Rising Profitability and the
Middle Class Squeeze
Edward N. Wolff
New York University
SUNY – New Paltz
April 14, 2015
• “For extreme inequality is still on the rise –
and it’s poisoning our society.” Paul
Krugman, New York Times, Page A25,
September 13, 2013.
Figure 1. Median and Mean Family Income, 1947-2012
(2012 Dollars, CPI-U-RS Adjusted)
90,000
80,000
70,000
60,000
Median Family Income
50,000
Mean Family Income
40,000
30,000
20,000
1945
1955
1965
1975
1985
Year
1995
2005
2015
Figure 2. The Official U.S. Poverty Rate, 1959-2012
24.0
22.0
Percent
20.0
18.0
16.0
14.0
12.0
10.0
1955
1965
1975
1985
Year
Overall Poverty Rate
1995
2005
2015
Figure 3. Share of the Bottom Quintile of Families, 1947-2012
6.0
Percent
5.5
5.0
Percent Share of Bottom Quintile
4.5
4.0
3.5
1945
1955
1965
1975
1985
Year
1995
2005
2015
Fig 4. Mean Income of the Bottom Quintile, 1947-2012
(2012 Dollars, CPI-U-RS Adjusted)
19,000
17,000
15,000
13,000
Mean Income
11,000
9,000
7,000
1945
1955
1965
1975
1985
Year
1995
2005
2015
Figure 5. Labor Earnings Indices, 1947-2012
[1973=100]
130.0
120.0
110.0
100.0
90.0
80.0
70.0
60.0
50.0
40.0
1945
1955
1965
1975
1985
1995
2005
Year
BLS Mean Hourly Earnings
NIPA Wages and Salaries per FTEE
NIPA Employee Compensation per FTEE
2015
Figure 6. Income Inequality Trends, 1947-2012
(Gini index, Family Income)
46.0
44.0
42.0
40.0
Gini Index
38.0
36.0
34.0
1945
1955
1965
1975
1985
Year
1995
2005
2015
Figure 7. Percentage Share of the Top 5% of Families, 1947-2012
22.0
21.0
20.0
19.0
18.0
17.0
16.0
15.0
14.0
1945
1955
1965
1975
1985
Year
1995
2005
2015
Figure 8. Marginal Tax Rates, Selected
Income Levels in 1995$, 1947-2013
(percent)
100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1945
1955
1965
1975
1985
1995
2005
Year
Rate at $33,000
Rate at $67,000
Top Rate
2015
Figure 9. Real Labor Earnings and Labor Productivity, 1947-2012
(Index, 1973=100)
180.0
160.0
140.0
120.0
100.0
80.0
Employee Compensation per FTEE
Real GDP per FTEE
60.0
40.0
20.0
0.0
1947
1957
1967
1977
1987
1997
2007
Figure 10. Trends in the Net Rate of Profit and the Net Profit
Share, 1947-2012
35.0
30.0
Percent
25.0
20.0
15.0
10.0
1945
1955
1965
1975
1985
1995
Year
Net Profit Rate
Net Profit Share
2005
2015
Figure 11. Trends in Corporate Profits as a Share of
National Income, 1947-2012
15.0
14.0
13.0
Percent
12.0
11.0
10.0
9.0
8.0
1945
1955
1965
1975
1985
Year
Corp. Profits as a Share of NI
1995
2005
2015
120.0
Figure 14. The Net Profit Share and the Share of Income of
the Top 5%, 1947-2011
(Index, 1947=100)
Index
100.0
80.0
60.0
1945
1955
1965
1975
1985
Year
Net Profit Share
Share of Top 5%
1995
2005
2015
Figure 12. Median Years of Schooling Completed
By People 25 Years Old or Over, 1947-2011
14.0
13.0
12.0
11.0
10.0
9.0
8.0
1945
1955
1965
1975
1985
Year
Median Years of Schooling (Years)
1995
2005
2015
Figure 13. Percent of Adults 25 Years Old or Over
With a High School and College Degree, 1947-2011
90.0
80.0
70.0
Percent
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1945
1955
1965
1975
1985
1995
Year
HS Graduates
College Graduates
2005
2015
Table 1. Simple Correlations between Income Inequality and Profitability
Period
1947-2012
A. Family Income Gini Index
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
B. Share of Top 5% - CPS
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
C. Share of Top 1% - WTID
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
D. Share of Top 0.1% - WTID
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
E. Share of Top 0.01% - WTID
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
F. Overall Poverty Rate
1. Overall Net Profit Rate
2. Overall Net Profit Share
3. Corporate Profits as a Share of
National Income
Notes:
