October 29, 2004


Meanwhile, Corporate Profit Share Has Risen Significantly
By Isaac Shapiro and David Kamin

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The Commerce Department data released today on the nation’s Gross Domestic Product — which measures the overall size of the economy — indicate the continuation of a troubling trend for the country’s workers.  The new data are for the third quarter of 2004 and show that a steadily dropping share of the nation’s income is going to wages and salaries.  At the same time, data through the second quarter show that the share of GDP going to corporate profits has increased substantially.   To a lesser degree, the share of GDP going to employer contributions to insurance and pensions has also risen.

Table 1
Change in Share of Gross Domestic Product 


Share in
First Quarter

Share in 2004,
Third Quarter

Percentage Point Change in Share

Wages and Salaries




Corporate Profits




Insurance & Pensions




*Figure is for the second quarter of 2004.
 Source: Commerce Department data

But have wages and salaries still grown?

The decline in the share of the economy going to wages and salaries would not be as much of a concern if the overall magnitude of economic growth had been so large that, despite the uneven distribution of the gains, workers have become much better off.  To the contrary:

Table 2
Real Growth


Since 2001, First Quarter

Average, Comparable Periods Since World War II

Wages and Salaries



Corporate Profits



* Growth measured through the third quarter of 2004.
** Growth measured through the second quarter of 2004.
Source: Commerce Department data.

Findings Consistent with Other Trends

These findings are all consistent with the conclusion of an analysis we released in early September.  It found that the share of real income growth that has gone to wages and salaries during the current recovery has been smaller than during any other post-World War II recovery period, while the share of real income growth that has gone to corporate profits has been larger than during all other post-World War II recoveries.  It also found that the share of national income consisting of wages and salaries is at the lowest level ever recorded, with data available back to 1929;[5] and, while total employee compensation — which includes employers’ pension and health insurance contributions — is not at an all time-low, it is significantly below the average of the last three decades.

Further, these findings are consistent with a better-known pattern of the recent recovery, the slowness of job creation.  If there is an absence of significant job growth, it is difficult for the total amount of wages and salaries to grow significantly (the more workers there are, the larger amount of wage and salary income there will be).  In contrast, corporate profits have managed to grow faster than they have historically.

End Notes:

[1] This analysis examines data since 1947 because quarterly data are not available before then.

[2] Total compensation — which includes wage and salary income, employer contributions to insurance and pensions, and employer contributions to social insurance — fell by 3.1 percentage points over the 14-quarter period.  This, too, is the largest drop on record.

[3] Rising employer payments for health insurance premiums partly reflect the acceleration in health care cost growth, which may not appreciably benefit covered workers.  In addition, many employers with pension plans that promise a defined benefit to workers have had to increase their pension contributions to make up for the drop in the stock market, which reduced the value of pension plans’ portfolios.  The increased contributions were necessary to assure payment of the promised pension benefits.  In this respect, the current increase in pension contributions makes workers no better off than they were before, since many workers would still expect to receive the same pension benefit that was promised previously.

[4] In the 14 quarters after economic peaks, wage and salary increases were larger prior to 1970 than they have been in more recent decades.  Still, the current period compares unfavorable to the post-1970 periods as well.

[5] David Kamin and Isaac Shapiro, “An Uneven Recovery: New Government Data Show Corporate Profits Enjoying Unusually Large Gains, While Workers’ Incomes Lag Behind,” Center on Budget and Policy Priorities, September 3, 2004.  Our previous analysis measured wage and salary income relative to “national income,” a slightly different basis of comparison from the “gross domestic product” standard used here.  For technical reasons, it is preferable to use national income for these comparisons, but this measure is not yet available for the third quarter of 2004.  The essential story remains the same regardless of whether national income or GDP is used.