REUTERS

Profits have never been higher. Wages have never been lower.

Okay, that sounds like an awfully oversimplified analysis of the frustrating recovery. And it is sort of simplified. It's also sort of true.



Go back to 1960, and corporate profits have never been higher while salary income has never been lower, as a share of GDP. Take a look here (graph via Floyd Norris):



This isn't a new trend, but something really did change in the last generation. Here's a graph of the growth in corporate profits, labor income, and GDP since 1970. As you can see, corporate profits took off in the 1990s, returned to earth after the tech bubble burst and then, in the 2000s, started jumping around like a bouncy ball dropped from a helicopter. Meanwhile, labor income fell further and further behind overall growth.



Sky-high corporate profit and stagnant wages aren't juxtaposing stories. They're the same story. And the main characters of that story are the familiar twin forces of globalization and technology, both of which have accelerated since the early 1990s.



In a sentence: Globalization (in particular, increased trade with China) has opened the doors to more consumers and more cheap workers while labor-saving technology has created more efficient ways to serve those consumers. As a result, the businesses are bigger, but the workers' share is getting smaller. Fifty years ago, the four most valuable U.S. companies employed an average of 430,000 people with an average market cap of $180 billion. These days, the largest U.S. companies have about 2X the market cap of their 1964 counterparts with one-fourth of the employees. That's what doing more with less looks like.

