BrianGarst.com

You probably don’t need to be told that the economic recovery is proceeding at a glacial pace, as you feel and see it around you. But here’s one more explanation (Hat-tip: Marginal Revolution) for why many simply aren’t feeling good about the state of the economy despite Obama’s rhetoric of recovery:

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

…The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.

The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

There are two responses I expect to be common to this news:

1. Ask why businesses are not using revenue to grow their businesses through new hires. Consider whether there are particular policies that are contributing to this hesitation to expand, and explore remedies.
2. Attack corporate profits as if they are inherently bad or otherwise take away from labor, and call for higher taxes on businesses.

Judging by the commenters at the New York Times, the left is likely to choose option 2. This is certainly obvious fuel for their labor vs. capital demogaguery, which presumes that one side can only succeed at the expense of the other. Nevermind that many (most?) workers are also investors, I think this understanding of the relationship is fundamentally flawed. Capital is the fuel of the economy and makes workers productive. Higher productivity, in turn, leads to higher paid workers.

So what’s wrong with this recovery that makes it exceptional? I can only speculate, but two possible explanations occur to me.

1. A High level of uncertainty about both the regulatory regime (Dodd-Frank as an example) and the future of the economy and  is leaving businesses hesitant to expand. Given the already high number of unemployed, this leaves little to no competition for labor, thus leaving no mechanism for wage growth.
2. Labor is expected to get more expensive in the near future thanks to Obamacare, and exactly how much so is unclear. Business may be waiting for implementation to see just how much they can afford to expand, if at all.

Or maybe it’s something else entirely. But whatever the explanation, attacking profits and reducing capital through increased corporate or capital gains taxes would serve only to make a bad situation worse.