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State of the Working Class in the Era of the Agentic AI Armageddon

Posted in Uncategorized, tagged , , , , , , on September 9, 2026| 1 Comment »

Trump brags how great the economy is doing and that American workers never had it so good, in terms of both jobs and pay. But the US government’s own data shows that since 2007 both jobs and wages for the working class have barely grown, forcing millions to leave the labor force altogether. The picture has worsened under Trump 2025-26. Job growth has slowed to a crawl and pay stagnated on average, while declining for millions at the median and below. The article then explains how this dire situation is about to get much worse, as next generation Agentic AI in 2026 is slashing millions of jobs this year and more the next.

Dr. Jack Rasmus

Copyright 2026

The Trump administration brags almost daily how great the US economy is and how well American workers are now doing. But the facts dramatically state otherwise. Here’s the facts about the current state of jobs and wages for the working class in America as of Labor Day 2026—and why the next two years both jobs and wages will get significantly worse. (All data is from the US government’s Federal Reserve and Labor Department databases or the Wall St. Journal).

There is nothing more important to a worker than having a job. Next important is a job that pays decently to allow a reasonable standard of living for his/her family. Third, a job with some promise of permanency—i.e. job security.

On all counts the state of the US working class this Labor Day 2026 is dire.

The Corporate Profits Picture

In contrast, corporate America the economy is booming. It’s never had it so good.  In 2008, corporate profits as part of US national income amounted to $943 billion. By 2012 it had more than doubled to $2.2 trillion. Just prior to the Covid crash of 2020-21, in 2019 profits were $2.43 trillion. They then blew through the Covid recession and rose to $3.5 trillion in 2020-21. Big business did quite well during the Covid crash.

It didn’t stop there. Under Biden, profits continued to rise to $4.12 trillion by the time he left office in late 2024. And under Trump, rose to $4.53 trillion at year end 2025. Based on the first half of 2026, profits are on track to top $6trillion by the end of 2026. That’s almost a tripling since 2019!

With the massive near tripling of corporate profits since 2019, one would think job creation and wage gains followed suite. Maybe not a tripling. Of even a doubling. But at least an increase in low double digits. But they didn’t. Not even close. Not since 2008; nor since 2019; nor during the past 20 months 2025-26 under Trump.

The Long Term Jobs & Wage Picture: 2007-2026

(JOBS)

Let’s look at how the working class has fared in terms of jobs. Let’s start with the year 2007. That’s a peak year in employment, well before the crash of 2008-09 and the collapse and loss of tens of millions of jobs those years.

In 2007 the total size of the US Civilian Labor Force—i.e. all those employed and jobless but looking for work (in the US you can be out of work but not looking for work in which case you aren’t considered technically ‘unemployed’ and don’t show up in the unemployment rate statistics)—was 153.9 million.

According to the latest US jobs report for August 2026, there were 169.7 million in the Civilian Labor Force.

That means over the past 18.67 years, from 2007 through August 2026, the US created 15.8 million jobs. That’s roughly 850,000 jobs a year. Divided by months, it’s only 73,800 jobs a month.

Economists generally assume on average 125,000 new entrants enter the labor force monthly. These are students entering the labor market, former retirees having to return to work because they can’t make it financially, youths entering for the first time, and other categories of returnees.

In other words, since 2007 the US can’t sufficiently find jobs for citizens who want to enter the labor force and work.

So where did they go? They mostly dropped out of the civilian labor force altogether. The US government has a statistic for that. It’s called the Labor Force Participation Rate. It estimated 66% of the working age population in 2007 was in the labor force. It’s now 61.6%. That’s 4.5% fewer today. That’s 4.5% of a roughly 170 million today. Or about 7.6 million who’ve dropped out of the labor force altogether since 2007. By the way, they are without jobs but aren’t considered unemployed according to the way the US government calculates unemployment rates. Which means the current unemployment rate of 4.1% in August 2026 should be double that 4.1% at least.

Another labor department measure reveals the scope of the problem that the US is increasingly unable to find jobs for all its citizens who want to work.

It is called the Employment-Population Ratio. Given the rise in the US population, it estimates the percent of the population able to find work. Like the Labor Force Participation, that measure too is falling long term. As the US population rose from 303 million in 2007 to 343 million today, that ratio has fallen as well—from 62.7 to 59.1.