0.157 #
0.308 #
-0.015
1979-2012
0.899 **
0.672 **
0.626 **
0.378 **
0.399 **
0.133
0.882 **
0.590 **
0.626 **
0.347 **
0.471 **
0.142
0.935 **
0.752 **
0.658 **
0.285 **
0.428 **
0.104
0.928 **
0.760 **
0.662 **
0.251 *
0.414 **
0.109
0.926 **
0.797 **
0.698 **
0.334 **
0.293 *
0.296 *
-0.221
0.165
0.071
(1) CPS - Current Population Survey
(2) WTID - The World Top Incomes Database
# Significant at the 10% level. * Significant at the 5% level. ** Significant at the 1% level.
Table 2. Time-Series Regressions of Income Inequality on Profitability, 1947-2012
Independent
Dependent Variable
Share Top
Share Top 1% Share Top 0.1%
0.01%
0.2095*
0.1197*
0.0563*
(2.39)
(2.16)
(2.16)
Variables
Net Profit Rate
Gini Coeff.
0.0099
(0.10)
Share Top 5%
0.1170
(1.30)
R2
Standard error
DurbinWatson
Sample Size
0.96
0.442
0.93
0.401
0.97
0.396
0.97
0.157
0.97
0.035
0.93
0.599
1.86
59
2.14
59
1.58
59
1.68
59
1.67
59
1.92
53
0.0893
(0.98)
0.1227
(1.41)
0.2021*
(2.21)
0.1075#
(1.79)
0.0485
(1.59)
0.0111
(0.09)
0.96
0.435
0.93
0.399
0.97
0.453
0.96
0.194
0.96
0.050
0.93
0.603
1.83
60
2.07
60
1.45
60
1.53
60
1.50
60
1.92
60
-0.0027
(0.03)
0.0733
(0.85)
0.1342
(1.46)
0.0731
(1.23)
0.0366
(1.22)
-0.0754
(0.66)
0.96
0.443
0.93
0.408
0.97
0.475
0.96
0.200
0.95
0.051
0.93
0.597
1.86
59
2.12
59
1.38
59
1.47
59
1.47
59
1.92
59
Net Profit
Share
R2
Standard error
DurbinWatson
Sample Size
Corp. Profit
Share
R2
Standard error
DurbinWatson
Sample Size
Note: The dependent variable is a measure of family income inequality or poverty. The absolute value
of the t-statistic is in parentheses below the coefficient. The constant term is not shown.
The estimation technique is AR(1), where
AR(1): Autoregressive process, First-order: ut= et + r1ut-1, where ut is the error term of the original equation
and et is a stochastic term assumed to be identically and independently distributed.
# Significant at the 10% level. * Significant at the 5% level. ** Significant at the 1% level.
Poverty Rate
-0.1365
(1.11)
Table 3. Time-Series Regressions of Income Inequality on Profitability, 1979-2012
Independent
Variables
Net Profit
Rate
R2
Standard
error
DurbinWatson
Sample Size
Net Profit
Share
R2
Standard
error
DurbinWatson
Sample Size
Corp. Profit
Share
R2
Standard
error
DurbinWatson
Sample Size
Gini Coeff.
Dependent Variable
Share Top
Share Top
Share Top 5% Share Top 1%
0.1%
0.01%
Poverty Rate
0.0168
(0.11)
0.0933
(0.57)
0.3987*
(2.41)
0.2641*
(2.48)
0.1272*
(2.49)
-0.1232
(0.90)
0.94
0.90
0.95
0.93
0.93
0.72
0.466
0.566
0.616
0.256
0.058
0.369
1.34
33
1.58
33
1.66
33
1.74
33
1.77
33
1.52
33
0.0440
(0.30)
0.0808
(0.51)
0.3087#
(1.70)
0.1959
(1.61)
0.0922
(1.46)
-0.0399
(0.32)
0.94
0.90
0.94
0.92
0.91
0.73
0.465
0.566
0.755
0.338
0.090
0.037
1.34
33
1.50
33
1.45
34
1.52
34
1.54
34
1.43
34
0.0110
(0.10)
0.0406
(0.30)
0.1583
(1.01)
0.1003
(0.96)
0.0525
(0.98)
-0.0026
(0.02)
0.94
0.90
0.94
0.92
0.91
0.73
0.466
0.568
0.796
0.353
0.092
0.372
1.33
34
1.49
34
1.35
34
1.41
34
1.45
34
1.42
34
Note: The dependent variable is a measure of family income inequality or poverty. The absolute value
of the t-statistic is in parentheses below the coefficient. The constant term is not shown.
The estimation technique is AR(1), where