Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, June 24, 1995 TAG: 9506260045
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Medium
The stock market is at an all-time high, driven by corporate profits that are up 14 percent from last year. Worker productivity seems to have reached a new plateau. Businesses are so flush with cash that they are buying back their own stock and investing in new facilities and equipment.
But recent data show that surprisingly little of this bonanza has been passed on to workers - a familiar complaint repeated this week by the Clinton administration's point man on economic fairness, Labor Secretary Robert B. Reich.
``The owners of capital are registering huge gains, while ordinary working Americans are seeing their incomes fall,'' he said, noting the value of the stock market's rise since the start of the year would pay for a $5,000 bonus for every worker in America. ``Things are simply getting way out of whack.''
Reich spoke as the Labor Department issued its annual calculation of what businesses spend on wages and benefits for the average worker, which fell for the first time since the computation was begun in 1987 - from $18.43 an hour to $18.38.
Although average wages increased slightly, from $13.06 an hour to $13.12, this was more than offset by the declining value of fringe benefits, mostly health insurance. After adjusting for inflation, that represented a 3 percent decline in purchasing power.
While economists were quick to warn about drawing too many conclusions from this somewhat obscure report, they did not dispute the general point.
``The portion of the increase in national income going to labor is the smallest of any expansion in the last 20 years,'' said Lawrence Chimerine, managing director of the Economic Strategy Institute in Washington. ``It's been a great recovery in terms of corporate profits and cash flow, but only a mediocre recovery in terms of worker incomes.''
James Medoff, a Harvard University labor economist, said the ``quality'' of jobs has been declining for 15 years as more workers have shifted from manufacturing to services, where wages and benefits tend to be lower.
Medoff said the millions of job shifts caused in recent years by corporate layoffs, downsizing and reorganization have not enhanced income. The Labor Department, in a survey, found the average worker forced to find a new job took a 20 percent pay cut.
Lehman Brothers economist Allen Sinai cautioned that most government statistics on wages and salaries don't pick up the ways workers share in improved corporate profitability - year-end bonuses, stock options and increased value of pensions. And to the degree that tame wages are being matched by tame prices, he added, workers also benefit.
But with all those caveats, Sinai said there has been a fundamental shift in the way companies distribute their profits, with much less emphasis on increasing wages or stockholder dividends.
This may explain why the current expansion has been marked by relatively slow economic growth. In past expansions, increased corporate profits have translated into increased wages and dividends, fueling increased consumer demand and even higher profits - what economists call a virtuous cycle.
But this time, the virtuous cycle has a different dynamic that generally bypasses the worker-consumer. Increased profits have largely been plowed back into plants, equipment and other investments, boosting profits even more.
``The interesting question is how long this can go on - how long can the economy do well when only the corporate sector is benefiting?'' Chimerine asked.
``At some point, if those profits don't begin to show up in wages, salaries and consumer spending, I think its going to be very hard to sustain this recovery.''
by CNB