In other words, The US can’t create jobs to keep its population employed as it used to. More and more who can’t find work simply drop out—and are not counted in the unemployment rolls.

This is not about losing jobs due to recessions. That’s another separate cause. This is structural. It’s about an economy that can’t provide sufficient jobs long term for workers entering the labor force and wanting to work.

The past four and a half decades also shows a pattern of collaboration by politicians and corporations to consistently undermine full time job creation. In the 1980s millions of involuntary part time jobs were legally permitted for the first time in lieu of full time jobs. Their wages were less and few benefits were the norm. In the 1990s, millions more temp jobs were created with little or no benefits and no job security. Both part time and temp were legally excluded from the union contracts, where they existed. Free trade agreements after 1989 exported millions more full time jobs offshore. The advent of gig work after 2000 threw workers off regular company payrolls and adrift to find work as independent contractors—often contracted back by the same companies that fired them. Massive business tax cutting after 2001 further encouraged companies to replace millions of their workers with capital equipment. The government eventually reimbursing businesses for the full cost of the equipment that laid off the workers.

Tens of millions of US full time workers lost their jobs since 1980 to these various forces, or else were reduced to part time-temp-gig work at lower pay with few if any benefits and no semblance of job security whatsoever.

All these developments are examples of what’s called structural unemployment. They are apart and in addition to job losses due to recessions and business cycles, i.e. cyclical unemployment. Overlaid on the chronic, long term weakness in job creation, tens of millions lost work in the great crashes of 2008-09 and 2020-21, not to mention smaller recessions and periods of economic stagnation.

This weak long term, and growing weaker, US economy job creation record is about to get worse, much worse. It already is, in fact. The cause is the Artificial Intelligence technology revolution which began to have an impact in 2022-23 and now in 2026 is accelerating in its negative impact on jobs and wages of the US working class. More on which shortly below.

(WAGES)

The US Working Class has not fared any better since 2007 in terms of real wages.

If we’re talking about the working class, one should not include the salary and compensation gains for managers, CEOs and incorporated self employed like doctors, lawyers, small business, etc. The mainstream media likes to throw in their wages and compensation to make the overall wage numbers look better than they are.

The closes statistic of relevance for the working class is wages for what’s called Production and Non-Supervisory workers (PNSW), a subset of about 110 million workers who comprise roughly 81% of the US total private nonfarm workforce.

Real hourly wages for PSNW in 1983 was $8.03 (when adjusted for inflation using the government’s own base year of 1982-84, the most frequently cited statistic for adjusting for inflation). By August 2026 this had risen to $9.94.

That’s a real wage increase of about 4.4 cents/hr. raise a year since 1983!

That’s also likely an over-estimate for several reasons. First, it’s an average. Of the 110 million PNSW workers, those at the median were getting less than the top 10% and those well below the median even less. Second, there’s the question of the inflation index used, the Consumer Price Index, to get the real wage after adjusting for inflation. This author’s estimates conclude the CPI under-estimates actual inflation by at least another 1% a year. Third, even if not an average and if properly adjusted for inflation, it still does not mean the worker has $9.94 to spend. Take home pay after rising taxes and other deductions reduces the $1.14 gain even further. All this means real wages have not even risen the paltry 4.4 cents an hour per the government figures.

Real Weekly Earnings are another measure of pay. Weekly earnings are determined by the number of hours worked per week multiplied by the hourly wage and thereafter adjusted for inflation by the Consumer Price Index.

The results are similar to the hourly wage. The average weekly earnings for PNSW in 1983 was $272 a week. By August 2026 it was $336. That’s an increase of about $1.49 per year in weekly earnings.

The Short Term Under Trump: 2025-2026

Defining short term as the past 20 months of the Trump administration, January 2025 through August 2026, the data show both job creation and wages have slowed still further.

(JOBS)

Private Nonfarm Employment from January 2025 through August 2026 rose from 131.9 million to 132.7 million. That’s 800,000, or an average of 40,000 jobs a month, i.e. about half the monthly average of 74,000 over the longer term since 2007. In other words, nonfarm non-government jobs are being created at half the rate under Trump compared to the longer term since 2007. And don’t forget, that longer term since 2007 includes two massive periods of job loss in 2008-09 and 2020-21.

