The Economic Story of the Year: The Stock Market vs. the Labor Market

On Tuesday, the S&P 500 and the Dow closed at nominal all-time highs. Three days later, the Bureau of Labor Statistics reported that the economy added a shockingly low 88,000 jobs in March. How bad is 88K? Well, put it this way, we're theoretically in the midst of an accelerating recovery, and 88K new jobs per month won't get us back to full employment for another 20 years, or more.

I suspect that this will be one of the defining national stories of 2013, and beyond: The big, sustained, and accelerating gap between the working opportunities of most Americans and the profits produced at the top.

You could argue that this is a new, and transitory, story. You could say I picked two headlines from the past four days (I did). You could say that firms rushed to technology and efficiency to replace workers in an exceptional, and slowly normalizing, crisis (they did). You could say that the balance between labor and capital might naturally come back to normal as rising Asian wages send more work back into the U.S. (they might).

But when you draw back the lens, you see that this week's stock market/labor market schism isn't a new story, at all. Here's the 40-year look at the growth of corporate profits vs. GDP vs. income that goes to workers, rich and poor. I mean, holy wow.

Why are corporations on such a tear? The first clue is that a significant share of these profits have always come from two sectors, as Jordan Weissmann has reported: Manufacturing and Finance. Together, they account for more than 50 percent of domestic corporate profits. But they employ just 13 percent of the workforce. 

Manufacturing and finance are both global industries, and global industries have advantages on both sides of the profit equation. First, they have access to demand in countries that are growing quickly, especially in Asia and Latin America. Second, they have access to workers in countries with cheaper wages.

Meanwhile, the fastest-growing jobs in the U.S. over the last few decades have been in industries insulated from globalization, precisely because so many jobs in worldwide industries like manufacturing have escaped overseas. Between 1990 and 2008, virtually all (97.7 percent) of the net new jobs came from what economists call the "nontradable" sector, which is a funky way of saying the work must be done locally (e.g.: government, education, health care). Even in the recovery, health care, food service, and other local and low-paying industries have led the jobs recovery.

Workers in local industries might have access to the global capital boom if they saved and invested in a markets whose growth represented the success of global companies and the flow of global capital. But they don't, really. Many families hardly have any savings outside of their 401(k) at all. Eighty percent of stock market wealth goes to the top 10 percent (graph below).

This isn't shocking. People with more money have more money to save and invest, which typically makes wealth inequality wider than plain-old wage inequality. But it exacerbates the trends we're seeing from the top: Small local jobs falling behind the runaway train of global capital.

No matter how you want to break down the schism -- 99% vs. 1%; wages vs. wealth; labor vs. capital; local vs. global -- this thing is real and there aren't many good reasons to expect it to go away, whether we have a great jobs report (last month) or a bad jobs report, like this week. This is the economy, now.