Productivity continues to rise - and labor costs fall correspondingly. Which means that those who are working are doing more of it. But they are being paid less for their efforts.
Businesses complain that they can not find enough skilled workers, even though unemployment remains high by historical standards. Further questioning usually reveals, however, that companies have decided they will only pay so much - and that they dont really like the idea of spending much money on training.
Something's weird about that. Maybe not wrong, per se, but definitely weird. Classical economic theory teaches us that when demand increases the obvious way to fill a need is to raise the amount the desirous entity pays which will either lure people away from their current jobs or stimulate more people to enter the market for those services. At this point, however, it appears to be a matter of conviction, of pride and ideology that wages be kept as low as possible and that training be done by would-be employees on their own time and at their own cost.
The threat from China is usually trotted out as an excuse. 'I would, but my customers wont let me raise prices and the Chinese will undercut me if I do.' Except that even the Chinese are being forced to raise wages, which is why some companies are bringing production back to the US and Europe.
The point is that there are limits to how many hours people can work, how low employers can keep wages if they want reliable employees, how high productivity can realistically grow. Business can not cut its way to growth. Government can not provide the services people want by reducing access. And a consumer driven economy can not survive if its consumers do not have adequate incomes.
The case for better wages and higher employment is no longer a question. The only uncertainty is whether businesses will recognize it before they lose the opportunity it offers. JL
Paul LaMonica comments in CNN:
Some economists see hope for better jobs gains ahead, despite fiscal cliff fears. Why? In a nutshell, those of us who have jobs are reaching our breaking point. That can't continue for much longer The government reported some interesting figures yesterday that were largely overlooked by the market. Productivity in the third quarter was revised to a jump of nearly 3%. At the same time, unit labor costs fell nearly 2%.
In other words, we are working a lot harder ... but not seeing the rewards for it in our paychecks. Corporate America seems to be taking their Neil Young too literally. It's better to burn out than fade away. My my, hey hey indeed.
Bob Baur, chief global economist for Principal Global Investors in Des Moines, Iowa, noted that U.S. workers may be reaching the point where they are stretched too thin.
Baur cited figures that showed the U.S. is already one of the most productive nations among the world's largest markets. During the past ten years, the growth in gross domestic product per worker in the U.S. has outpaced growth in Britain, Canada, Australia, Japan and Germany as well as emerging market Brazil.
What's that mean? At some point, U.S. corporations need to recognize that they can't keep trying to do more with less, especially if consumers continue to shrug off fiscal cliff fears and spend.
Baur said that so far, consumers appear to be much less worried about the health of the economy than businesses. Retail sales are expected to be strong during the holidays and individuals also seem to be growing more confident that the worst is finally over in the housing market.
So if Congress and the White House don't hurtle us over the fiscal cliff ... or if the impact of going over said cliff is not as dramatic as some fear ... businesses will have no choice but to start investing more so they can truly capitalize on higher demand.
"There is a wedge between business and consumer sentiment. Corporate investment is being delayed but consumers don't seem to care as much that their taxes might go up a bit. Companies should start using more of their cash to hire," Baur said.
Of course, this is not to suggest that U.S. corporations should now go on a drunken hiring binge. Some companies, particularly banks, are still shedding some of the fat they put on after bulking up before the Great Recession.
Citigroup (C) announced on Wednesday that it was laying off more than 11,000 workers. Other big banks may need to announce more job cuts. Heck, as Fortune's Stephen Gandel points out, Citi's layoffs may not have gone far enough.
Steve Blitz, chief economist with ITG in New York, added that it may also be unreasonable to expect that unemployment rates (now around 8%) will ever go back to as low as they were before the financial crisis of 2008.
"Technology improves productivity. That is not going to go away," he said.
But the financial services sector may be an anomaly. Blitz agreed that companies can't ignore the worker burnout element, particularly in lower-paying sectors like retail and other unionized industries.
Recent strikes at Wal-Mart (WMT), McDonald's (MCD) and ports in Los Angeles and Long Beach could be the beginning of a trend.
And if companies aren't going to start hiring more to lessen the burden on the overworked, the least they can do is pay better wages and improve job conditions.
"When you look at the increased output and drop in wages, companies should be adding more workers down the line. Employment must start to increase. There are only so many shifts people can work," Blitz said.
Eventually, businesses will have to figure this out ... if for no other reason than the usual suspect. Greed.
The U.S. is still the envy of many other nations because of our productivity and prosperity. But that can quickly change if businesses are content to merely preserve short-term profit margins instead of thinking about the future.
"Companies have wrung out as much productivity as they can by cutting costs and laying off people. To keep up with other economies around the world that are growing more rapidly, Corporate America does have to invest more in people," said Mike Binger, senior portfolio manager for Gradient Investments in Minneapolis.
"Earnings have been good. But for that to continue going forward, profits are going to have to come from investments in growth," Binger added.
0 comments:
Post a Comment