Government sector jobs not only did not grow at half the monthly rate under Trump but declined. Government employment in all sectors—federal, state, local—declined from 23.5 million in January 2025 to 23.3 million in August 2026, a 200,000 decline.

Both the Labor Force Participation Rate and the Employment-Population Ratio have also continued to fall under Trump—the former from 62.5% to 61.6% and the latter from 59.9 to 59.1.  More workers thus continued to leave the labor force, or did not bother to enter, or else failed to find jobs and gave up. However, none of their numbers show up in the official US government unemployment figures. They are simply considered ‘missing’ by the government and never included in the calculation of the unemployment rate. Which is one reason why the unemployment rate hardly changes at all year to year now, despite the increasingly weak job creation picture.

Breaking down the aggregate Private Nonfarm Employment numbers by industry since 2025 shows little or no net job growth, or actual decline. Manufacturing jobs fell from 12.6 million to 12.4 million. Professional and Business and Retail Trade, two very large areas of employment, were both stagnant since January 2025 with no job growth: the former at 22.5 million and the latter at 15.4 million today as well as 20 months ago. Only the general services sector, where many unskilled and entry level jobs dominate, showed any gain—from 136.5 to 137.4 million. This is important to note since the current escalating impact of AI on jobs has begun to impact this sector of employment first and hardest.

For a number of reasons due to methodologies and data collection, the US monthly job reports tend to grossly overstate the number of jobs created. Those reports (based on two surveys called the Current Population Survey and the Current Establishment Survey) are later adjusted the following year by considering new data from the States’ unemployment insurance data.

In the last two years of the Biden administration, for example, the monthly job reports over-stated the actual number of jobs created by 598,000 and 898,000 jobs, respectively, according to the US Quarterly Census of Employment and Wages (QCEW).

In 2025 the total growth in jobs was estimated at 584,000 by the monthly jobs reports. That was adjusted down by -403,000 jobs for an actual total of only 181,000 jobs created the entire year 2025.

In the summer of 2025, even according to the monthly job reports, the US economy created only 35,000 jobs a month over three months. Big losses were recorded in key sectors like manufacturing, professional & business services, and government. In August 2025 Trump freaked out and declared the Bureau of Labor Statistics management was faking the numbers to make him look bad and he fired the director, McEntarfar.

In the summer 2026 job creation collapsed again, resulting in less than 30,000 new jobs in both June and July, although August numbers rose again to 162,000. However, the composition of the 162,000 is questionable—given that more than 100,000 of that number are attributable to bars & restaurants workers (59,000 gain) and teachers (42,000). Some economists note that the  59,000 was due to the one time surge to accommodate the world cup soccer events in the summer. Another 42,000 was attributed to education. One wonders how teachers returning to work in August is not considered a seasonality adjustment. Did K-12 education really grow that fast in one month?  

It remains to be seen what the QCEW downward adjusted job numbers for 2026 will be when released in February 2027. Will Trump’s politics play a role? Or will the downward trend in job creation adjustment continue?

(WAGES)

The picture for short term wages under Trump since January 2025 is more certain.

There have been no gain the past 20 months under Trump in inflation adjusted hourly wages or weekly earnings for Production & Non-Supervisory Workers in the US.

The inflation adjusted average hourly wage was $9.93 in December 2024 and $9.94 in August 2026. Ditto for average weekly earnings: $335 in December 2024 and $336 today.

That means since 2007 the real hourly wage for PNSW workers was only 2.6 cents and hour. Compared to the 4.4 cents per hour average over the longer period, 1983-2026, the period 2007 to 2026 shows an even slower rate of real wage gain at 2.6 cents. As paltry as the amount is, the gains are declining over time.

And under Trump 2025-26, the gains have totally stagnated for both real hourly and real weekly earnings—in other words no gains whatsoever. And if inflation were more accurately estimated, or the median instead of the average considered, the real hourly and weekly pay would indicate a decline under Trump. Take home pay would fare even worse.

If the job creation and real wage picture for the Working Class is dire in 2025-26, what about the intermediate and longer term, 2027 through 2030?

