Share of National Income Going To Wages and Salaries at Record Low in 2006
Share of Income Going to Corporate Profits at Record High

PDF of this report (7pp.)

By Aviva Aron-Dine and Isaac Shapiro

Revised March 29, 2007

Related Areas of Research

Commerce Department data released today show that the share of national income going to wages and salaries in 2006 was at its lowest level on record  with data going back to 1929.[1]  The share of national income captured by corporate profits, in contrast, was at its highest level on record.[2]

These findings reflect weak overall growth in wages and salaries — and rapid growth in corporate profits — since the current economic expansion began in November 2001.  Growth in wage and salary income was exceptionally weak during the first stage of the recovery, though it has picked up in the last few years and was strong in 2006.  The stronger recent growth, however, has not been enough to undo the effects of weak growth in previous years.

Corporate profit growth, meanwhile, has been robust throughout nearly all of the current expansion and was especially rapid in 2006.  Corporate profits have grown at a faster pace in the current recovery than in any other equivalent period since World War II.

During the current expansion as a whole:

  • Wages and salaries have grown at a 1.9 percent average annual rate, after adjusting for inflation.  In previous post-World War II recoveries, wages and salaries grew at an average annual rate of 3.8 percent.
  • Corporate profits have grown at a 12.8 percent average annual rate, after adjusting for inflation, as compared with an average annual growth rate of 8.3 percent in the equivalent periods of past post-World War II business cycles.  (See Appendix Table 1.)

As a consequence, wages and salaries have captured an exceptionally small share of the total growth in national income that has occurred in the current period.  Only 34 percent of the overall increase in national income since the end of 2001 has gone to increases in workers’ pay, a smaller fraction than in any other expansion since World War II.  For the first time on record, corporate profits have captured a larger share of the income growth in a recovery — 46 percent of it — than wages and salaries have.  (See Appendix Table 2.)

Wages and Salaries’ Share Has Reached Lowest Level on Record

The result of these trends is that, in 2006, the share of total national income going to wages and salaries was at the lowest level on record.  (See Appendix Table 3.)[3]

  • Some 51.6 percent of total national income went to wages and salaries in 2006.  This is a lower share than in any of the 77 previous years for which these data are available.
  • At this stage of the 1990s business cycle, wages and salaries made up about 53 percent of national income — about 1½ percentage points more than today   Each percentage point of national income is now equivalent to $117 billion.
  • Corporate profits captured 13.8 percent of national income in 2006, which is the largest share in any year on record.  At this point in the business cycle of the 1990s, corporate profits were receiving less than 12 percent of national income.

Growth of Total Employee Compensation Also Weak

In contrast to wages and salaries, employer contributions for pensions and health insurance have increased at close to the average rate for a post-World War II recovery and have captured a considerably larger share of total income growth than is typical for a recovery period.

Some have argued that the relatively strong growth in non-wage forms of employee compensation has crowded out wage growth.  For example, Allan Hubbard, economic advisor to President Bush, stated, “Employers are spending more money on health care, and that’s robbing people of wage increases.”[4]

Rising health care costs are clearly a concern and are likely to have contributed to the poor performance of wages and salaries.  They do not seem, however, to be the primary cause of the declining share of national income that is paid out in wages and salaries.

This can be seen by examining trends in total employee compensation as a share of national income (i.e., by tracking changes over time in the percentage of national income that is paid to, or on behalf of, employees as wages and salaries, pensions and health insurance contributions, and contributions for government social insurance).  If wage stagnation had been largely or fully offset by increases in employer contributions for health and pensions, then total employee compensation (as distinguished from wages and salaries) would have performed about as well in the current recovery period as in past recoveries.  It has not done so. [5]

  • The average annual growth rate of total employee compensation during the current recovery has been 2.5 percent, after adjusting for inflation.  This is well below the 4.1 percent average growth rate for previous post-World War II recoveries.
  • The share of national income going to total employee compensation in 2006 — 64.0 percent — is at its lowest level since 1968, except for 1997. [6] 

Data Consistent with Other Evidence That Workers Have Fared Poorly in Current Recovery

The Commerce data show that workers as a group have reaped an unusually small share of the economic gains from the current recovery.  These data are consistent with other evidence showing that working-age households have fared poorly.  For example, employment has grown more slowly during the current recovery than in any comparable post-World War II period.  In addition, average hourly wages, adjusted for inflation, rose over the first two years of the recovery but then fell in 2004 and 2005; at the beginning of 2006, the average hourly wage was lowerthan when the recession ended in November 2001.

