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Posts tagged with: "WASCUR"

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Corporate profits versus labor income

Risk and reward versus slow and steady

This FRED graph shows the evolution of two sources of income in our national economy: the compensation of employees through wages and other salary compensation, and the compensation of capital through profits. Both series are adjusted for inflation and both start at the level of 100 in 1954, which is the first year that’s considered “post-war” for economic purposes. (NOTE: The economic impact of the Korean War has essentially vanished.)

Eyeballing the data leads to two major conclusions. First, corporate profits move a lot, especially in response to general business activity. Profits tend to tank during recessions (noted with gray bars), which is understandable. After all, it’s well understood that investing in a business is a risky undertaking that deserves and often acquires compensation. Employee income is much more stable, but still suffers during recessions. Second, the trends of the two series tend to track each other over several decades, reflecting the general growth of the economy. The past decade and a half seems to be different, though. Never have corporate profits outgrown employee compensation so clearly and for so long. Is it because there’s been a particularly risky climate for investment, or is something else afoot?

How this graph was created: From the release table about national income by type of income, check the two series and click on “Add to Graph.” From the “Edit Graph” panel, add a series by searching for and selecting “GDP deflator,” apply formula a/b, and finally set the index value of 100 to 1954-05. Repeat for the second line.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CPROFIT, GDPDEF, WASCUR

Sources of household income

The National Income and Product Accounts (NIPA) provide a wealth of economic insights by separating data into different classes, one of them being households. FRED makes it especially easy to examine the sources of household income by providing release tables. Here, we used the table for personal income to create the graph above.

Probably to no one’s surprise, wages and salaries make up the largest share of household income. But this share has been steadily shrinking, from 63% in 1947 to 49% today. Proprietors’ income (the income of the self-employed) has also shrunk, from 19% down to 9%.

Obviously, other shares must be growing. Capital income has grown from 8% to 14%. Supplements to wages and salaries (benefits for health, retirement, vacation, etc.) have grown from 5% to 12%. And transfers from the government have grown the most, from 5% to 17%.

How this graph was created: From the Personal Income release table, select these five series and click “Add to Graph.” In the “Edit Graph” tab, go to the “Format” tab to select graph type “Area” and stacking type “Percent.” FYI: FRED lets you change the order of the series as you wish. [NOTE: This stacked area graph displays each of the series as a percent of the total of all five series shown here. The original units of the series are billions of dollars.]

Suggested by Christian Zimmermann.

View on FRED, series used in this post: A038RC1Q027SBEA, A577RC1Q027SBEA, PROPINC, W210RC1Q027SBEA, WASCUR

The declining wage component in GDP

The graph above shows the share of GDP from the wages and salaries of employees, which has clearly been on a downward trend over several decades. This post isn’t about the reasons behind this decline, which would require analysis of (i) supplements to wages and salaries such as pensions and other benefits and (ii) proprietors’ income, which is earned by independent workers and business owners that compensates for labor and capital. What we are interested in is whether the decline has bottomed out.

Indeed, the share has been increasing for about two years now. Is this evidence enough to declare the trend has reversed? Well, that call is difficult. If you play with the graph by changing dates—for example, by ending the data in the year 2000 or 1987—you’d find a pretty similar situation in which the decline appears to have reversed. Yet, the share has continued to decline.

But is this time different? Visit this blog in a couple of years and we may have the answer.

How this graph was created: Search for “compensation of employees” and the series used in the graph should be among the first options. Note that a share of it in national income is also among the top options, but it has less current data. Once you have the graph for the series, add a series to the first line, not as a separate line. Then create a data transformation by applying the formula a/b.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GDP, WASCUR


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