Worker pay was a smaller piece of the U.S. income pie than earlier estimated as some Americans collected significantly more in interest and dividend payments over the past two years.
Employee compensation, including wages and benefits, was lower for each year from 2011 to 2013 than previously calculated, according to revised data from the Commerce Department issued today in Washington. The figures highlight the debate over inequality that flared this spring with French economist Thomas Piketty’s work showing that the wealthy pull ahead by reaping disparate rewards from financial capital.
“It’s even more money going to very high-income people relative to the rest of the country,” said Harry Holzer, professor of public policy at Georgetown University and former Labor Department chief economist. “We were a little worried about it and now we’re a little more worried about it.”
With the revisions, employee compensation was reduced by $9.5 billion in 2011, $5.1 billion in 2012 and $14.6 billion last year, Commerce data showed. It accounted for 52 percent of gross domestic income in the last quarter of 2013, down from a prior estimate of 52.2 percent. The government revised GDI data back to 2003, before adjusting for inflation.
In his book, “Capital in the Twenty-First Century”, Piketty detailed a centuries-long pattern of income and wealth concentration. He concluded that wealth, more than economic growth, begets wealth.
More rank-and-file workers are participating in the recovery as companies report record profits and boost hiring. Compensation has accelerated this year, rising $134.8 billion after a $153.4 billion surge in the first quarter. It marked the biggest back-to-back gains since the six months ended in the first quarter of 2007.
That’s because companies are hiring again and more people are returning to the workforce, not necessarily because paychecks are getting fatter, said Gary Burtless, a labor economist at the Brookings Institution in Washington.
“We’ve added millions of people to the payroll since the low point of the economy, but we haven’t added at all to the payouts that workers are receiving,” Burtless said. “Little has flowed to workers except as an increase in their employment rate.”
Companies added 218,000 workers to payrolls in July, exceeding the average for the year and showing improving demand is bolstering the job market, a private report showed today. The gain this month followed a 281,000 increase in June that was the strongest since November 2012, according to data from the ADP Research Institute in Roseland, New Jersey.
At the same time, some individuals were earning more interest and receiving bigger dividend checks. Receipts on assets such as loans and equity holdings totaled $2.09 trillion in 2012 compared with a prior estimate of $1.96 trillion. As a share of GDI, receipts totaled 12.8 percent, compared with a previously estimated 12 percent.
Companies, including Walt Disney Co., Costco Wholesale Corp. and Wal-Mart Stores Inc., boosted payments to shareholders at the end of 2012, ahead of tax increases that took effect Jan. 1, 2013.
“Everything’s coming up roses for people who own a chunk of American capital,” Burtless said. “What we’ve seen in the economic recovery is inequality on steroids. The market is giving wealthy people a very good run.”
Personal receipts on assets also were undercounted last year, with the figure revised to $2.08 trillion from $2 trillion, today’s Commerce Department report showed.
The revisions on interest and dividends, which Nicole Mayerhauser, chief of the national income and wealth division of the Bureau of Economic Analysis, called “significant,” are based on newly available corporate tax data.
Today’s report also showed the world’s largest economy expanded more slowly over the past three years, only picking up momentum going into 2014.
The Commerce Department refreshes its calculations once a year, incorporating newly available data from sources including corporate tax returns and wage surveys. The update altered most statistics back to 1999, with the biggest revisions affecting the past three years.
While the new information adds nuance and improves accuracy, it doesn’t change the pattern of growth. The economy as a whole grew more sluggishly than first estimated, today’s report showed. From 2011 to 2013, GDP adjusted for inflation grew at an average annual rate of 2 percent, less than the 2.2 percent previously reckoned.
“We have not fundamentally changed the picture of the economy,” Mayerhauser said in a briefing. “We certainly have not changed the picture of the recovery.”
Stronger consumer spending and business investment spurred faster growth in the second half of 2013, which saw GDP expand 4 percent on average compared with a prior estimate of 3.4 percent. It was the strongest six months of growth since late 2003, when growth picked up after President George W. Bush declared an end to major combat operations in Iraq.
Today’s report also showed the economy grew at a 4 percent annualized pace last quarter, exceeding the 3 percent median forecast of economists surveyed by Bloomberg. That followed a 2.1 percent rate of contraction in the first three months of the year that was previously estimated as a 2.9 percent drop.