Whose Recovery?

It may seem puzzling—the stock market and profits are recovering while living and working conditions for the majority continue to decline.  Well, it is not so puzzling. In fact, worker losses are an important reason (along with government bailouts) for capitalist gains.  Yes, it is that kind of world.

Here is what a Business Week article had to say:

The signs [for corporate earnings] look good, and last month’s employment data are part of the reason. Through the third quarter, businesses continued to slash labor costs at rates not usually seen even in past severe recessions. In fact, for the past six quarters, companies have cut employees’ overall hours worked by far more than they have pared output. The result: a striking 2.8% annual rate of growth in productivity, a rare pace during a recession. Productivity gains averaged only 0.8% annually during the previous nine downturns. . . .

The September payroll numbers showed that overall hours worked in the third quarter fell at a 3% annual rate from the second quarter. If economists are correct in expecting about 3% growth in real gross domestic product for the quarter, then productivity may well post its second consecutive quarterly advance of about 6%. That would mean unit labor costs, or pay adjusted for productivity, are set to plunge for the third quarter in a row. In fact, unit labor costs, which are a key factor in determining profit margins, appear to have posted the largest three-quarter decline since quarterly data began in 1947 [see chart below].

Said differently, businesses have been able to boost profits in the face of poor demand conditions by slashing labor costs.  The profit rise was weak in the first and second quarters of this year because sales actually fell in both quarters.

The third quarter (July-September) was different.  Overall demand rose (thanks in large part to the stimulus) while labor costs continued to fall (which means fewer people worked harder for less).  The result: significant gains for business and a stock market rally.

However, as Business Week also noted: “Of course, these are not long-run productivity gains: Businesses cannot slash and burn their way to prosperity.”

One wonders if they have a different long term plan?  And if not, whether workers do?



One thought on “Whose Recovery?

  1. As the last post to “Reports” made clear, the recession has not yet been declared over. I wonder why this is posed as who is benefiting from the “recovery?” Would we not expect, in the (potentially) latter stages of a recession for wage gains to be weak (or even negative). I wonder what has happened to real wages?

    Another interpretation: we have leading indicators (productivity, stock prices) showing signs that the recession may be ending and a lagging indicator (wages adjusted for productivity) trailing behind. If this is in fact what is happening we would want to be careful not to generalize about how the gains from growth after the recession will be distributed. This is doubly true given all the policy shocks that have occurred (like the bailout).


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