Moreover, according to Census data, median income among working-age households in 2005 — four years into the recovery — also was lowerthan during the recession, after adjusting for inflation.  Median income among working-age households fell in each year from 2001 through 2005.[7] 

High-income households, meanwhile, have reaped large gains from the expansion.  Recent data from economists Thomas Piketty and Emanuel Saez show that income concentration jumped dramatically in 2004 and 2005, and that in 2005 the share of national income going to the top one percent of households returned to its 2000 level, the highest since 1929. [8]  The new Commerce Department data provide further evidence of this trend.  The benefits of rapid growth in corporate profits tend to accrue largely to high-income households, since they hold a highly disproportionate share of corporate stock.  Middle- and lower-income household typically are much more heavily dependent on wage and salary income.

In the second half of 2006, average hourly wages, adjusted for inflation, increased, according to Labor Department measures.  The hope is that these increases indicate a change of course and that working households will begin to see stronger income gains.  As the Commerce data show, however, recent developments have not been nearly enough to reverse the effects of the trends of the past few years.

Appendix Table 1:
Average Annual Growth Rates in the 5 Years Following the End of a Recession

Recession Ending in 1949 1954 1958 1961 1970 1975 1980 1982 1991 2001 Average for Post World
War II Recoveries
(other than the Current Recovery)
Wages
and Salaries
5.8% 3.5% 4.4% 5.4% 1.9% 3.8% 2.3% 4.4% 2.4% 1.9% 3.8%
Total
Compensation
6.0% 3.9% 4.8% 5.8% 2.7% 4.5% 2.6% 4.4% 2.4% 2.5% 4.1%
Corporate
Profits
7.2% 7.4% 10.0% 12.1% 6.6% 6.6% 6.6% 10.1% 8.4% 12.8% 8.3%
Source:  CBPP calculations based on Commerce Department data.

Appendix Table 2:
Shares of National Income Growth in the 5 Years Following the End of a Recession 

Recession Ending in

1949 1954 1958 1961 1970 1975 1980 1982 1991 2001 Average for Post World
War II Recoveries
(other than the Current Recovery)
Wages
and Salaries
59.9% 48.9% 49.6% 49.8% 35.3% 50.6% 37.0% 49.2% 45.9% 34% 47.4%
Total
Compensation
65.0% 58.3% 58.6% 57.9% 58.0% 69.4% 49.4% 59.1% 55.0% 54.5% 59.0%
Corporate
Profits
15.3% 21.2% 21.5% 22.9% 19.9% 13.1% 15.9% 16.5% 29.5% 45.9% 19.5%
Source:  CBPP calculations based on Commerce Department data.