As bad as it is today 2026 for the working class, it’s about to get worse—and quickly. The current trends in Artificial Intelligence are destined to accelerate the crisis in jobs and wages for the American Working Class. Here’s why.

The Agentic AI Jobs Armageddon

The AI Revolution is occurring in stages. The first stage emerged around late 2022 with the introduction of the AI model called ChatGPT. This was simple AI. Someone programmed the model to do a task. Gave it a result to achieve. Identified tools for it to get and use. Where to go for the data. Then set it in motion with a human user prompt. The user defined the parameters and ChatGPT performed the task faster than any human. And as it performed more, it got more accurate with fewer errors. Moreover, it worked 24/7. No breaks. Holidays. Vacations. No benefits. Faster and cheaper meant more productivity. That meant reduced unit costs and that translated into more profits. Not just from productivity but because it also resulted in significant layoffs of real workers. AI is about making money by reducing labor costs and boosting productivity.

ChatGPT and its competitors targeted the replacement of simply decision making jobs formerly done by humans. Jobs that required little skill. Where the decision process was clearly defined, unambiguous and repetitive. This meant a lot of entry level service as well as manufacturing jobs.

Research sources like Goldman Sachs bank and McKinsey Consulting issued early predictions of the potential job loss due to AI. Goldman predicted 300 million worldwide.  Dozens of other sources have since issued forecasts and predictions of job loss. Nearly all talk of hundreds of millions lost plus more jobs de-skilled and downgraded (and therefore lower paid).

Occupations like data entry clerks, telemarketers, customer service reps, cashiers, medical transcribers, translators, copy and content writers, insurance underwriters, paralegals, basic software coding and many others were the initial jobs impacted by first generation AI ChatGPT 3-4 and its clones. By 2026 these occupations have already been decimated by millions with more job destruction in progress.

The second generation AI appeared in 2026. Its job impact will prove much greater than first generation ChatGPT. It’s called ‘Agentic AI’. And its target is jobs involved in the entire workflow of companies in general. Not just certain industries. Agentic AI is not industry specific. Agentic AI doesn’t depend on repetitive prompts from a human user, like ChatGPT. Agentic AI operates autonomously. Give it a final objective, it seeks out tools and databases wherever it needs them to complete its objective.

Agentic AI is about AI managing AI. It is AI scaled manyfold. Its scalability is potentially unlimited. It is AI that eliminates jobs involving not just simple decision making jobs but what’s sometimes called knowledge workers. It is AI moving up the skilled and complex decision making chain.

Agentic AI hit the economy in early 2026 with a force and a rapidity experienced by no other technology. It is just nine months old and its effect is intensifying. The lure of significant cost reduction and profits expansion has resulted in management rushing its implementation regardless of unknown disruptive consequences.

Agentic AI means an ‘orchestrator’ AI agent directs and manages the tasks of countless other agents under its direction. Emphasize ‘countless’. It is applicable to workflow management throughout all industries and companies. Job functions like project managers, product managers, marketing managers and middle to upper management in general are becoming, or soon will become, superfluous. Much of human resource functions, marketing, accounting, legal and other ‘back office’ work become redundant. Research analyst jobs of all kinds, including stock market analysts market research analysts, systems analysts, etc are all on the Agentic AI block. Traditional quality control jobs are destined to disappear. Agentic AI manages its own quality control tasks. If it makes an error it self corrects its code.

These are not entry-level or simple decision making jobs. They are jobs critical for managing the overall flow of work within virtually every company in every industry.

Most creative work within businesses is also subject to displacement by Agentic AI. Recent surveys showed, for example, that 40% of all song creation in the first half of 2026 had some element of AI in its production, and 20% of all songs were totally AI generated. TV and movie script writing is being similarly impacted right now as well.

Wherever an activity report is issued to or by management in a company—that activity and report can be potentially done by AI.

Earlier this spring 2026, META’s CEO, Zuckerberg, attempted to take the lead by implementing agentic AI throughout the company. His ‘Project OT’ (OT=Organization Transformation) planned to gut most middle layers of the company—including middle managers, project team leaders, software developers, etc.—and have agentic AI replace their tasks. Reports were up to 60% of META jobs would be eliminated or announced cut by November 2026. The META workforce heard of the plan and threatened to leave or demonstrate or even unionize. Zuckerberg backed off and reduced the 20% scheduled spring job cuts to 10% and cancelled planned November layoffs. META couldn’t afford an employee revolt, given its need to secure investor commitments and borrowing to fund its massive AI investing plans.

