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Whose sweet spot?

from David Ruccio

profit shares

wage shares

Economic journalists, like Neil Irwin, are falling all over themselves celebrating the strength of the current economic recovery. 

According to the latest data from the Bureau of Labor Statistics, 313 thousand new jobs were added in February. The official unemployment rate remained at a relatively low 4.1 percent. Hourly wages grew at an annual rate of 2.6 percent. And so on.

Here’s Irwin:

This is not the kind of data you expect in an expansion that is nine years old, or out of a labor market that is already at full employment. . .

the February numbers are a delicious sweet spot for the economy. Many more people are working, including people who hadn’t even been in the labor force. If that trend continues — and it’s worth adding the usual caveat that each month’s jobs numbers are subject to revision and statistical error — there’s no reason to think this expansion is reaching its natural end.

What Irwin and his colleagues fail to mention is this is an economic recovery that, as in previous years, continues to be spectacularly one-sided. It’s all on capital’s terms.

Let’s look at some other numbers, as illustrated in the charts at the top of the post. The profit share (the blue line in the top chart) has in fact rebounded nicely since the depths of the Great Recession—from a low of 6.2 percent in the fourth quarter of 2008 to 11.9 percent in the third quarter of 2017 (the latest period for which data are available). And that’s true across the board—in both major sectors, nonfinancial (the red line) and financial (the green line). Profits quickly recovered from the crash and, as a result of government economic policy and capital’s own decisions, they’ve stayed at or near the peak of the pre-crash period.

Meanwhile, workers are still waiting for their recovery. The wage share (in the second chart), while currently higher than its nadir (52.1 percent in the third quarter of 2014), is still (at 53 percent) only equal to its previous low (in 2006)—and therefore much lower than it was in the midst of the Great Recession and, on average, for much of the postwar period. Even with lots of new jobs and low unemployment, workers are still getting the short end of the stick.

So, Irwin is right about one thing: the current numbers are a “delicious sweet spot”—for capital, not labor. Capital is getting all the workers it wants, to make even more profits. And workers continue to be forced to have the freedom to find jobs and then to labor in return for a historically low share of what they produce.

No, there is no natural end to this one-sided expansion. Only a fundamental transformation in economic institutions, not pie-in-the-sky promises, will actually benefit American workers.

  1. March 15, 2018 at 11:13 pm

    This article is valid and informative economic analysis. Reliable and germane facts for those willing and able to ferret them out, such as the smart and skillful Dr. Ruccio.

  2. patrick newman
    March 16, 2018 at 10:57 am

    Same for UK except that there are signs that the jobs ‘bonanza’ may be coming to an end with the first substantial rise in registered unemployed. It may be a one month blip but the economy has slowed and growth is the lowest of the G7 and G20. Arguably the Brexit effect but austerity is still ‘flourishing’! The wages data may not reflect the growth in poor quality jobs with degraded terms and conditions of employment but when the next recession comes (not an if proposition) the shake out of jobs will be very rapid which will reinforce the descent into recession as more security of employment tends to impede the pace of falling aggregate demand.

  3. Edward Ross
    March 16, 2018 at 10:01 pm

    Some would probably say I am a sceptic, but based on my observation here in Australia it continues to amaze me how academics in general seem prone to accepting politically driven statistics on unemployment figures without question. For example here in Australia when you look at the official figures closely one sees that firstly if one works more than one hour per week they are classed as employed then those on various job retraining schemes for the unemployed are not counted in the unemployment figures. My point here is that from my logic created from real experience in the real world I believe politically driven statistics should require some level of substantiation before economists postulate assumptions on what may turn out to be false information’. Here if I remember correctly Julien Edney stated ;

    ” An elementary rule of logic is that when there is a contradiction anywhere within a theorem, the whole the whole theorem is false.” Julien Edney PAE vol 31 2005

    From my experience and observation these manipulated statistics for political purposes; that then appear to be accepted by economists’, are what makes the general public sceptical of political and economic claims.

    The irony of this situation is described by Lars Syll comments , So Irwin is right about one thing: the current numbers are ‘a delicious sweet spot ‘ – capital and labour. Capital is getting all the workers it wants , to make even more profits, and workers continue to be forced to have the freedom to find jobs and the to labor to return for a historically low share of what they produce.”

    On behalf of the workers and under employed I thank you Lars Syll
    Ted

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