Companies buying back own stock, instead of hiring

A trader observes stocks at the New York Stock Exchange

TEXT OF STORY

Kai Ryssdal: We learned today what some companies are doing with the piles of cash they're sitting on. I'll give you a hint: They're not hiring more people. They're buying back their own stock. A new report says almost twice as many companies bought their own shares this year as compared to last year. Hiring? It's just going to have to wait.

Janet Babin reports.


Janet Babin: This whole hire, don't hire thing is a classic Catch-22.

Analyst Jeff Rubin with Birinyi Associates says people aren't buying, because they're worried about having a job. Companies won't hire, because people aren't buying.

Jeff Rubin: The demand has to come first and right now you're seeing a tepid pace of that demand. "But in order to get demand I need a job; well, to get demand..." It's back and forth.

Rubin says companies squeezed more productivity out of fewer workers during the recession. So they're happy to put off new hires, and instead do things like use their cash to buy back stock. That reduces the number of shares on the market, making them more valuable. That makes the company more attractive to investors.

But there are many theories as to why companies aren't hiring. Harvard economics professor Jeremy Stein says it might be a corporate "herd" mentality.

Jeremy Stein: Everybody's kind of waiting for things to pick up, nobody wants to get out in front and overextend themselves and do a lot of hiring. I think that's a good story, I don't know how convincing it is.

But there are disadvantages to waiting for things to pick up. Christopher Gergen is with the Hart Leadership Program at Duke University. He says firms should be focused on hiring workers, now.

Christopher Gergen: If you are not getting back into the game and not trying to take on some of this great talent that is on the bench, you're going to be surpassed by your competitors.

When the recovery finally takes off.

I'm Janet Babin for Marketplace.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...