Unless You Own a Business, You've Missed Out on the Recovery
The National Employment Law Project released a report showing just how slow of a recovery it has been since the Great Recession. It's been so slow, in fact, that wages have moved backward: Averaged across every job, real median hourly wages have fallen 2.8% since 2009:
And the lowest earners, including restaurant cooks, food preparation workers, and housekeepers, have taken the brunt of declines, with median wages dropping more than 5%.
With all this talk of recovery, yet no improvement in our bank accounts, you may have sought professional help to sort out this contradiction -- after all, psychiatrists are one of the few professions actually earning more (about 8% more) since 2007. But it's not a mystery: With wages falling and corporate profits still near historical highs as a proportion of GDP, it's clear that unless you have a share in the profits of a business, the recovery has passed you over.
Supply and demand
First, to get a wider picture of wages, we can look at wages as a percentage of economic activity, here measured by GDP:
From a high near 54% in 1970, wages now amount to only 44% of GDP. This fell as low as 43.6% in the third quarter of last year -- the lowest reading since the Department of Commerce began measuring wages in 1947.
Companies can get away with paying less in wages because the supply of labor outstrips the demand. The widely reported unemployment rate still sits at a not-horrible 7.6%. But the unemployment rate that includes the "marginally attached," or those unemployed who have looked for work in the past 12 months, as well as those working part-time jobs but desiring full time work, hovers around a dizzying 14%:
Simply put, if a company knows you don't have much of a chance of finding a different job, it also knows you'll stick around even if your pay is cut.
The good news is that you don't have to own a business outright to grab a share of the high corporate profits. After all, a share of stock entitles you to a share of those profits.
And how have corporations performed over the same time frame? the Dow Jones Industrial Average is up nearly 80% since 2009. Part of this is because earnings for the index improved from $256 at the beginning of 2009 to $937 today. The S&P 500 is up nearly 90% over the same time, with its own earnings improving from $13 in 2009 to $87 in 2012.
The bad news: A majority of Americans don't own any stocks and therefore completely missed the upswing in the market. These Americans are simply on the losing end of the tug-of-war between corporate profits and wages. One thing that can end decreasing wages -- a stronger labor market -- seems a long way off in the distance.
For investors, corporations may find it difficult to keep squeezing higher profits from lower wages, and the fight to increase corporate earnings will have to face already historically high earnings and a lack of consumer spending power.
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The article Unless You Own a Business, You've Missed Out on the Recovery originally appeared on Fool.com.Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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