Corporate Profits

Back on January 20, I analyzed a TD Economics study which was complaining that, despite significant increases in GDP/capita, Canadian's after-tax income hadn't increased much in the last 25 years.

I figured that the GDP growth had to be going somewhere and wrote:

"Anyway, the next question is what about the difference between 25.5% growth in GDP/capita and 9.3% growth in after-tax income. Since GDP is a measure of total income for the country, any growth that didn't go to people would have to either go to corporations or to the government. While the study notes this, it doesn't say anything further about the change in corporate income over this period - which seems pretty odd. Maybe corporations caused some of this gap and maybe they didn't, but if figuring out the source of the gap is the point of your study, wouldn't you want to look into it?"

At the time, I didn't really have any data on corporate profits so I left it at that, but I recently ran across the Feb 12-Feb 18 issue of the Economist which had a couple of articles (subscribers only) on corporate profits as a % of GDP. Here are the relevant quotes:

"UBS, a Swiss Bank, estimates that in the G7 economies as a whole, the share of profits in national income has never been higher. The flip side is that labour's share of the cake has never been lower."

and

"Over the past three years American corporate profits have risen by 60%, wage income by only 10%."

not to mention,

"there is another factor that might have raised the return on capital relative to labour in a lasting way, namely the integration of China and India into the world economy, along with their vast supply of cheap labour. To the extent that this increases the global ratio of labour to capital, it will lift the relative return to capital."

Now to be clear, I have no problem with corporations making profits or even much of a problem with corporate profits increasing as a % of national income (the one drawback being that given the unequal distribution of share ownership, this leads to greater inequality), I'm just putting this out there for the record so when you hear right wing folks blaming high taxes for the low dollar, the high dollar, the lousy weather, the breakdown in family values, the poor quality of television programming and the fact that after tax income hasn't grown at the same rate as GDP growth, you can point out that - at least for that last one - there's more going on than high taxes, and that corporate profits taking a bigger piece of the pie is a big reason why wage growth has been slow in recent years.

As a long term goal going forward, it would be ideal for all members of society to earn income from a mix of wages and share ownership so we could end the artificial divide between owners and workers but that's probably a long way off.