Corporate profits at expense of organized labor: study

Bill Knight column for Thurs., Fri., or Sat., June 27, 28 or 29

U.S. corporate profits have surged as a share of national income while workers’ pay has declined, and that hasn’t occurred because of savvy management, computerization or efficient production methods, according to a new study. It happened because of the decline of labor unions, itself due to eroding labor laws, lax enforcement, and illegal employer actions.

Likewise, the rich benefit from tax laws more than everyone else, another report says.

Despite drops on Wall Street last week, the S&P 500 is up 11.4% so far this year, but everyday working Americans aren’t as lucky, according to the most recent annual period reported by the Labor Department’s Bureau of Labor Statistics (BLS)

“The U.S. average weekly wage decreased over the year by 1.1% to $906 in the third quarter of 2012,” said the BLS. “This is one of only six over-the-year average weekly wage declines dating back to 1978, when the first comparable quarterly data are available.”

The profit vs. wages study, “The Capitalist Machine: Computerization, Workers’ Power and the Decline in Labor’s Share within U.S. Industries,” in American Sociological Review, explores an aspect of inequality largely overlooked in research and the news.

“Most of the research on growing economic inequality focuses on rising earnings inequality among workers, including the growing income share of the top 1 or 10%,” said author Tali Kristal, a sociologist at the University of Haifa in Israel. “But this is only part of the overall picture. The other part is the distribution of national income between workers’ compensation (‘labor’s share’) and corporate profits.

“It’s a zero sum game,” she continued. “Whatever is not going to the workers goes to the corporations.”

Kristal found that from 1979 through 2007, labor’s share of national income in the U.S. private sector dropped by 6%. That means that if labor’s share had stayed at its 1979 level (about 64% of national income), the 120 million American workers employed in the private sector in 2007 would have received as a group an additional $600 billion, or more than $5,000 per worker.

“However, this huge amount of money did not go to the workers,” Kristal said. “Instead, it went to corporate profits, mostly benefiting very wealthy individuals.”

Why?

“Some economists contend that computerization is the primary cause and that it has increased the productivity of machines and skilled workers, prompting firms to reduce their overall demand for labor, which resulted in the rise of corporate profits at the expense of workers’ compensation,” Kristal said. “But if that were the case, then labor’s share should have declined in all economic sectors [because] computerization has occurred across the board.”

But that didn’t happen, shows her study, which uses data on 43 non-agricultural private industries and 451 manufacturing industries from 1969 through 2007.

“It was highly unionized industries – construction, manufacturing and transportation –that saw a large decline in labor’s share of income,” Kristal said. “By contrast, in the lightly unionized industries of trade, finance and services, workers’ share stayed relatively constant or even increased. So, what we have is a large decrease in labor’s share of income and a significant increase in capitalists’ share in industries where unionization declined, and hardly any change in industries where unions never had much of a presence. This suggests that waning unionization was the main force behind the decline in labor’s share of national income.”

Meanwhile, tax breaks mostly help those who don’t need help.

More than half the benefits of 10 major tax breaks go to the one-fifth of U.S. households at the top of the income scale, according to the Congressional Budget Office. The top 1% of earners reaps 17% of these tax breaks, said the report, which noted that that top one-fifth claims 81% of the benefits of itemized deductions.

The report “shows that tax breaks are skewed in favor of the top 1% of Americans at the expense of other priorities,” said U.S. Rep. Chris Van Hollen (D-Md.), the top Democrat on the House Budget Committee who ordered the report.

“It’s clear that we can limit unproductive and excessive tax preferences for the very wealthy as part of a plan to reduce the long-term deficit and promote long-term economic growth,” he said.

Author Richard Kirsch, a senior fellow at the Roosevelt Institute, said regular Americans must organize.

“The answer, as it was in the 1930s, is well-organized social movements,” he said. “There are some early signs of these movements gaining traction in the one-day strikes by fast-food workers and in other new forms of organizing. This is the beginning of the movement that will define the 21st Century: the fight to demand an economy based on prosperity for all.”

[PICTURED: Chart from underthemountainbunker.com]