The Stock Market is Up, I'd Rather Have a Job

Robert Reich has an article on the disconnect between stocks and jobs that asks a great question: How can the stock market hit new highs at the same time unemployment is hitting new highs?

Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise.

Reich points to Caterpillar as an example. They earned $404 million in the third quarter, or 64 cents a share, yet analysts had only expected 5 cents. So how did Caterpillar manage to drive their stock up 165 percent since March? They cut 37,000 jobs.

Or consider this example from Too Much:

The latest case in point: the just-announced $4.5 billion merger deal that will fold the 99-year-old Black & Decker tool-making powerhouse — the folks who brought us the world’s first pistol-grip power drill — into its chief tool-making rival, Connecticut's Stanley Works.

“It’s a match made in heaven,” Stanley flack Tim Perra told reporters last week.

Heaven for who? Not consumers. The new “Stanley Black & Decker” may soon have enough marketplace dominance, says Morningstar business analyst Anthony Dayrit, “to raise prices” on do-it-yourself gizmos that range from power tools to window locks.

And workers won’t find much heaven in the merger either. Black & Decker and Stanley together currently employ a workforce just over 40,000. The merger the two companies announced last week will eventually cost an estimated 10 percent of those workers their jobs, starting with staff at the Black & Decker headquarters just outside Baltimore.

And here's yet another example from economically depressed Las Vegas:

Last February, Las Vegas kingpin Steve Wynn announced an across-the-board wage and hour cutback for all employees at his resort empire. The total savings for Wynn Resorts: between $75 and $100 million. Last week Wynn Resorts announced a special $4-per-share dividend. Total cost of the dividend payout to Wynn Resorts: $492 million. Total dividend check that will go to Steve Wynn: $88.6 million.

The Great Recession has been a boon for corporations and CEO's. As Reich points out, "They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they're doing whatever it takes to get payrolls down so earnings bounce up."

Higher earnings may be good for Wall Street, but not so much for Main Street. More from Reich: "Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours." The bottom line: Higher productivity doesn't put money in the average worker's pocket. Since 1980, productivity has grown 70 percent, but wages only increased 5 percent.

But, but, but... I can hear the Jim Kramer's of the world already. Higher stock prices=higher fund balances for all Americans. That's true. But what good does a 5 or 10 percent increase do me if I'm out of work and have to live off of that money? It buys me short-term security today but leaves me financially insecure when I retire. Instead of worrying about stock market profits, we need policies that put people back to work at decent wages and keeps them working.