In recent interviews, Microsoft’s Bill Gates and Google’s Eric Schmidt, made predictions about the impact of this latest stage of Agentic AI on employment in general.

Gates noted the unprecedented rapid pace of AI development with Agentic AI and warned 50% of all entry level jobs will be gone in two years. That’s tens of millions of US jobs. The unemployment rate, now stuck at around 4% in recent years, will range between 10%-20%.

Eric Schmidt, former CEO of Google, has publicly declared people “have no idea what’s coming in 2027.” Only 10% of the impacts of AI are now known, according to Schmidt. There will be an unlimited number of AI agents in two years, he warned. Already, Anthropic Corp’s ‘Claude’ leading edge Agentic AI is doing 80% of all software coding, he added.

Whereas first AI generation ChatGPT eliminated simple service decision making, Agentic AI targets the huge Business & Professional Services sector of the US economy with its 22.5 million jobs. (jobs already not growing in recent years per earlier data).  The target is also the 20 million current US middle-upper management jobs. Both sectors are especially vulnerable to next generation AI replacement.

Agentic AI has also begun to transform ground transportation and manufacturing sectors, and by 2030 will begin to displace the 4 million K-12 public school teachers as well.

AI is already impacting the 2.2 million long haul truck driving industry. 18 wheeler trucks are already traveling across Texas without drivers in the cab. There’s another 1.3 million short haul truckers’ jobs also eventually at risk as well. Uber has 1 million ride-sharing drivers. UPS 100,000 drivers. 134,000 deliver for Amazon. 250,000 drive trucks for the US post office. With Agentic AI, each self-driving vehicle becomes an AI agent with an ‘orchestrator’ AI agent located at company headquarters directing them, planning and changing to the most efficient routes on the fly, avoiding congested traffic flows—all tracked simultaneously via a company’s access to dedicated low orbit satellites.

As knowledge workers, K-12 teachers are well adaptable to displacement by Agentic AI. One can easily imagine State governments defining centralized lesson plans for most academic subjects in K-12 public schools and delivering teaching services by various multi-media devices in the classrooms. Skilled teachers today replaced by lower paid, less skilled humans in the classroom operating the machines and monitoring classroom behaviors. Teachers become babysitters and classroom machine operators. Those that remain in the less skilled roles will consequently be paid less.

Then there’s what’s called ‘Physical AI’, i.e. robots. One has only to view the videos of the current level of AI development in China to understand the rapid pace of development of ‘physical’ AI now underway. And it’s only beginning. The use of human-like AI engineered robots is accelerating exponentially. Already humanoid robots are directing traffic in crowded inner-cities in China.

Not least, the use of Agentic AI in the military is unlimited. It too will negatively impact jobs. Agentic AI is perfectly adaptable to battlefield management. Hundreds and thousands of airborne drones today already engage daily in the war in Ukraine. Swarms of underwater and land-based drones are being prepared. Battlefield management by Agentic AI of individual AI agent military vehicles, weapons systems and robots is on the drawing boards by all major military powers—China, Russia, the US in particular. Fewer human recruits to the military in the US will be required within five years. Today’s 1.3 million active US military force will be reduced by tens and hundreds of thousands of human recruits. The US military recruited 163,000 in 2025.  That level will no longer be needed and will be reduced by tens of thousands annually. Those rejected will be forced to enter the labor force instead, at a time of massive structural unemployment due to accelerating next generation AI.

How do all these impacts current and imminent result in job destruction due to Agentic AI and whatever comes next, 3rd generation?

If Gates is accurate in predicting the unemployment rate will surge to 10%-20%, that means the current 7 million unemployed full time workers today in the US (i.e. the 4.1%) will total 25 million unemployed—assuming just a 15% unemployment rate.  And if Schmidt is right, that’s potentially within the next two years, by the time of the next US general election in 2028.

And that 25 million will not count any unemployment driven by a business cycle contraction and next recession that this writer predicts will occur before 2028. But that’s another story.

