The Great Decoupling of Corporate Profits from Jobs
Monday, July 26, 2010
Second-quarter earnings
reports are coming in, and they’re making Wall Street smile. Corporate
profits are up. And big American companies are sitting on a gigantic
pile of money. The 500 largest non-financial firms held almost a
trillion dollars in the second quarter, and that money pile is growing
larger this quarter. Profits that plummeted in the recession have bounced
back. Big businesses have recovered almost 90 percent of what they lost.
So with all this money and profit, they’ll start hiring again, right? Wrong –
for three reasons.
First, lots of their profits are coming from
their overseas operations. So that’s where they’re investing and
expanding production.
GM now sells more cars in China than it does
in the US, but makes most of them there. The company now employs 32,000
hourly workers in China. But only 52,000 GM hourly workers remain in the
United States – down from 468,000 in 1970.
GM isn’t just hiring low-tech assembly
workers in China. Last week the firm broke ground there on a $250
million advanced technology center to develop batteries and other
alternative energy sources.
You and I and other American taxpayers still own over 60 percent of GM. We
bought GM to save GM jobs, remember?
GM officials say no American taxpayer money is being used to expand in China.
But
money is fungible. Because of our generosity, GM can now use the
dollars it doesn’t have to spend in the United States meeting its
American payrolls and repaying its creditors, for new investments in
China.
Second, big U.S. businesses are investing
their cash in labor-saving technologies. This boosts their productivity,
but not their payrolls.
Last Friday, for example, Ford reported a
$2.6 billion second-quarter profit. The firm is already more than
two-thirds the way to equaling its record 1999 profits. But due to
labor-saving technologies, Ford now has half as many employees as it did
a decade ago.
Wall Street analysts are happy with Ford’s “commitment to keeping capacity in
check,” according to the Wall Street Journal. Ford shares rose 5.2 percent
Friday. “Keeping capacity in check” is the Street’s way of saying “no new
hiring.” In fact, the Street is advising investors to sell the stocks of
companies that talk openly of expanding capacity.
Finally, corporations are using their pile of
money to pay dividends to their shareholders and buy back their own
stock – thereby pushing up share prices.
Last Friday, GE announced it would raise its
dividend by 20 percent and reinstate its share-buyback plan. It’s GE’s
first dividend increase since the company cut its dividend in early
2009. As a result, GE shares are up more than 5% in the past few days.
Bottom line: Higher corporate profits no
longer lead to higher employment. We’re witnessing a great decoupling
of company profits from jobs.
The next supply-side economist who tells you
companies need more incentive (i.e. lower taxes) before they’ll hire is
living on another planet.
The reality is this: Big American companies
may never rehire large numbers of workers. And they won’t even begin to
think about hiring until they know American consumers will buy their
products. The problem is, American consumers won’t start buying against
until they know they have reliable paychecks.
http://robertreich.org/
[Non-text portions of this message have been removed]
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