Assessing corporate profits in context

To add some more persective to claims like this, i.e., assertions that corporate profits are at an all time high while labor costs are at an all time low…

These analysis suffer from several major issues:

1) The “wages” component is much too narrow — it excludes benefits like healthcare that are a large and growing share of total compensation.

2) The “profits” themselves are essentially just financial accounting profits — they do not account for inventory or capital depletion which boosts apparent profitability during recoveries and makes it seem much lower in the lead up.  more here

3) The profits used by Henry Blodget et. al are after-tax profit which, in presence of an apparent shift in corporate ETR, further exxagerates these trends since the apparent ETR is different now [much larger shares of NIPA corporate profits are earned foreign receipts and a much larger share of these profits are now also derived from S-corporations that do NOT pay corporate income taxes]

4) These profits include ALL national corporate profits — including a large and growing amount of non-repatriated foreign profits.   These profits are not, for the most part, generated with US labor (except, perhaps, for some corporate overhead), so it’s very misleading to blend that in….

Below I’ve attempted to correct for the above mentioned issues by using NIPA’s pre-tax corporate profit calculations with inventory and capital adjustments.   I have further focused primarily on domestic profits (both financial and non-financial) to see how these trends compare to historical levels.

I think the evidence is quite clear….

Domestic corporate profits as percentage of GDP and as ratio of total compensation of employees

Corporate_profit_labor_ratio

Composition of corporate profits by major source

Comporate_profit_shares

Note: This does not include the distiguish by corporate entity type, i.e., whether it’s a C-corp or an S-Corp [which is relevant to the tax rate debate… since they don’t pay corporate taxes and they’re a growing share of NIPA corporate profits   more here]

Aggregate labor costs vs aggregate domestic corporate profits

Corporate_profit_nominal_log_scale

Real labor costs and profit per civilian employee (EMRATIO * POP)

Corporate_profit_per_civilian_employee

Real labor cost and profit per capita (US population)

Corporate_profit_real_per_capita

Total real domestic labor cost and domestic profit

Corporate_profit_real_total

Total nominal labor cost vs nominal corporate profits (w/o scale this time)

Corporate_profit_nominal_totals
Note:
You can download all of the above data from the BEA directly at this link.  You will want both “Section 6” files (pre and post 1969).
The other data can be extracted from FRED2, measures:
COE: Compensation of all employees (some of this is also accessible from these same tables, but it’s a little easier with FRED2)
PCEPI: PCE Index, with index set to 2011
POP: US population
EMRATIO: Civilian employment ratio of US population
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