I hope people take Howard Gold’s most recent post at MarketWatch to heart. In it he quotes liberally from business prof Gerald Davis about job creation in the United States:
It’s Labor Day weekend, and despite unemployment under 5% and nearly 15 million private-sector jobs created since February 2010, nobody’s celebrating.
Workforce participation is stuck near historic lows, six million people are part-timers but want to work full time, and wage growth remains subdued.
Both presidential candidates have talked a good game about jobs and the economy, but neither addresses the real problem. The U.S. job-creation machine—once the envy of the world—is broken, because American corporations cannot create steady, well-paying jobs here in the USA while also providing maximal returns to their investors, who are really in charge.
The basic message is that publicly held companies are not our friends and that the nature of large enterprises has changed. They are too narrowly focused maximizing share value and too little on building businesses.
He mentions lots of possible causes for the change including the growth in the role of institutional investors, corporate raiders, globalization, and the Internet. He does not mention the change in tax rules which incentivized companies to increase executive compensation in the form of stock options which coincided with a lot of the transition. Somehow that seems like more than a coincidence to me.
I think there have also been significant cultural changes. I may be too optimistic here, but I don’t think some of the corporate and individual behaviors we have see in the near past would have been acceptable further back.
Steve
Quite frankly I found the article and the good professor “loose” in their points, bordering on deceptive.
Jobs vs returns? (The real lords and masters). And when was this not so? Citing post WWII companies or Internet IPOs as evidence is just pure deception. More accurate would be to note the global lack of competition in the 50s vs decimated European and Japanese competitors and a Neanderthal China. America had its halcyon days, and grew, and created jobs as a byproduct. And I hate to tell the good professor but auto and steel companies require more labor per sales, profit or capitalization dollar than internet companies. It’s just the nature of the beast.
As for juxtaposing robots or immigrants vs “soaring profits,” that’s just pure caca. He went and grabbed a singular current example to make his point. Just do a search on Schiller S&P 500 earnings and you will see that those “soaring earnings” are growing on par the last couple years on par with the 92, 00 and 08 recessions. The stock market is almost all valuation multiples. High multiples convey either high expected growth, lower perceived risk or………….no damned place else to get yield. Thank the Fed. A “normal” multiple might be in the 15-18 range, not the 25-27 range we find ourselves in today. Unless someone wants to argue that the US economy is showing currently invisible signs of a growth spurt. And business investment would hardly indicate corporate growth.
As for stock options, I’m sure you are talking about Section 162. If memory serves the original deductibility is a mid-90s event. And of course we have all the schemes that have come along to regulate it – 162 (m). But stock market multiples which drive stock prices seem to be more a phenomenon of credit than executive compensation. They took off in earnest after the 92 recession and of course the dot com craze is legendary. Similarly we have the current Fed driven bubble. The effectiveness of various executive comp schemes is certainly fodder for discussion, but I think hardly the cause of slow jobs growth. Recall that exec comp used to be straight profit driven, amenable to job cutting as well.
Personally I’d credit other issues for slow jobs growth, including driving small business out of business through regulatory hassles and large corporate government bias and the tremendous increase in the cost to employ, skills and work ethic, all vs productivity. I’ve been traveling a lot lately. Two things have impressed. The first is that low wage jobs are on offer all over the place. Makes the national statistics look better, but it’s substandard stuff. (And try to find skilled labor). Second is that in relatively business friendly environments growth is robust. I’m talking TX, the Carolinas, TN etc. there is a huge shift taking place, but perhaps only 2/3rds of the country is participating.
You may not believe this but 50 years ago it wasn’t so. Managers actually wanted to build companies rather than stock values. The Democratic Party wasn’t as anti-business then as it is now, either. Now being pro-business means subsidies given to big companies and/or political cronies. It meant something different years ago.
“Second is that in relatively business friendly environments growth is robust. I’m talking TX, the Carolinas, TN etc.”
I guess that ‘etc.’ doesn’t include Kansas. A pro-business state that than which a greater cannot be conceived (according to conservative dogma).