Unemployment and the corporate profit glut

from David Ruccio

Mainstream economists continue their endless debate about whether the obscene level of unemployment in the United States is structural or cyclical. It’s neither: it’s the result of the corporate profit glut. 

Rebecca Wilder makes a convincing case that the “corporate saving glut”—the excess corporate saving rate as the residual of the Current Account (external saving) net of government and household excess saving—explains a large part of the current unemployment rate. The idea is that “when firms do not reinvest corporate profits, the lack of income flow manifests itself into the unemployment rate.” Her conclusion is that

If the corporate excess saving glut just equaled zero, i.e., firms invested and saved at the same rate, the unemployment rate would be 5.8%. Now, if the corporate saving glut fell below zero to -2%, i.e., firms reinvested in the economy by way of capital investment in excess of saving, the simple model implies an unemployment rate of 4.7%.

One approach, then, is to figure out how to get corporate America “to drop the saving glut and re-invest in the economy.” The other is to allow those who actually produce the profits to decide how they should be reinvested in order to create more jobs.

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