In the second year of a pandemic that began by wiping out 20 million jobs, American workers are doing surprisingly well. It’s just that American business is doing even better.
In the past two quarters, U.S. corporations outside of the finance industry posted their fattest margins since 1950—one reason why stock markets keep hitting all-time highs.
On earnings calls, plenty of executives complained about the squeeze from rising costs of labor as well as materials. But overall, profits were up 37% from a year earlier, according to data out last week from the Commerce Department.
Businesses have been paying out more cash to their employees too, with total compensation up 12% in the last quarter from a year earlier. That’s partly because millions of Americans went back to work—but also because many got a raise when they did so. Hourly earnings broadly kept up with the fast-rising cost of living, and in some low-pay industries like leisure and hospitality they comfortably outpaced it.
Viewed that way, it looks like everyone’s coming out ahead, and so much for the great zero-sum struggle between labor and capital. At Deere & Co., for example—the tractor maker that’s seen the highest-profile strike of the pandemic—workers held out to get a 10% raise, yet the company is still expected to earn even more next year than the record profit it posted Wednesday.
But that rosy scenario doesn’t apply everywhere, nor is there any guarantee it will last.
Most U.S. workers, unlike the ones at Deere, aren’t in unions, which means they probably have less bargaining power. Superstar tech firms may be raking in cash, but many small businesses—restaurants, say—are struggling to stay afloat as their costs rise. Incomes are beating inflation for now, but that race isn’t over yet.
In a U.S. economy that’s surging toward a post-pandemic era, the share of growth that workers and businesses can eke out for themselves is going to be a key part of the answer to a lot of big questions.
Among them: Can President Joe Biden keep his thin congressional majorities next year, and get his spending plans through? Where is policy headed at the Federal Reserve? And, linked to both, how long will the pandemic price-surge last?
U.S. consumer prices rose 6.2% in the 12 months through October, the most since 1990. The new data on corporate earnings suggest business can comfortably pass on all its higher costs, which means there may be more inflationary pressure to come.
“If profits are strong, there’s going to be continued demand for workers, and in a tight labor market there’s going to be continued upward pressure on wages and compensation,” says Robert C. King, director of research at the Jerome Levy Forecasting Center in Mount Kisco, New York.