Corporate Profits Up, Job Growth Flat

The Dow may be at a record high, leaving many traders and CEOs elated, but as the New York Times reported Monday, the share of national income going to American workers is near an all time low.

While millions of Americans have struggled with unemployment in recent years, corporate earnings have grown at an annualized rate of 20.1 percent since the worst of the recession, according to Dean Maki, Chief United States economist at Barclays. In contrast, disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation. This is the sharpest difference in 50 years.   

Now comes sequestration, which is likely to inflict more pain on many middle class households. But it's far from clear that the job losses from austerity will make any difference to corporations. In fact, high unemployment is a key reason that companies face little pressure to raise salaries -- while productivity gains allow them to increase sales without adding workers. 

Of course, at some point consumer spending may drop if workers don't have more disposable income, but this doesn't seem to phase the market yet, as there are lucrative international markets to tap, and those at the very top of the economic ladder have not slowed their spending. 

Some may even see a reason to celebrate, including John Tamny, who writes that this kind of income inequality is not only not harmful, but as his March 3 column states "life enhancing." He cites economist Reuven Brenner, who argues that "seeing the immense wealth possessed by the most successful, those not in the rich club strive mightily to join the wealthy; their innovations redounding to individuals of all income classes."

Unfortunately, said innovations -- especially by the tech sector -- can end up eliminating jobs for low-income Americans and enable corporations to do with less, and do so profitably. As the Times article notes, at 218,300 employees, United Technologies’ work force is virtually unchanged from seven years ago, even though annual revenue soared to $57.7 billion in 2012 from $42.7 billion in 2005.

Even companies that have added jobs, including 3M, who hired over 11,438 have added them mostly overseas. Only 608 of those jobs were based in the United States.