In the graph below, aggregate corporate profits after accounting for changes in inventory valuation and capital consumption (blue line) is plotted against the real median wage of U.S. workers (red line). The term ‘real’ in this case indicates that the data has been adjusted for inflation.
Historical evidence over the past 40 years suggests that, despite increases in productivity and corporate profits, wage growth continues to disappoint. The situation begs us to ponder how an economic recovery, built from a deteriorating economic base, can be sustained. In other words, is it realistic to expect consumers to increase their purchasing power via debt as interest rates continue to rise?
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