S. corporations, including Apple and Google, that are lobbying Congress for a year-long income tax holiday that would allow them to transfer offshore cash to the United States at a lower tax rate, The New York Times reports.
Microsoft has $29 billion in offshore cash, for example, and is paying the $8.5 billion for Luxembourg-based Skype with offshore funds. The companies are asking for a one-year rate reduction on international revenue from 35 percent to 5.25 percent, saying the break would inject much-needed trillions into the U.S. economy, the Times reports.
However, the newspaper points out, the Bush administration offered a similar tax holiday in 2005, and 92 percent of the money was returned to shareholders. A study by the National Bureau of Economic Research found the program “did not increase domestic investment, employment or research and development.
=================== http://www.nytimes.com/2011/06/20/business/20tax.html?_r=3&hp
“For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.
But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage.
Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.
This money comes from overseas operations and in some cases accounting maneuvers that shift domestic profits to low-tax countries. The study concluded that the program “did not increase domestic investment, employment or research and development.”
Indeed, 60 percent of the benefits went to just 15 of the largest United States multinational companies — many of which laid off domestic workers, closed plants and shifted even more of their profits and resources abroad in hopes of cashing in on the next repatriation holiday.
Merck, the pharmaceutical giant based in Whitehouse Station, N.J., was one of those big winners. The company brought home $15.9 billion, second overall to Pfizer’s $37 billion. It used the money for “U.S.-based research and development spending, capital investments in U.S. plants, and salaries and wages for the U.S.,” a Merck spokesman, Steven Campanini, said last week.
According to regulatory filings, though, the company cut its work force and capital spending in this country in the three years that followed.
Merck used the cash infusion to continue paying dividends and buying back stock for the benefit of shareholders and executives — even as it was rocked by more than $8 billion in costs to settle a variety of disputes after executive missteps. Merck had to pay billions in back taxes to the I.R.S.; billions more to consumers suing because of the dangerous side effects of the painkiller Vioxx, and hundreds of millions to the Justice Department, which had accused the company of defrauding Medicare.
The tax break, part of the American Jobs Creation Act, lacked safeguards to ensure the companies used the money for investment and job creation in the United States, as Congress intended. “There were no direct tracing requirements,” said Jay B. Schwartz, head of Merck’s international tax unit until 2006. “So once the money came home, it gave you great flexibility.”
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

This is something I've been saying is an obvious step that could bring an immediate boost to the US economy. It should have been done long ago. Instead all we hear is carping about the amount of profits US companies keep abroad to avoid paying taxes. Reducing the tax rate so that they would bring the money back and use it here would be a clear boost to the economy. Besides the cash itself, it would also send a positive message to business, instead of the demonizing of late.
Another similar step would be to shorten the depreciation schedule and allow any investments made in the next year to be written off over the next two or three years instead of the normal longer schedule. That would give businesses that are considering capital expenditures a solid reason to do it now.

Even if it's returned to shareholders it's money in their pockets. And unlike Obama's proposed $500mil new stimulus, it doesn't increase the deficit. If you wanted to you could make the tax break conditional that the money is used on capital expenditures, hiring, etc, but as always that is difficult to track and determine.

Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

What makes you think they would bring the money back to America even if taxes were lowered somewhat?
Taxes would have to be lowered by a tremendous amount to compensate for the wage differential between the U.S. and the developing world; and to compensate for the higher costs here due to health care and environmental regulations. I don't think we can lower taxes that much without blowing another big hole in the Federal budget.
-- Steven L.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Because, while the US is a dangerous place for money right now, the rest of the world is worse. There should be *NO* tax on repatriating money. It's already been taxed. It's counterproductive to keep it out. It nets zero revenue now.

Strawman.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Simple. The money will go where the taxes are low. The US can get 5% of billions, or 35% of nothing. Which is the smarter move?

See above. 5% of billions or 34% of nothing.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Steven L. wrote:

Taxes SHOULD be lowered a tremendous amount!
The current corporate tax rate in the U.S. is between 35-47%, depending on the state. At the federal level only, our 35% corporate tax rate is second only to Japan amongst civilized countries.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

THIS is the reason they don't want to bring it home. BTW: Someone mentioned double taxation, and for most places they can take a credit for foreign taxes paid. It is just that if they have to pay the additional to bring it home, they won't.
--
People thought cybersex was a safe alternative,
until patients started presenting with sexually
  Click to see the full signature.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Because if you read the article, when it was done in 2005 the money was brought back.

It's not that the money has to be used to go head to head in competitions were the USA is at a clear disadvantage. It's a case where a company like Microsoft or Boeing could use that money here as they see fit. It could be anything from building a new office building, to funding new startups, as examples.

Right now the USA is getting zero on that money abroad, so it has no effect on the budget.

Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I'm shocked! Shocked!!!
[...]
HB
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I think change will come when American workers realize that they have power as American consumers.
If the big corps don't pay the workers well, stop buying their stuff.
Mark
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 10/1/2011 8:29 PM, Mark wrote:

There you go!
Actually, given a choice, most Americans would buy from a corporation that doesn't pay its worker "well."
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

We prove that every day. We complain about jobs going to China, then we go searching for the lowest possible price for what we want to buy. The stores doing well in this country are Wal Mart and Amazon because we'd rather save a few dollars and let the local retailer go out of business.
Sometimes, it is difficult NOT to do that. This past summer I bought an item on line and saved over $400. For 50 bucks, I'd go local; for 400, I'm going where I can save.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

What makes you think the local retailer is offering wages that are much different from Walmart? As for the products the local retailers stores are as chocked full of products from China as are Walmart.

Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Where did I say that? I didn't. Local retailers often charge a tad more than a big discount store. They often handle brands not in the big stores (regardless of country of origin). They also offer service, and customer care that big retailers can't. But people will forgo that to save a few bucks.
When I bought a new washing machine (made in USA), I paid $50 more at a local store rather than Home Depot. I also felt the extra care with delivery and so forth made it a good choice. When I bought my Weber Summit grill (made in USA), the difference was $400 compared to an internet seller, so the local guy lost out. For the same 50 bucks, he would have been my choice.
But the majority of people are looking to save a few pennies, no matter what the cost.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Ed Pawlowski wrote:

China vs. U.S. In my view, this is not a zero-sum game. From our side, we get cheaper products than the domestic variety. From China's side, they get revenue that they can use to buy something created in the U.S.
There is NO ideological difference between choosing to buy from China and choosing to buy from a guy in the next town. It's called competition.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Generally I agree. But China is 1 big monopoly in that it regulates its exchange rate. Of course we are in a sense the beneficiaries, since the excess dollars they falsely "earn" by keeping their currency undervalued, are used to buy our debt. Thus, to get rid of our debt, and punish the Vhinese, we might be best off with some inflation, not too much, something like 5%/year.
Just a thought.
--
Best regards
Han
email address is invalid
  Click to see the full signature.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

problems we are currently experiencing boil down to the Pogo Principle.. We have met the enemy and he is us. This is only one illustration.
--
People thought cybersex was a safe alternative,
until patients started presenting with sexually
  Click to see the full signature.
Add pictures here
âś–
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Related Threads

HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.