April 1, 2014

TOO MANY JOBS:

Soaring Profits but Too Few Jobs (William A. Galston, April 1, 2014, WSJ)

According to a report last week from the Commerce Department, corporate profits after taxes in the fourth quarter of 2013 rose to an annual level of $1.9 trillion--11.1% of GDP, a postwar high. Meanwhile, total compensation--wages and benefits such as health insurance and pensions--fell to their lowest share of GDP in at least 50 years. From December 2007 through the third quarter of 2013, the compensation share of national GDP declined to 61% from 64%. A simple calculation shows that if compensation had remained at the 2007 share, workers would have earned $520 billion more in 2013.

There's no end in sight. The Wall Street Journal's Justin Lahart reported recently that analysts expect profits for the S&P 500 to grow by 7.4% in 2014, far faster than nominal GDP. So profits will once again command a larger share of national output. Some of this, he says, reflects short-term factors. Persistently low interest rates have allowed companies to refinance debt, cutting interest costs even as they have increased net debt for 14 consecutive quarters. Moreover, companies have been able to offset gains in gross profits with losses incurred during the recession, reducing their effective tax rates.

But less cyclical trends are at work as well. Companies have not boosted hiring in line with revenues, or wages in line with productivity. As Richard Cope, the CEO of a rapidly growing firm, told this newspaper's Jonathan House, "Businesses are sitting on tons of cash . . . and they're choosing to invest their capital in hardware, rather than hiring." The reason: They believe that "investing in technology is likely to have [a] better effect on sales than hiring more people."

The point of business is to make profits, not jobs.
Posted by at April 1, 2014 8:25 PM
  
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