Dr. Jack Rasmus

September 7, 2026  

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‘Incomes, Jobs, and Obama’s 2013 State of the Union Address’

Posted in Uncategorized, tagged , , , , , on February 11, 2013| 1 Comment »

On Tuesday, February 12, 2013, President Obama will give his State of the Union address. Previews from the media in recent days indicate he will talk about job creation and the problem of income stagnation for the middle class. Neither of these issues—jobs and income—have been seriously addressed for more than five years since the start of the recent recession in December 2007. More than 20 million workers remain jobless and real income for middle class families has fallen, and continues to fall, for the past five years according various measures.

It is rumored Obama will call for a massive increase in Free Trade, specifically for a pacific-wide free trade agreement, the ‘Trans Pacific Partnership’ agreement that his representatives have been working on already for more than a year. Also in the works is a parallel Free Trade agreement with the entire European Union. If passed, these agreements will result in millions more lost jobs—not new jobs—and will make the more than 5 million jobs already lost to NAFTA free trade and China preferred trade pale in comparison. But it will be passed off as a ‘job creator’.

With regard to domestic job creation, it is rumored he will call for business to invest more in the US in order to create jobs here. It is not likely, however, the President will bother to mention the more than $2 trillion in cash US corporations are sitting on—or distributing to their stockholders to the tune of $500 billion last year—instead of creating jobs. Nor is it likely the President will mention that, according to latest Wall St. Journal surveys, big businesses plan to increase investment in 2013 by a mere 2%, down from 8% in 2012 and 20% in 2011. He will exhort them to do something more about investing and job creation, without saying what he himself will do if Business continues to sit on its massive cash hoard and lower investment still further.

The reason most frequently given by CEOs for not investing more in the US is that US consumers aren’t buying enough. True enough. Except for the wealthiest 10% households, median family consumer spending is lagging badly. Most of median household spending that is occurring is spending on credit—credit cards, installment loans, student loans—or spending from depletion of savings to cover escalating healthcare costs. Consumer spending based on real income gains is just not happening for the middle class. And that picture is about to get seriously worse very quickly in coming weeks, given the recent run-up in gas prices that will almost certainly exceed $5 a gallon this spring.
But Obama will talk about the need for income gains for the middle class, while remaining short on the specifics how that will occur; he’ll talk about the need for more jobs without offering specific programs except for more job-destroying free trade agreements. And while he’ll reference the key problem of falling real middle class incomes, specific solutions he plans will be conspicuously absent.

How important is the fact of stagnating and/or declining middle class incomes? The following are some of the more salient facts about income inequality trends in the US in recent decades and years; why those trends are growing worse; and why that inequality is a major factor in the now stagnating once again US economy and recovery.

The Wealthiest 1% Households Historic Income Gains

The dominant characteristic of the US economy today—and a fundamental cause of the faltering, stop-go economic recovery in the U.S. since 2009—is the long term and continuing growth of income inequality in America.
That inequality is most dramatically represented by the growth in the share of national income by the wealthiest 1% of households, on the one hand, and the decline in the share of national income for the bottom 80% and remaining 110 million plus US households, on the other—i.e. between those earning an average of $593,000 a year (top 1%) and those earning less than $118,000 a year (bottom 80%) with a median annual income of around $50,000.

With average annual incomes of $593,000 a year today, the wealthiest 1% of households in the U.S.—approximately 750,000 out of a total of more than 150 million families in the U.S.—receive about 24% of all income generated in the US every year, according to Nobel Prize winning economist, Joseph Stiglitz. That’s up from only 8% of total income in 1979. That’s a tripling of the wealthiest 1%’s annual share of total income over the last three decades since Ronald Reagan took office. Not since 1928, when the wealthiest 1% share of income reached 22%, has income inequality been as extreme as today. And income inequality continues to grow worse at an accelerating rate.

According to studies of IRS data by University of California economist, Emmanuel Saez, and others, during the Clinton years, 1993-2000, the wealthiest 1% households captured 45% of all the increase in US income growth. During the George W. Bush years, 2000-2008, they captured 65%. And in the latest year of available data, 2010, they captured 93%. So the top 1% recovered quickly from the recession. So did their corporations, from which the same 1% households obtain more than 90% of all their income in the form of capital gains, dividends, interest, rents, and other forms of ‘capital incomes’.

