So far, history be damned. The contrast between revived profits and stunted job growth is stunning. From late 2007 to late 2009, payroll employment dropped nearly 8.4 million. Since then, the economy has recovered a scant 11 percent of those lost jobs. Companies are doing much better than workers; that defines today’s economy….
“Businesses can’t cost-cut their way to consistent profit growth,” argues Zandi. “Eventually, they need to generate revenue growth that requires investment and hiring.” There are some favorable signs. Companies seem to have stepped up replacement of aging computers; this could create jobs. General Electric says its 2009 research and development budget of $3.3 billion was up 18 percent since 2006, and it is supporting new products, from batteries to solar films.
But it’s unclear whether corporate elites were so traumatized by the crisis that they’ve adopted a bunker mentality. That, as much as uncertainty over Obama administration policies, could be fearsome. What might appeal to individual firms — paring expenses to maximize profits, hoarding cash to protect against a future financial crisis, waiting to hire until sales improve — could, if adopted by most companies, sabotage a stronger recovery. If labor is cowed and capital is overcautious, the economy must suffer.
The Fed’s want to raise their taxes, increase regulation, add to their paper work and cost of doing business etc. Why would anyone expect them to behave other than what they are doing? Not a day goes by that the current administration calls and treats them as the scum of the earth and the source of all evils. Look at the raw anti-business power exercised in the Gulf Oil moratorium and the refusal of the Government to obey the Court’s ruling.
Given the current anti-business atmosphere business is behaving perfectly rationally.
As always, Samuelson is clear, calm balanced, and free of cant. Thank you for posting this.
People caught up in slavery today can be purchased and sold for as little as $100 (compared to 10 times that much in the 1850s). I wonder if the economy is setting the stage for an upsurge in trafficking in the US.
Perhaps businesses don’t want to pay workers the middle class wages that can buy the products businesses make. They’d prefer to offer everyone minimum wage and work on the week-ends.
I suspect that many of these companies are realizing profits now at the expense of future profits since they anticipate higher taxes in the future.
Perhaps production line workers with high school diplomas shouldn’t be paid as much as highly talent college graduates with very competitive technical skills.
Maybe the difference between these two wage earning categories should be somewhere around two-to-one or even three-ro-one.
Does anyone want a return to the “good old days” when we were forced to pay more for inferior goods produced by union labor that was constantly at war with management. As an example, I well remember the lousy cars produced by Detroit that were overpriced because of the high salary/high benefit packages extorted by the UAW. The connivance between the UAW and management set the stage for imports like Honda and Toyota to deal mortal blows to Detroit. Greed and hubris on the parts of both management and the unions were a leading cause. If you think you have oligopolistic pricing power, it’s easier to give in to union demands and raise prices than it is to keep innovating and improving. We could have slapped tariffs on imports, but that is just delaying the inevitable. Eventually, as developing economies grew their own domestic demand, capital from U.S. corporations would flow to invest in these economies. The only solution, IMHO, is to keep innovating and relentlessly cultivating competitive advantage in a business development friendly socio-political environment.
Why are we taken back that developing countries are entering the industrial revolution? You might recall that England banned exportation of certain technologies to the American Colonies in order to protect their position. How did that work out for them?
Replay to Graydon (#8.).
” How did that work out for them?”
The history books say high unemployment and squalid city slums.
Obama wonders why there are no jobs being created when he, Pelosi and Reid have been doing everything imaginable to ensure that no jobs will be created. They are willing to keep funding “emergency” unemployment benefits but wont lift a finger to create a commercial sector job.
#10, we created a lot of green jobs with that $787 Billion “stimulus” bill. And they cost only $500K per job…..OK, move along, nothing to see here!
The reason why CEOs aren’t hiring is the same reason why I’m not out buying a plasma tv.
Or many other things.
And why I’ve deleted many things from my purchase list. I’m squirreling away. Like small to mid-sized businesses are.
We can’t afford to hire, the costs are too great. The result is we partners work seven days a week now with no help.
In this terrible economic environment, I think most small businesses like mine regard employees more as a potential liability than an asset.
