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The jobs conundrum

The jobs conundrum

Last updated on: July 28, 2010 at 8:38 am by Gene Veith

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The jobs conundrum 2010-07-28T08:38:16-04:00 Gene Veith

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Profits are way up, but employment is way down. Harold Meyerson is worried about what he sees as a new business model:

In the mildly halcyon days before the 2008 crash, the one economic outlier was wages. Profit, revenue and GDP all increased; only ordinary Americans’ incomes lagged behind. Today, wages are still down, employment remains low and sales revenue isn’t up much, either. But profits are the outlier. They’re positively soaring.

Among the 175 companies in the Standard & Poor’s 500-stock index that have released their second-quarter reports, the New York Times reported Sunday, revenue rose by a tidy 6.9 percent, but profits soared by a stunning 42.3 percent. Profits, that is, are increasing seven times faster than revenue. The mind, as it should, boggles.

How can America’s corporations so defy gravity? Ever adaptive, they have evolved a business model that enables them to make money even while the strapped American consumer has cut back on purchasing. For one thing, they are increasingly selling and producing overseas. General Motors is going like gangbusters in China, where it now sells more cars than it does in the United States. In China, GM employs 32,000 assembly-line workers; that’s just 20,000 fewer than the number of such workers it has in the States. And those American workers aren’t making what they used to; new hires get $14 an hour, roughly half of what veterans pull down.

The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions), and reduced sales at home; increased hiring and booming sales abroad. Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that’s the highest level since 1964.

Why invest in new plants, offices and workers, particularly here at home? Spooked by the 2008 crash, corporations want to keep more money under the mattress. More important, they’re sitting pretty as profits rise.

via Harold Meyerson – The job machine grinds to a halt.

I wonder about this. The big job creators in this country are not the big corporations but small businesses. They do not usually have the luxury of outsourcing employment overseas. We need to ask how they are doing and what they need to get back on their feet.

Companies do not exist, of course, primarily to provide people jobs; that is their social benefit, not their purpose. But if they do not provide goods and services that people need, they will cease to exist. Yet society needs to have people gainfully employed. More from Meyerson:

The restoration of American prosperity, then, isn’t likely to be driven by our corporate sector. Across-the-board business tax cuts make no sense when business is already sitting on oceans of cash. Targeted tax cuts and credits for strategic investment and hiring within the United States, on the other hand, make excellent sense. The Obama administration has proposed expanding the tax credit for the manufacture of green technology here at home, and congressional Democrats will soon unveil legislation creating further incentives for domestic manufacturing.

Another source of jobs would be public, and public-private, investment in infrastructure. As Michael Lind and Sherle Schwenninger of the New America Foundation have argued, building a new American infrastructure of roads, rail and broadband is not only an economic necessity but also the investment with the highest multiplier effect in creating new jobs. A U.S. infrastructure investment bank, such as that proposed by Rep. Rosa DeLauro (D-Conn.), could leverage significant private capital to begin America’s rebuilding, though the idea has encountered rough sledding in (surprise) the Senate.

I don’t know about that either. Any ideas?

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