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“Capitalists” (as if  that was some sort of dirty word – if your grandmother owns any mutual funds she is rightly called a capitalist) are accused of exploiting workers in the sense that firm owners/shareholders receive the bulk of the value that its employees create.

One way to assess the validity of this claim is to measure the value of each employee to the output of the firm, and to see whether their wages are in line with this value (standard neo-classical theory suggests that these should be roughly equal). Advanced theories of capital by Marx, Bohm-Bawerk and many others go into far more detail than I need to for the purpose of this post. A simple way to understand whether this exploitation is happening is to compare the after-tax profits of all U.S. corporations with the compensation received by all employees of these corporations. Looking at recently released government data you will find that:

  • after tax corporate profits in 2007 were $1.412 trillion;
  • the compensation of all employees of U.S. corporations was $7.965 trillion.

Workers received roughly 85 percent of corporate funds available for distribution. While this share is down from 90 percent two decades ago, the large majority of corporate income ends up in the hands of workers, not the exploiting capitalist class.

In case you were wondering, total taxes on corporate income were $470 billion last year and GDP topped $14 trillion for the first time.

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