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Goldman: Corporate Profits Grew Five Times Faster Than Wages in 2013

Corporate profits had every reason to disappoint in 2013. Weak economic growth in the U.S and abroad, minimal gains in productivity, and low inflation (which kept companies from raising prices) should have all combined to drag down earnings. But according to estimates by Goldman Sachs chief economist Jan Hatzius, after-tax corporate earnings grew by as much as 11 percent per share last year. A “remarkably strong performance,” Hatzius wrote in a Jan. 22 note to clients.

How could that be? Simple, says Hatzius: U.S. workers didn’t get much of a raise in 2013, leaving more profits left over for shareholders. Overall, hourly wages grew by just 2 percent last year, five times slower than corporate profits. Luckily for workers, inflation remains below 2 percent, meaning that extra income increased their buying power, rather than getting eaten up by higher prices. Still, given how fat corporate profits are, that’s a minor victory for workers, who (we’ve recently learned) are no more upwardly mobile than they were 50 years ago. Yikes.