Mike, here's another great article by Roger Lowenstein on the same topic:
The Wall Street Journal Interactive Edition -- July 17,
1997
Calling Labor: Here Is
The News on Tax Receipts
By ROGER LOWENSTEIN
Staff Reporter of THE WALL STREET JOURNAL
The flood of tax payments that is downsizing the deficit and
embarrassing forecasters has an unnoticed wrinkle. Reversing a
trend that has persisted throughout the 1990s expansion,
corporate-tax receipts are decelerating, and quickly, while
individual withholdings are picking up steam.
Withheld taxes -- what the feds politely remove from your
weekly paycheck -- are now growing faster than the estimated
quarterly payments made by companies.
What does it mean? In broad terms, labor is finally getting a
bigger slice. The tax figures strongly suggest that both wages
and hours worked are undercounted, meaning that workers are
outpacing low inflation by even more than the official statistics
say. Good news for lunchbucket Louie, programmer Pauline,
restaurant Ricky and info Inga.
Implications for Profits
On the other hand, it's bad news for corporate Charlie. If
corporate-tax receipts are rising at only mid-single-digit rates --
just over 6% year-over-year in the June quarter -- it's hard to
see why profits will rise much faster.
Joseph Carson, econ-juggler at Deutsche Morgan Grenfell, who
tipped me to this data, points out that tax receipts are
uncommonly hard numbers. Nobody pays taxes on phantom
income; no hired statistician adjusts or massages the figures.
Until recently, corporate-tax receipts were advancing at
double-digit rates. Their growth peaked in the third quarter of
1996, and since then they have tailed off sharply. In short,
corporations, in their IRS declarations, are estimating that
profits will grow by far less than the stock market is banking
on, which this year is 10% or so.
The fact that labor is doing better enhances the impression that
corporate profit margins will come under pressure. The '90s
have been sweet for business, but docile dockworkers and
meek machinists deserve more of the credit than is often
realized. If you look at retail sales, industrial production,
corporate top lines or almost anything else, the '90s have been
sluggish. Incredibly -- thank you, Jim Paulsen, Norwest
Investment Management -- corporate sales growth in the '90s
has been slower than in any decade since the 1930s (wasn't
there a recession back there somewhere?).
Shift in Income Flows
What saved business in this decade? More of every dollar of
sales has fallen to the bottom line. In a dozen words, that's the
'90s. At the end of 1989, corporate profit margins were just
over 6%. Now, they're just over 9%.
Companies get credit for cutting nonlabor costs, putting the
squeeze on now-falling wholesale prices, employing the help
more productively. But don't kid yourself -- when labor takes
more, owners get less.
"It is our opinion that this shift in income flows is just starting
and is likely to shift more in favor of the workers in coming
quarters," Mr. Carson writes. "Why? Labor markets are tight
and companies have to pay more to keep workers and pay
even more to attract new workers." It is our opinion, too.
This inference from the tax-receipt data carries water because it
agrees with the evidence wherever you look. At Standard &
Poor's in New York, employee turnover is brisk. At a Hertz
outpost in normally depressed Oakland, not only can you get a
car, you can get a job, according to a banner recently waving
above the lot. At General Electric, union workers negotiated a
13% wage hike over three years. In Los Angeles, ship pilots are
striking.
Tight Labor Market
John L. Lewis isn't coming back, but labor markets are
palpably tight. Companies are finding it tougher to hire, tougher
to retain -- "That's the chief complaint I hear from every
business person," says Mellon Bank economist Richard Berner.
Express Personnel Services, in Oklahoma City, is a sort of
just-in-time manager of labor. It supplies workers -- clericals,
high-techs, professionals -- to business. Recently, Express got
an order from Omaha (40 temps needed for light industrial) it
couldn't fill. When I called Bob Funk, the founder, he said no
question, wages are rising. A manufacturer in his home city
complained about turnover; Mr. Funk advised him to raise
wages 50 cents an hour (he did).
The mystery, we are oft told, is that wages aren't rising faster.
With unemployment at 3% in some cities in the heartland,
companies ought to be sending chauffeur-driven limos to job
applicants. But hourly compensation rose at an annual rate of
5.2% in the first quarter -- so where's the mystery?
Employment costs didn't rise as much, because people are
working in jobs that are classified as more productive. But the
fact is, they are making more.
Obviously, firms have been bailed out by new job seekers
missed by the unemployment numbers. Welfare recipients
bitten by capitalist yearning and a kick from Congress could
extend that trend. But particularly for higher-skilled jobs, the
talent pool is stretched. Your grandmother may come back to
work, but only once.
The great corporate hope for the late '90s will be to offset
peaking margins by speeding up sales. That will require
investment and employment upsizing. Increasingly, work will
pay. |
