Monday, July 26, 2010

Robert Samuelson is making sense:

From his op-ed: (emp add)
The contrast between revived profits and stunted job growth is stunning. From late 2007 to late 2009, payroll employment dropped nearly 8.4 million. Since then, the economy has recovered a scant 11 percent of those lost jobs. Companies are doing much better than workers; that defines today's economy.

The most obvious explanation is that the relationship between labor and capital (to borrow Marxist vocabulary) has changed. Capital has gotten stronger; labor has weakened. Economist Robert J. Gordon of Northwestern University argues that the "shift of executive compensation towards much greater use of stock options" has made corporate managers more zealous cost-cutters in recessions and more reluctant hirers early in recoveries. Lowering the head count is the quickest way to restore profits and, from there, a company's stock price.

In a new study, Gordon dates the economy's changed behavior to the 1980s. Until then, companies tended to protect career workers, and unemployment followed a path predicted by economist Arthur Okun in a famous 1962 paper. But now, unemployment exceeds Okun's formula, and "jobless recoveries" have become standard. After the 1990-91 recession, consistent employment growth did not resume for about a year; the lag was nearly two years after the 2001 recession. (The National Bureau of Economic Research, an economists group, determines the end of recessions, usually when economic output begins expanding. Job growth does not automatically coincide with output expansion. The difference is accounted for by productivity gains -- greater efficiency, or more output per worker. The bureau has not yet declared an end to the last recession, though the economy began expanding in the summer of 2009.)

Aside from executives' stock options, Gordon cites weaker unions and more competition from both imports and immigrants as subverting workers' bargaining power.
Samuelson doesn't have a remedy for the situation, although some are out there: protectionism, reduced immigration, more labor-friendly legislation (e.g. strengthening unions).


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