Appendix Table 3:
National Income Shares

Year Wages and Salaries Total Employee Compensation Corporate Profits
2006 51.6% 64.0% 13.8%
2005 52.4% 65.0% 12.3%
2004 52.4% 64.8% 11.5%
2003 53.2% 65.7% 10.3%
2002 54.0% 66.0% 9.6%
2001 55.0% 66.2% 8.5%
2000 54.9% 65.7% 9.3%
1999 54.3% 65.0% 10.3%
1998 54.0% 64.7% 10.3%
1997 53.1% 63.9% 11.9%
1996 53.0% 64.2% 11.5%
1995 53.2% 65.0% 10.8%
1994 53.1% 65.3% 9.8%
1993 53.5% 65.8% 9.4%
1992 53.8% 65.9% 8.7%
1991 54.0% 65.9% 8.6%
1990 54.1% 65.6% 8.6%
1989 53.8% 65.2% 8.8%
1988 53.9% 65.2% 9.5%
1987 54.4% 65.9% 8.8%
1986 54.2% 65.9% 8.2%
1985 53.6% 65.1% 8.9%
1984 53.3% 64.8% 9.1%
1983 54.6% 66.2% 8.6%
1982 55.6% 67.2% 7.3%
1981 55.3% 66.6% 8.2%
1980 56.5% 67.7% 8.2%
1979 55.8% 66.7% 9.9%
1978 55.3% 65.9% 10.7%
1977 55.3% 65.6% 10.7%
1976 55.8% 65.7% 10.1%
1975 56.4% 65.6% 9.3%
1974 57.5% 66.3% 8.6%
1973 56.8% 65.0% 10.1%
1972 57.5% 65.3% 10.1%
1971 58.0% 65.4% 9.7%
1970 59.3% 66.3% 9.0%
1969 58.3% 64.9% 10.7%
1968 57.3% 63.7% 12.0%
1967 57.1% 63.2% 12.1%
1966 56.3% 62.3% 13.1%
1965 55.7% 61.1% 13.4%
1964 56.0% 61.5% 12.7%
1963 56.2% 61.6% 12.3%
1962 56.5% 61.7% 11.9%
1961 57.1% 62.1% 11.2%
1960 57.5% 62.4% 11.3%
1959 57.0% 61.6% 12.2%
1958 57.9% 62.3% 10.4%
1957 57.9% 62.2% 11.7%
1956 57.9% 61.8% 12.3%
1955 56.9% 60.6% 13.3%
1954 58.1% 61.6% 11.4%
1953 58.6% 61.9% 11.7%
1952 57.7% 61.0% 12.2%
1951 56.4% 59.6% 13.5%
1950 55.7% 58.7% 13.6%
1949 56.6% 59.6% 12.2%
1948 55.8% 58.4% 12.8%
1947 56.8% 60.1% 10.9%
1946 56.4% 60.3% 9.0%
1945 59.2% 62.1% 10.2%
1944 58.9% 61.2% 12.6%
1943 57.3% 59.4% 13.5%
1942 54.8% 56.9% 13.8%
1941 53.5% 55.9% 13.4%
1940 54.7% 57.2% 10.7%
1939 56.0% 58.5% 8.0%
1938 56.0% 58.6% 6.5%
1937 55.1% 57.4% 8.5%
1936 56.0% 57.2% 8.3%
1935 55.4% 56.4% 6.0%
1934 57.8% 58.8% 4.3%
1933 59.3% 60.5% -0.2%
1932 59.5% 60.6% -0.4%
1931 58.0% 58.9% 4.3%
1930 55.6% 56.4% 9.0%
1929 53.6% 54.2% 11.5%
Source:  CBPP calculations based on Commerce Department data.

End Notes:

[1] Commerce Department, “Gross Domestic Product and Corporate Profits Release,” March 29, 2007.

[2] Corporate profits as a share of national income were at a higher level in the second half of 1950, but not in the year as a whole.

[3] National income provides a better measure than the Gross Domestic Product of the total income available in the economy because it takes into account the losses that result from depreciation of existing capital.  In addition, for technical reasons, the Commerce Department data on national income are more directly comparable to the Commerce Department data on wages and salaries and corporate profits than the GDP data are. 

The essential trends described here are the same, however, regardless of whether national income or GDP is used.  Considered as a percentage of GDP, wages and salaries in 2006 are at about the same level as in 2005 and are otherwise at their lowest level on record.  Corporate profits are at their highest level since 1950.

[4] John McKinnon and Sarah Lueck, “Bush Sets Focus on Health Care for 2006 Agenda,” Wall Street Journal, January 12, 2006.

[5] There are also other reasons to question the claim that rising health care costs bear primary responsibility for slow wage growth.  See Sylvia Allegretto and Jared Bernstein, “The Wage Squeeze and Higher Health Care Costs,” Economic Policy Institute, January 27, 2006.

[6] Employee compensation’s share of national income was lower prior to 1968 due to lower employer contributions for insurance and pensions and for government social insurance.

[7] “Poverty Remains Higher, and Median Income for Non-Elderly Is Lower, Than When Recession Hit Bottom,” Center on Budget and Policy Priorities, revised August 30, 2006.

[8] See Aviva Aron-Dine, “New Data Show Income Concentration Jumped Again in 2005:  Income Share of Top 1% Returned to Its 2000 Level, the Highest Since 1929,” Center on Budget and Policy Priorities, March 29, 2007.

  1. Jobs
  2. RSS
  3. Contact Us
 

Sign Up for E-Mail Alerts

RSS Feeds

Multimedia

Browse Reports