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Businesses do not hire more people when Corporate Profits are high

June 9, 2011

Corporate Profits vs. Employment

Here is a quick chart I made over at the Federal Reserve bank of St. Louis of Corporate profits and hiring since 1990.

The red line is the growth in employment since the prior year in percent.   The blue line is the change in corporate profits since the prior year in percent, inflation adjusted.

You can see that the corporate profits were growing at a faster rate in the 2000’s compared to the 1990’s, but the rate of employment growth was lower.

This is not rocket science.  This is easy to think about, and the data is easy to find.

Businesses hire more people when they are swamped with demand, not when they have high profits.

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  1. JJP
    June 13, 2011 at 2:15 pm

    The recent profit spike-during-recession and lack of a substantial recovery, is (I think, I have a theory, but I’ve not finalized it yet) a result of the conundrum of multiple factors working together
    – wealthy large corporations’ distrust of Democrats in general
    – lack of actual, real credit, due to years of casino unregulated lending
    (and here’s the catalyst)
    – retraction of outsourcing due to standards of living rising in formerly easily expandable foreign markets (China, India, Eastern Europe) while at the same time finding returns on the out-sourced investments of time, capital, and resources to be meager at best, and negative on average. Let me explain.

    As someone whose traveled and worked in these emerging markets for many years, and met and talked to, and had dinner with, and shared long bus and train trips and conversations, with hundreds of normal, every day, white and blue collar foreign workers (not CEOs or CFOs or CIOs, not pundits, not financial analysts, just regular, normal people), they are (most of them) working very hard to attain the US and Western Europe standard of living, and through the last 20 years, have made SUBSTANTIAL progress towards doing exactly that. Going from 3 dollars a day to 20 dollars a day in 5 years is a massive improvement in one’s family purchasing power, standard of living, and expansion of ‘leisure time’. At the SAME TIME the US worker’s (mostly un-unionized, increasingly part time & under-employed) actual income fro the VAST MAJORITY has declined. Yes, the upper 10% have done OK and the upper 2% marvelously, but the remaining masses as migrating towards a Romanian, Algerian, Dominican, or Indonesian standard of living faster than most indexes can accurately measure. All of this wage “stagnation” (or loss) combined with the elimination of formerly easily obtained credit means 80% of Americans are buying less because they simply cannot buy more. The efficiencies that outsourcing provided previously have filled corporate coffers, but very very little of that is not being re-invested in the US economy, or the rest-of-the-world’s economy, as corporate “uncertainty” continues to make the spineless, monthly-metric-driven, short-term-gains-have-priority CEOs and board rooms sitting on massive war chests.

    Why should anyone invest in an uncertain US economy when demand is weak, and the US earning power that might drive up that demand is shrinking more rapidly that COE testicles? Republican law makers, hell bent on winning tea laced primaries, are NOT even considering ANY federal backing for any US investments that MIGHT urge on growth… so corporate America is taking a “wait and see” approach, while the rest of the world continues to grow, and the US population’s earning potential continues to shrink.

    • TC
      June 19, 2011 at 9:44 pm

      This is one of those discussions that just make me sick, because the reality is truly awful. It is incredible how little progress the middle and lower class has made in the US over the last few decades.

      It’s way, way worse out in the poor parts of town than people think. I am surprised we are not having riots. Demand is absolutely horrible.

  1. June 16, 2011 at 9:01 am
  2. November 7, 2011 at 4:33 pm
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