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Tuesday, February 21, 2012

"It’s Obvious Where Profits Have Come From"

Menzie Chinn says "there is substantial space for rising wages":

Competitiveness, and the Bush Tax Cuts and Deficits, by Menzie Chinn: The Administration released the annual Economic Report of the President on Friday. Many topics were covered, but here I’ll remark upon a few issues, motivated by several graphs.
First is price markup over unit labor cost. The interesting trend since 2001 has been the rise in this variable.

Source: Economic Report of the President, 2012.

From this graph, one would be hard pressed to find American business in terrible shape. Productivity has increased, labor compensation growth has been modest, so that it’s obvious where profits have come from. This also means (to me) that there is substantial space for rising wages to be absorbed without a commensurate wage-price spiral. ...

[Menzie also discusses several other aspects of the report.]

Update: Karl Smith comments on the same graph.

    Posted by on Tuesday, February 21, 2012 at 12:22 AM in Economics, Income Distribution | Permalink  Comments (37)


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