Corporate Profits and the 1%

Profits are the major conduit through which the wealthiest 1% incomes grow, redistributed to stockowners, bondholders, and senior executive managers in the form of capital incomes like capital gains, dividends, interest, rents, etc. And Corporate Profits have done extremely well the past three decades, since 2001 in particular, and especially since the Great Recession of 2007-09.

After three years of recession, by 2011 corporate profits in the US were higher than even in 2007 just before the Great Recession began, rising at the fastest rate in 31 years during the recession and immediately after in 2010-11.
Averaging an annual rate of increase of about 10% from 1948-2007, Pre-Tax Corporate profits virtually doubled from their recession 2008 low-point of $971 billion to $1.876 trillion by March 2011 less than a year and a half later—i.e. a level 28% higher than even their 2007 pre-recession record high of $1.460 trillion.

A subset of the $1.876 trillion, i.e. profits of the 500 largest US corporations, rose 243% in 2009-10 according to the Wall St. Journal. That’s 243% after averaging 10% a year during 1998-2007. Moreover, that 243% does not include profits of multinational US corporations hidden and sheltered in their offshore subsidiaries, which in 2012 were estimated at more than $1.4 trillion.

This record gain in pre-tax corporate profits since the onset of the economic crisis in 2007-08 was achieved not from the increased sale of goods and services, but from record profit margins from cost-cutting operations—i.e. by cutting jobs, by reducing wages, benefits, and hours of work, and by productivity gains pocketed by management and not shared with their workers. Profit margins since 2008, i.e. profits as a percent of operating costs, by 2011 thus attained the highest levels in more than 80 years.

Just as cost-cutting at the direct expense of workers has been the main factor in generating record pre-tax corporate profits, so too have Corporate After-Tax profits surged as a consequence of massive corporate tax cutting by governments at all levels, Federal as well as State and Local.

Major corporate tax cut legislation in 2004-05, new rules allowing faster depreciation write-offs (a form of tax cut), and disregard of enforcing the foreign profits tax under George W. Bush all resulted in a further surge in corporate after-tax profits in Bush’s second term, 2004-08. That was followed by hundreds of billions more in business tax cuts at the Federal level under Bush and Obama from 2008 through 2012.

State and local government taxes on business since 2008 have been falling especially fast, as a December 1, 2012 feature article by Louis Story in the New York Times abundantly pointed out. That article estimated the cost of business tax cuts to by State and Local governments at no less than an additional $70 billion a year not represented in the above profits figures.

As a result of the continuing corporate tax cuts since 2008 at all levels of government, Corporate After-Tax profits recovered even faster during the recent recession than did pre-tax corporate profits. From a 2008 low-point of $746 billion, in less than 18 months from the recession low, after tax profits rose to $1.454 trillion—i.e. a level of 47% higher than even their 2007 pre-recession record of $989 billion. In other words, after tax profits recovered twice as fast as pre-tax profits as a direct consequence of government business tax cutting during the recent recession.

Corporate cost cutting at the direct expense of labor resulted in record corporate pre-tax profits during the last decade and especially since 2008. Three decades of corporate tax cutting—intensifying since 2001 and continuing through the recent recession—resulted in even greater after-tax profit gains. But as corporate tax cutting has intensified so too has the cutting of taxes on recipients of capital incomes—i.e. capital gains, dividends, interest, rents, etc.

The Personal Income Tax has concurrently been reduced for the wealthiest 1% households, enabling the ‘pass through’ of ever larger magnitudes of corporate after-tax profits to the wealthiest 1% and permitting that 1% to retain ever greater amounts of those distributed corporate profits as a result of accompanying reductions in the personal income tax.

The reductions in the Personal Income Tax have occurred in various forms: the lowering of the top marginal tax rates, the raising of the income threshold at which the top marginal rates would apply, the reducing of capital gains and dividends tax rates even faster than for other forms of income of the wealthiest 1%, introduction of new forms of interest income taxed at lowest rates (e.g. carried interest), the IRS benign neglect of offshore tax sheltering by the wealthy, the proliferation of countless income tax loopholes benefiting the wealthy too numerous to recount.

