PROFITS ARE up, so it’s time to slash the workforce
Those words are the 1st paragraph of a Boston Globe column by Joan Vennochi, titled as is this piece The rich rewards of cutting jobs
It is a lead-in to an examination that starts with Boston’s State Street Corporation, where 1,400 employees, 400 in MA, have lost their jobs at a time when corporate profits were up 20& and operating revenues more than 8%.
Vennochi quotes from an internal email from the CEO that this is a deliberate strategy
necessary to “enhance service excellence and innovation” and drive “a stronger sense of urgency about getting things done.”
As Vennochi puts it
Those scary words reflect the new normal in corporate America.
Let me offer one additional paragraph, immediately following, where we can read
Since the US economy entered into recession at the end of 2007, jobs have been shed and wages frozen or cut. But, while wage and salary payments to workers declined by $121 billion or about 2 percent since the last quarter of 2008, pre-tax corporate profits rose sharply – up by $572 billion or 57 percent over the same time period, according to Andrew Sum, a professor of economics and director for the Center for Labor Market Studies at Northeastern University. Productivity also increased, but workers got no reward – only unemployment insurance.
We can argue until the cows come home about stimulating the economy using the tools that have worked in the past, but this is a different environment.
First, many employees are not getting unemployment insurance, even if the deal Obama negotiated goes through. Not all states participate in all tiers of the extended program, and at some point even with extensions those will run out.
Second, if companies continue this pattern of eliminating jobs even as corporate profits soar, there will be no additional jobs for those laid off to enhance profits even if they happen to have appropriate skills and are in the right geographic location. Remember, corporations readily move jobs to lower wage environments, both within the US and abroad.
I strongly suggest you read the column. The author is not a columnist upon whom I often focus, but this piece is well worth reading.
She notes how different this situation is from anything we have experienced.
And she offers this particularly acute observation:
By cutting loose 1,400 workers, State Street shifts the burden of keeping them solvent from the private sector to the public. Now, it’s the taxpayers’ job to underwrite them, via unemployment benefits.
And that’s only the start of the ripple effect on a still-fragile economy. How many of the newly unemployed will no longer be able to pay their mortgages, or keep up with cable and credit card bills? Without employer-backed health insurance, how many will turn to state-subsidized insurance?
We cannot fix the forthcoming economic disaster for many unless there are jobs. Rather than giving tax breaks to rich people who do not need them without an obligation to create more jobs, would we not be better off with direct tax incentives for creating additional jobs, with the incentives kicking in over time so that the newly hired employees are not let go when the incentives expire?
I have not thought through how best to do this.
I do know this.
We cannot afford to simply shovel money out. We need something in return.
The extended unemployment benefits at least allow those receiving them to continue to stay in homes, make mortgage payments (thus stopping the downward pressure on home prices because of foreclosures, a downward pressure that depresses local government revenue), and to pay some other bills.
It seems to me that beyond direct tax relief to those who are struggling the use of the tax code should be more directly towards job creation.
And insofar as it is possible, perhaps it is time for governments at all levels to take a real look at perhaps penalizing corporate profits obtained at the expense of people’s lives.
Or have we fallen so far that the profits of corporations outweigh the well-being of Americans?