JP Morgan: Wage reductions have driven corporate profit increases

(ThinkProgress)

If you were looking to blow holes in claims that the way to help workers is to make sure corporations are profitable, this report from JP Morgan (PDF) just about says it all (emphasis in original):

[P]rofit margins have reached levels not seen in decades. The challenge, which we have discussed many times before: what is driving these margins? One useful way to deconstruct profits is to measure them from peak to peak, and analyze what changed. As shown in the first chart, S&P 500 profit margins increased by 1.3% from 2000 to 2007. There are a lot of moving parts in the margin equation, but as shown in the second chart, reductions in wages and benefits explain the majority of the net improvement in margins. This trend has continued; as we have shown several times over the last two years, US labor compensation is now at a 50-year low relative to both company sales and US GDP (see EoTM April 26, 2011).

ThinkProgress puts this into context in two key ways. First, "since 2009, 88 percent of income growth has gone to corporate profits, and only 1 percent has gone to wages," and second, "the JP Morgan report explains this behavior taking place between 2000 and 2007, meaning that it began long before the Great Recession."

So: Prior to the recession, increasing profit margins were overwhelmingly due to reductions in wages and benefits. Over the past two years, income growth has gone to corporate profit, not the workers who produced the income. And the outcome—as summarized by JP Morgan, not by some dirty hippie socialist—is that "US labor compensation is now at a 50-year low relative to both company sales and US GDP."