Tuesday, July 27, 2010
It’s not supposed to work this way: company profits going up while sales lag. But that’s the business reality in today’s post-recession economy, as executives are either holding off on hiring new workers—or even cutting jobs—in order to put their operations in the black.
For example, motorcycle manufacturer Harley-Davidson’s sales are down in 2010, for the fourth year in a row. And yet it posted a $71 million profit in the second quarter, which is more than three times what it earned in all of 2009. How did Harley-Davidson do it? By cutting about 20% of its workforce.
Other large businesses enjoying higher profits despite dwindling sales include General Electric, JPMorgan Chase and Hasbro.
“Because of high unemployment, management is using its leverage to get more hours out of workers,” Robert Pozen, senior lecturer at Harvard Business School and the former president of Fidelity Investments, told The New York Times. “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”
Former labor secretary Robert Reich points to three reasons why increased corporate profits are not translating into jobs: 1) companies are increasingly expanding production overseas rather than in the United States; 2) businesses are investing in labor-saving technologies; and 3) corporations are using their profits to pay dividends to stockholders and to buy back their own stock.
-Noel Brinkerhoff
Industries Find Surging Profits in Deeper Cuts (by Nelson Schwartz, New York Times)
The Great Decoupling of Corporate Profits from Jobs (Robert Reich)
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