In the second year of a pandemic that began by wiping out 20 million jobs, American workers are doing surprisingly well. It’s just that American big business is doing even better.

In the past two quarters, U.S. corporations outside of the finance industry posted their fattest margins since 1950 — one reason why stock markets keep hitting all-time highs.

On earnings calls, plenty of executives complained about the squeeze from rising costs of labor as well as materials. But overall, profits were up 37% from a year earlier, according to data out last week from the Commerce Department.

Businesses have been paying out more cash to their employees, too, with total compensation up 12% in the last quarter from a year earlier. That’s partly because millions of Americans went back to work — but also because many got a raise when they did so. Hourly earnings broadly kept up with the fast-rising cost of living, and in some low-pay industries like leisure and hospitality they comfortably outpaced it.

Viewed that way, it looks like everyone’s coming out ahead, and so much for the great zero-sum struggle between labor and capital. At Deere & Co., for example — the tractor-maker that’s seen the highest-profile strike of the pandemic — workers held out to get a 10% raise, yet the company is still expected to earn even more next year than the record profit it posted Wednesday.

But that rosy scenario doesn’t apply everywhere, nor is there any guarantee it will last.


Most U.S. workers, unlike the ones at Deere, aren’t in unions, which means they probably have less bargaining power. Superstar tech firms may be raking in cash, but many small businesses — restaurants, say — are struggling to stay afloat as their costs rise. Incomes are beating inflation for now, but that race isn’t over yet.

In a U.S. economy that’s surging toward a post-pandemic era, the share of growth that workers and businesses can eke out for themselves is going to be a key part of the answer to a lot of big questions.

Among them: Can President Joe Biden keep his thin congressional majorities next year, and get his spending plans through? Where is policy headed at the Federal Reserve? And, linked to both, how long will the pandemic price-surge last?

U.S. consumer prices rose 6.2% in the 12 months through October, the most since 1990. The new data on corporate earnings suggest business can comfortably pass on all its higher costs, which means there may be more inflationary pressure to come.

“If profits are strong, there’s going to be continued demand for workers, and in a tight labor market there’s going to be continued upward pressure on wages and compensation,” says Robert C. King, director of research at the Jerome Levy Forecasting Center in Mount Kisco, New York.


What all of that shows, says King, is a strong economy, not one that’s about to be tipped into recession by surging prices. As for how that growth gets shared out, King acknowledges there’ll be local fights between labor and capital but reckons that, overall, the idea is “somewhat an illusion” — because when firms dole out cash to workers, they generally hand it right back.

“Individual firms might not see that,” he says. “But businesses in the aggregate can safely say that when they spend more money on workers, that’s going to be a situation where there is more revenue coming back to them.”

The most important reason why both companies and workers are earning more than they did in February 2020, even though the economy’s been through a record-busting recession since then, is America’s COVID-era fiscal policy. Ample support for households meant their incomes actually rose, an unprecedented outcome in a slump, so they bought more stuff from businesses too.

Unfortunately for Biden, many naysayers — including centrist Democrats in Congress whose votes he needs to pass legislation — point to the pandemic spending as a primary driver of rising inflation. That’s one reason why clean energy and child care bills, slated to be the historic achievements of his administration, are getting pared back.

The president has promised higher wages. He’s under pressure to rein in high prices. He hasn’t said a whole lot about high profits, the third leg of that stool, but Biden did call out companies in one politically sensitive industry: gasoline.

Wholesale prices actually fell in recent weeks but the price at the pump “hasn’t budged a penny,” the president said Nov. 23. If that margin had held in line with historical norms, “Americans would be paying at least 25 cents less per gallon right now as I speak. Instead, companies are pocketing the difference as profit. That’s unacceptable.”


Biden ordered a Federal Trade Commission probe. He’s been pressed to take action over “price-gouging” in other industries too. Still, a president has limited power over prices, and polls suggest high inflation is among the big threats to Biden’s Democrats in midterm elections next November.

The institution that’s supposed to have tools to tackle inflation is the Fed, and much of the outlook for labor will hinge on what it decides to do next.

With their benchmark interest rate near zero, U.S. central bankers have been downplaying pandemic price spikes as “transitory.” But they’re getting less comfortable with that view, and pivoting toward tighter policy — which puts downward pressure on inflation by reining in growth in jobs and wages.

That could have implications for how the balance of income between labor and capital evolves.

“That’s a lens by which I’m going to be listening to so many business reports on wage effects and price increases,” Chicago Fed President Charles Evans, one of the central bank’s more dovish policy makers, told reporters Nov. 18.

The Fed has been arguing for low rates partly on the grounds that they help create a hot jobs market with better pay. After sinking to the lowest levels in decades following the 2008 crisis, labor’s share of national income began to pick up again in recent years amid historically low borrowing costs.


When wages rise faster than productivity, though, Fed officials tend to worry more about inflation. The problem with that view, Evans said, is that it can end up “locking in” a lower share of income for workers than they otherwise might be able to attain, effectively making monetary policy anti-labor.

The fading of COVID-era commitments by the Fed and the politicians in charge of public spending may be a longer-run risk for workers. In the near term, there’s likely enough fuel in the economy already to sustain the demand that creates jobs and boosts pay. Households have cash saved up. Companies have earnings they can invest.

Much of that is down to macroeconomic policy, but efforts by workers themselves make a big difference too. At Deere, they did — and the company’s high profits likely played a key part.

Employees went on strike in October, the busiest time of year for the company’s customer base on America’s farms. They turned down one deal that management and union leaders had agreed to. Then they turned down a second, significantly better one. The company was showing signs of panic, asking software engineers to fill in on factory lines.

“Workers may be tired of seeing the fruits of their labor go to corporations making record-breaking earnings,” Chris Rhomberg, a professor of sociology at Fordham University, said at that point. “The Deere workers evidently felt that the company could afford more.”

Just a few days later, they were proven right.

Bloomberg’s Josh Eidelson contributed to this report.