Why the increase? “There are a lot of moving parts in the margin equation,” Cembalest writes, but “reductions in wages and benefits explain the majority of the net improvement in margins.” This decline in wages and benefits, Cembalest calculates, is responsible for about 75 percent of the increase in our major corporations’ profit margins.
Or, to state this more simply, profits are up because wages are down. That’s not the only reason profits are up — innovation and offshoring factor in as well — but among the reasons, it’s a doozy.
What’s behind this drop in the share of revenue going to wages? After all, the workforce of the S&P 500 companies contains many more college graduates today than it did in earlier decades. Cembalest cites high unemployment and the addition of 2 billion Asians to the world’s labor force since 1980 as the reasons for workers’ declining ability to secure their former share of company revenue. He’s right, of course, but his list is hardly exhaustive. Surely the fact that the great majority of American employers no longer have to sit down and hammer out collective bargaining contracts with their workers has contributed to the increase in profits at wages’ expense. And many of those employers want to keep it that way. (Read More.)