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Commentary

Rise in profits, more hiring? Not exactly

Marketplace Staff Jul 28, 2010
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Commentary

Rise in profits, more hiring? Not exactly

Marketplace Staff Jul 28, 2010
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TEXT OF COMMENTARY

Kai Ryssdal: The losses on Wall Street today might have been the exception that proves the rule, but the rally traders have been enjoying the past couple of weeks has been driven largely by corporate profits. Companies making more money is in theory good for everyone. Investors benefit through higher share prices. Broader society benefits, because industry takes those profits and hires more people to make and sell more stuff.

Commentator and former Clinton Administration labor secretary Robert Reich says that last part would be great — if it was happening.


Robert Reich: It used to be the case that when the profits of large American corporations rose, so did their hiring. Not this time. For one thing, many of their profits are coming from overseas. So that’s where they’re investing and expanding production.

GM now sells more cars in China than it does in the United States. But most of those autos are manufactured in China, where GM has 32,000 hourly workers. That compares to the U.S. where only 52,000 hourly workers remain, down from 468,000 in 1970.

American taxpayers bought GM to save GM jobs, remember? Well, GM officials say no American taxpayer money is being used to expand in China, but money is fungible. GM can 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 not to expand capacity. In fact, according to the Wall Street Journal, 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. On Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan.

We’re witnessing a great decoupling of corporate profits from jobs. Big American companies won’t 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.

Kai Ryssdal: Robert Reich teaches public policy at the University of California Berkeley. Next week in this space, commentator David Frum. Take a minute to send along your thoughts. Our website is Marketplace.org. Click on the link that says “Contact”.

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