Employment

One of the things being revealed during this earning season is how quickly companies shed payroll in order to preserve profits. Yes profits are down from last year but had companies continued historical patterns, they would have been much smaller and possibly non-existent. What they did differently was to shed employees at an unprecedented pace.

The question is why. Well, despite the fact that many companies like to say that employees are their greatest asset, in reality most don't feel that way. In fact if you consider the built in cost of an employees fringe benefits, the incremental cost of hiring or keeping an employee is out of proportion to increased production. Now, had this been viewed as a short downturn, companies may not have reduced payrolls as much, but with the "new depression" talk and the tremendous drops in assets, companies trim workforce and will rehire very slowly. Generally, technology has now become much cheaper than payroll.

In an earlier post I talked about the loss of jobs in retail, the most visible industry to most of us. This trend is not limited to that industry. In fact, the bad economy is a wonderful opportunity for many companies to shed payroll and invest in new technology to reduce ongoing payroll and increase profitability.

There is a saying that Generals always prepare to fight the last war. This propensity isn't restricted to Generals, it is also true of economists. It is almost inevitable that when you predict the future based on prior behavior, you will have problem predicting sudden change. The high cost of health care and pensions where they are still offered simply make full time, long term employees too expensive unless they are essential.

There will be some growth in employment in current industries when the recovery gets fully going, but it will not increase as quickly or as much as it has in the past. The only real way to reduce unemployment dramatically is to create one or more new growth industries.