For firms, adding jobs is a chore
[I had to register - some people do not like to do so - here is the article - mish]
By CHRIS LESTER
Assistant Managing Editor/Business
So, why aren't businesses hiring folks at a rate that a continuing economic expansion historically would suggest? Economists can bore you to tears with explanations, but the answer is remarkably simple.
Businesses don't have to. Frankly, the foremost job of business isn't creating jobs — it's making money. And right now, businesses are making more money without hiring as many folks as historic norms would suggest.
Moreover, we may have to get used to it.
Now, here come the complex explanations.
To recap: Last week in this space, we grappled with the unique nature of this jobless recovery. Although payroll job losses during the recent recession were fairly middling by post-World War II standards, the lost jobs have never been so slow to come back.
Thirty-five months and counting since the recent peak in payroll employment, we're still more than 2.3 million jobs short of regaining the previous high mark. After the previous nine postwar recessions, it took an average of 21 months to regain previous payroll highs.
We've all grown weary of wayward predictions that the job market is about to take off and run. Dismal scientists keep pointing toward renewed economic growth and surging corporate profits as proof that good times are right around the corner for people looking for work.
Last week, for example, the Commerce Department reaffirmed its estimate that fourth-quarter gross domestic product increased at a healthy 4.1 percent annual rate.
Even more notably, the government reported that after-tax corporate profits last year surged a whopping 19.2 percent. That marked the first time since the halcyon days of 1996-97 that U.S. business posted back-to-back years of double-digit profit gains.
Remember 1996-97? Back then, one of the foremost economic concerns was the emerging labor shortage — a concern spawned in part by the illusory growth associated with the wild-eyed optimism of the dot-com bubble. It almost makes me misty with nostalgia just thinking about it.
Now, however, things are distinctly different. Here's how.
Yes, overall corporate profits are coming back, reaching an all-time high as a percentage of national income. But executives who are trying to make up for lost time are quick to note that those outsized percentage gains are coming off recent lows. And executives of publicly traded companies also note that they must satisfy the demands of a growing and increasingly agitated investor class, which now includes roughly half of all American households.
Moreover, the recent improvement in corporate profits is coming from cost cutting in the face of intense global competition more than top-line revenue growth. Psychologically, it's much easier to hire folks when cash registers are ringing loudly than when you're squeezing more profits from cutting costs.
Politically speaking, the hot-button issue has become offshoring, in which employers send jobs overseas to countries such as India and China that offer much cheaper labor. As a percentage of overall job losses, however, Forrester Research reckons that offshoring accounts for only 10 to 15 percent of the recent loss.
The broader reason for slow job growth can be found in surging productivity right here at home.
Increasing productivity can be a beautiful thing in terms of generating long-term economic wealth and holding down inflation. But if productivity increases faster than economic growth, there simply is no need to hire people. And that's the economic box we've been in lately.
By most estimates, productivity has been increasing much faster than historic norms. And an incremental 1 percentage point increase in productivity eliminates the need to hire an estimated 1.3 million people nationwide.
The prevailing view from the executive suite is that it's easier in this economic environment to cut costs than sell more goods and services. In terms of profits, a dollar saved drops straight to the bottom line, while only a small marginal percentage of a dollar in new sales drops into the corporate till.
Executives also have several appealing options rather than adding someone to the corporate payroll.
If, for example, spending some money on new technology will help squeeze as much output out of nine people as you otherwise would get out of 10, executives will buy the technology. Then they can rave on Wall Street about how revenue per employee jumped 11 percent — without booking a dime in extra sales.
And even when the sales start rolling in, executives have several appealing options that stop short of actually hiring someone onto the payroll.
Initially, companies can pay overtime to existing employees. If that starts to pinch too much, they can bring in a temp worker. And all the while, there's the constant temptation to outsource corporate functions to another company altogether, whether domestically or overseas.
Looming over all these hiring decisions is the dark shadow over corporate America — the surging cost of health care. In an economy where much greater profits are to be gained by squeezing costs than chasing hard-to-get sales, executives are increasingly loath to add another body to the corporate health plan.
You see, employees or members of their family sometimes get sick. Sometimes they even die — often at great expense. And that doesn't enhance productivity and profits.
Indeed, the exorbitant cost of health care has become the central conundrum of the modern American economy, and one of the root causes of why regaining the most recent payroll employment peak has become a Sisyphean task.
Now, that may sound Greek to you. But it's my working theory of this jobless recovery, and I'm sticking with it.
Capitalism, even more than democracy, shapes this society, folks. And the crushing logic of the modern global economy increasingly dictates that profits are more important than people — at least at the corporate level, and particularly at publicly traded companies.
I take little pleasure, and less comfort, in committing these thoughts to print. But I'm afraid we'd better get used to it.
To reach Chris Lester, assistant
managing editor-business, call
(816) 234-4424 or send e-mail |
