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Wages Steady While Profits Climb, Institute Reports Only Top Wage Earners Better Off Over 6 Years, Labor-Linked Group Says

Sun., Sept. 3, 1995

Business profits have soared in the 1990s largely because the wages of American workers have been kept stagnant, according to a report released Saturday by a think tank affiliated with labor groups.

“Increased profitability in the 1990s is not the result of greater investment or an acceleration of productivity,” said the Economic Policy Institute. “Business profits have been fueled by stagnant or falling wages.”

The institute study said that after-tax profits last year were the highest in 25 years, greater than at the end of earlier postwar recoveries.

Hourly compensation would have been 4 percent higher for all workers last year had profit rates in the 1990s averaged what they did in the period from 1952 to 1979, the report said.

The study said that in the last six years, hourly pay, when adjusted for inflation, has remained the same or declined for all but the top 20 percent of male wage earners and the top 30 percent of women in the work force.

Private economists did not dispute the findings but offered different interpretations of the significance of the data.

“I better get my handkerchief out,” said Michael Evans, who runs his own economic forecasting service in Boca Raton, Fla. “Maybe people are being paid what they’re worth. That could be called economic Darwinism. Some people think that’s unfair.”

Sung Won Sohn, chief economist with Norwest Corp. in Minneapolis, a bank holding company, said it is misleading to view corporate profits and wage trends as opposing forces.

“We’re all capitalists,” he said. “We own pensions that are invested in corporations. Very few workers do not have a stake in capital.”

Sohn also said that the revolution in computer and information technology has contributed to rising profits and productivity, eliminating blue-collar jobs in the United States and sending them overseas.

But the Economic Policy Institute said its study shows other factors at work, including a trend begun in the early 1980s that allows corporations to keep more of their profits after taxes.

The percentage of corporate income paid in taxes has fallen from an average of 44.3 percent in the 25-year period that ended in 1979 to 32.4 percent in the 1980s and 31 percent now, the study said.

The report said pretax profits for businesses have risen as firms cut costs by holding down wage increases and cutting jobs.

The hourly wage of the median male worker declined 1 percent per year from 1989 through 1994, the study said.

The institute study said that even among college-educated men and women, only those at the very top of the wage-earning scale are making progress.

The institute is a think tank partly funded by labor groups.

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