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The Great Decoupling of Corporate Profits from Jobs

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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/

Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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Nothing...as usual...... by Debbie S on Wednesday, Jul 28, 2010 at 12:11:28 AM
will never rehire large numbers of workers. At lea... by John Sanchez Jr. on Wednesday, Jul 28, 2010 at 8:08:46 AM
No more struggle between the owner and workers. Th... by Bernard on Wednesday, Jul 28, 2010 at 1:13:30 PM
Something sensible, I hope.Protectionism is not th... by ssg13565 on Wednesday, Jul 28, 2010 at 1:43:35 PM
"If all the goods that all the people in the world... by Maxwell on Friday, Jul 30, 2010 at 1:24:14 PM
One reason I'll never buy a GM vehicle again is be... by Nikk Katzman on Thursday, Jul 29, 2010 at 6:42:30 PM
One reason I'll never buy a GM vehicle again is be... by Nikk Katzman on Thursday, Jul 29, 2010 at 6:44:39 PM
A friend of mine was laid off from the Dayton OH f... by Nikk Katzman on Thursday, Jul 29, 2010 at 7:55:47 PM
True and it is NOT fair... I will also not buy any... by Debbie S on Friday, Jul 30, 2010 at 11:38:04 AM
My 2005 Saab was made when GM owned them, but is r... by Maxwell on Friday, Jul 30, 2010 at 1:36:07 PM
Well look at all the pollution, smog checks every ... by Debbie S on Friday, Jul 30, 2010 at 4:34:57 PM
This article pokes holes in those "work hard and p... by Kellia Ramares on Saturday, Jul 31, 2010 at 5:34:47 PM