1.) That workers are appropriating a larger piece of the corporate pie.
2.) That positive “economic” profits are trending toward zero.

I have two comments about this. First, it seems to imply a competative structure more closely resembling perfect competition in which economic profits are zero. Given the emergence of globalization over the discussed period… seems rather logical as more competition should erode economic (and acounting) profits. Second, given that the dataset is based on U.S. companies, it seems to suggest technological diffusion, which is indeed an important source of globalization in the first place.

What does this imply? That globalization (at least on the technologically leading end of the spectrum) benefits workers (perhaps only knowledge workers) and consumers at the expense of corporate executives and firm profits.

I guess I could say that this finding is both inline with fundemental economic theory (under globalization) and is a good thing for many workers.

If labor productivity is indeed rising… why shouldn’t the workers be compensated for that.

I think I get what you’re saying. If I do, then one of more of the following must be true:

1) Corporate net income as a percentage of sales has decreased since 1965.
2) Intangible assets, as a percentage of sales, have increased more than tangible assets have decreased.
3) Salaries and Wages – in total – have increased faster than the rate of productivity growth.

Or is there something I’m missing?

As for you conclusion: “So who’s getting the benefit of increased labor productivity? We suggest it’s consumers (in the form of higher performance/price ratios and greater choice) and the creative classes, in the form of higher total compensation.”

Is this necessarily a bad thing? And is it automatically evidence of declining US competitiveness?

Please don’t think I’m harping. I find this fascinating and really do want to get to the heart of what you guys found.

R

Could it be that the productivity and ROA stats are skewed because of multinationals importing goods from offshore? It seems like they’re doing more with less, but maybe the stats just aren’t capturing value added in China and elsewhere.

Just wanted to respond to Ron Wilson by pointing out that asset intensity (at least for the kind of tangible assets to which he refers) has actually fallen in the US since 1965: total US-economy wide Property, Plant, and Equipment as a percentage of Net Sales in 2008 was 40 percent of what it was in 1965.

So US companies are using fewer tangible assets to produce their returns, which would seem to point to higher ROA, even after taking into account the increase in intangible assets over the same time period.

So who’s getting the benefit of increased labor productivity? We suggest it’s consumers (in the form of higher performance/price ratios and greater choice) and the creative classes, in the form of higher total compensation.

I also read the study report and am not ready to conclude that things are as dire as portrayed. There are too many variables to investigate to say that the drop in ROA signifies a weakening of US corporations.

Off the top of my head I can think of one way that labor productivity can increase while ROA decreases: replacing labor and cheap equipment with modern, more expensive equipment.

For example, a machine shop with 10 employees and several old mills, lathes and polishers on the books for scrap value determines that it can produce the same amount of output, and make more net profit, by replacing the old equipment with a couple of new CNC machines (at several times the cost of the scrap value of the old machines) and eliminate 5 jobs. Voila! Labor productivity has increased and ROA has decreased. But the company is better off.

Sorry to nitpick, but I think it’s important to understand ALL of what’s going on behind the data in order to make the conclusions drawn from statistics meaningful.

R