Right data.

PRODUCTIVITY is rising, profits are up. But corporations are still laying off employees and skimping on raises. "The owners of capital are registering huge gains while ordinary Americans are seeing their incomes fall," says Robert Reich. Pat Buchanan agrees.

Are companies stiffing their employees? A little perspective helps. Corporate profits jumped to a record $614 billion last year, up 17 percent from 1994. Adjusted for inflation, however, after-tax profits have merely reached levels last seen in 1979. Profits are at records; profitability is not. Corporations earned an average 6.7 cents on each dollar of sales last year, well below the profit rate of the 1960s. Profits are puny compared to the taxes and interest paid by corporations.

Employee compensation takes nearly two-thirds of business income. Although more than 2.5 million workers lost their jobs because of restructuring between 1990 and 1995, labor's share did not fall by much.

So why are workers so unhappy? Partly because their pay contains less cold cash and more fringe items like health insurance, life insurance, and pensions. A recent study by the Employment Policy Foundation reported that non-cash benefits now account for 41 per cent of employee compensation, more than twice the level of the 1970s. And employees often derive no benefit from such "benefits." Employer-paid Social Security and Medicare taxes, for example, are counted as compensation although the money goes to current retirees. Had government not mandated these benefits, or encouraged their use via tax exemption, the employees might well have been getting fatter paychecks.

Government statistics seem to confirm the perception that Americans are working longer and harder without commensurate compensation. For most of the postwar period, productivity and compensation moved in sync. In the past two years, according to Commerce Department data, worker output per hour grew 7.8 percent, while real hourly compensation fell 1.1 percent. Labor leaders see exploitation. But similar gaps have opened up in the past, and every time they have closed again within a year or two.

Complicating matters is a new method of calculating productivity. To summarize briefly, government bean counters decided that although computers on office desks are 50 times more powerful than the ones there ten years ago, they are nowhere near 50 times as useful. Computers drive so much of the economy's recent growth that this adjustment reduces productivity estimates for the period 1990 - 1995 by nearly half. At the same time, many economists believe that the consumer price index overstates annual inflation by about 1 percent, thereby understating growth in real compensation. The pay gap may turn out to be purely a statistical artifact.

No matter how you measure it, productivity is the key to both profits and employee compensation. Historically, productivity grows when employers provide more plant and equipment for each worker. The prognosis is not good. Between 1948 and 1970 the capital-to-labor ratio grew at 2.4 percent a year; since then it has grown at just 1.5 percent a year. Tax policy has been fingered. An extra dollar earned by business capital in the U.S. generates about 66 cents in federal, state, and local tax liability, according to the Texas-based Institute for Policy Innovation. Flat tax, anyone?

DIVVYING UP: PROFITS, PAY, AND OTHER COSTS (Per $1 of Corporate
Sales)

            After-Tax       Employee            Depreciation
       Profits      Compensation   Taxes   and Interest

1960s       $0.090          $0.642     $0.188      $0.080
1970s        0.056           0.667      0.154       0.123
1980s        0.052           0.662      0.147       0.139
1990         0.053           0.664      0.126       0.157
1994         0.064           0.660      0.137       0.139
1995 (3rd Q) 0.067           0.659      0.138       0.135
Source: Dept. of Commerce; calculations by author