Another matter is productivity. We have found that we can actually get by with fewer people. Better tools (software in our case) allow us to continue without a lot of production loss. What we are burning is largess. Every person is running at full capacity. As their manager, I know we are not “being busy, having fun” any more. And the ranks are thin to the point that an illness or attrition would be a real blow. But hiring new people is just not mentioned.
I run a construction company – when we have had some blips that say – get some help, the universal response from both salaried and hourly workers is. No way you are hiring – we’ll figure out how to get it done. And everyone has pitched in and done it (ie increased productivity). They look at what It would cost to hire and would rather we just press forward and be able to split up the money when the time comes. Add to the worry of having work to do their spouses inability to find work, the uncertainty of health care costs and the impending loss of the child care credit and they want nothing to do with me trying to take care of anyone else
I know why I’m not adding another contractor.
Don
It’s all symbiotic. If companies don’t hire, then there will be fewer people who can buy their goods and services. What I see around here is a change in spending, commerce, and employment. The malls aren’t thriving but Goodwill, resale and consignment shops are. So is Craig’s List.
People are getting more creative in starting their own little side businesses — house-cleaning, lawn care, errand-running, rubbish removal, child care, sitters for the elderly. Heh, I recently saw an ad by a guy offering to do housecleaing “nearly nude.” Desperate times call for desperate measures, I guess.
Myself, I decided to reorganize my “empty nest.” It is ridiculous that I had both a guest room and a bedroom for my adult son who is only available to come for multi-day visits maybe six times per year. Plus, I desperately needed a new sofa.
So, I put free ads online to sell a bedroom set and some other pieces of furniture. I sold it all quickly at fair prices (no one even tried to talk me down) and used that money to buy an older, beautiful used sofa in mint condition that is actually American-made. I did browse the new furniture stores — they didn’t have many customers. The consignment stores, however, had steady traffic and sales. In fact, when I was arranging delivery later, the shop owner told me that two other people came in after me and wanted to buy the sofa I purchased.
If companies don’t want to hire or can’t, people will find a way to survive. But they’ll have less money to spend on goods and services.
Small businesses are the engine of job growth. One reason they are holding back on hiring is to see what happens with health care. Do we know for sure yet how much will it cost to keep employees on the payroll? The margin for error in a small business is too low to take risks with this expense.
#18–I can give you one concrete example with Obamacare. The requirement now to insure dependents until age 26 has caused our health insurer to raise the annual premium for family plans by approx. $2,400 ($200/month). With the increase, it’s now roughly $17,000 a year.
[url=http://www.therightscoop.com/paul-ryan-schools-chris-matthews-on-bush-tax-cuts?utm_source=rss&utm_medium=rss&utm_campaign=paul-ryan-schools-chris-matthews-on-bush-tax-cuts ]Paul Ryan did a great job making Chris Matthews look like the buffoon that he is.[/url] In particular, Chris Matthews tried to make Paul Ryan look bad by asking Paul Ryan if he supported tax breaks for the rich making >$250,000. Paul Ryan pointed out that ~70% of those in this category are actually small businesses that are sole proprietorships with the owner filing individually. Thus, the “soak the rich” is actually a huge hit on small business. You can count on liberal pundits of the NYT, etc., will say that the worsening of unemployment in January of 2011 will be “unexpected.”
Samuelson and the comments to date have ignored the pernicious effects of all the “protective” legislation in the last 75 years, all of which have added to the burdens, costs, and risks of employing human beings. Every employee carries the risk of a future lawsuit if he or she should ever be fired, or earn less than someone he or she deems to do equal work, or decide to make a career of malingering, or develop some “disability”, or hear or say something that a juror or imaganitive jackal of the plaintiffs’ bar might think offensive.
In addition to the risk of litigation, there is the certainty of having to pay a batallion of labor and employment lawyers to try to build bomb shelters to reduce the risk of litigation and/or ever more increasing EPLI (Employment Pracitices Liability Insurance) premiums.
If society wants more employees, it ought to stop “protecting” them to death.