The outcome has been the shift in income to the top 1%, from 8% in 1979 to the estimated 24% share of national income in 2012, and the accelerating accrual of all income gains by the top 1% noted previously in the opening paragraphs of this essay.

Income Decline for the Bottom 80%

But income inequality is a consequence not only of income shifting to the wealthiest households and their corporations. Income inequality is a ‘double edged’ sword. It is also the consequence of conditions and policies which have simultaneously reduced the real incomes of the bottom 80% households—i.e. those 110 million earning less than $118,000 annual income and most of whom earn less than $50,000—while simultaneously raising the incomes of the wealthiest and their corporations. Once again the nexus is Corporate America.

The heaviest impact has been on working class households earning annual income from $39,000 to $118,000 a year—virtually all of which is wage income—sometimes called the middle class.

According to the PEW Institute’s 2012 study, the share of total income for those households in that annual income range declined from 58% in 1983 to 45% in 2011. So what the top 1% households gained (16% share increase, from 8% to 24%), the middle class largely lost (13% share decline from 58% to 45%). In terms of wealth estimates, the middle class has lost 28% of its wealth in just the last two decades, whereas the top1% share of wealth has risen from 27% to 40%. The size of the middle class itself has declined, shrinking from 61% of adults in the US population at its peak to only 51% today.

The decline in income and wealth has been long term, increasing noticeably since 1980, accelerating since 2001, and continuing through the recent recession to the present day. Since 2008, households without a 4 year college education have been especially hard hit, with a significant -9.3% income decline at the median in less than four years. Older workers, age 55-64, and younger workers, age 25-34, have been similarly hard hit in terms of income decline; the former a -9.7% drop and latter a -8.9% drop. Even college degree workers’ income has fallen by -5.9% since the so-called end of the recent recession in June 2009.

While some of the income decline is due to wage and benefit reductions by those who did not lose their jobs during the recent recession, much more of the relative income decline has been due to massive loss of jobs since 2007, which reached a level of 27 million at one point and still remain at 22 million after four years of so-called recovery. While more than 15 million jobs were lost, no more than 5 million have been ‘recovered’ since the recession began. Moreover, the jobs added during the recession have paid significantly less than the jobs lost, thus lowering income accordingly. According to a National Employment Law Project survey published in August 2012, 60% of the jobs lost during the recession were higher paying construction, manufacturing, and tech jobs, ranging between $13.84-$21.13 per hour. But only 22% of the jobs added since 2008 were in this range. In contrast, 21% of the jobs lost after 2008 were low paying, $7.69-$13.84, but the latter have been 58% of the jobs added during the recession. And the problem is not only short term and recession related. Since 2001, low wage jobs have grown 8.7% while higher wage jobs have decline -7.3%.

In summary, while corporate profits have continued to grow so too has the income of the top 1 wealthiest households. This has been made possible in large part at the expense of the middle and working classes, as rising corporate profits gained at workers’ expense are passed through to forms of capital incomes—the latter process accelerated by the reduction in both corporate taxation and personal income taxation for the wealthiest 1% households. The process began in earnest more than three decades ago under Reagan, continued under Clinton, accelerated under George W. Bush, and has remained under Obama during his first term. The consequence has been the growing—and accelerating—income inequality in America which is a major characteristic of the US economy in the 21st century.

But don’t expect to hear anything specific or concrete from the President how he proposes to reverse the continuing deterioration in middle class income. What he’ll likely say is you don’t have enough income because you don’t have enough education, so go out and get more and take on even more student debt. And he’ll say the way to stimulate investment and jobs is to pass more Free Trade treaties that will destroy millions more jobs. Or pass the Immigration bill, much of which is being drafted right now by big tech companies to ensure they can hire hundreds of thousands more H-1B visa workers from their offshore subsidiaries. Or propose to create ‘green’ jobs by giving the ‘greenlight’ to natural gas fracking and pipeline construction throughout the US. But none of that will solve the problem of more than 20 million still jobless, or the fact that jobs that have been created are low pay, part time, temp, non-union service jobs with little or no benefits—that is, jobs that do little to resolve the even deeper problem of stagnating middle class incomes.

Jack Rasmus
February 11, 2013

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