Corporate Profits Rise – but Wages Fail to keep Pace with Inflation

Noel Brinkerhoff
All Gov
February 28, 2012

American corporations continue to enjoy healthy profit margins, while the average worker is watching inflation outpace wages.

Earnings for businesses began to rebound in early 2010 and have continued to do well ever since. By the third quarter of last year, pre-tax corporate profits climbed to a record $1.97 trillion.

Meanwhile, the consumer price index, which is used to measure the rate of inflation, reveals that inflation went up 2.3% from last year to now. During this same period, average hourly earnings climbed only 1.5%.

Michael Feroli, chief U.S. economist at JPMorgan Chase, told Bloomberg that the decline in inflation-adjusted wages means it will be difficult for the economy to sustain growth because wage earners will not be able to increase their purchases of consumer goods. The tax cuts, stimulus spending and increases in social benefits by the federal government have helped make up for the weak earnings, but eventually the impact of those government fixes will level off.

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