GDP is Up, Profits are Up, So Where are the Jobs?

The unemployment rate in the United States

I just read an article over on CNBC called, Why GDP Growth Has Not Provided Jobs Yet, the article is well written, well thought out and honestly gives a good free market text book explanation to answer the question, where are the jobs and why aren’t companies hiring?

Cutting to the chase the entire explanation in the article comes down to “uncertainty”, simply put business owners don’t know how they will be taxed, they don’t know what oil will do, etc.  The author goes into great detail on passed recessions, how they played out, when the jobs returned, etc.

Yet in the end his conclusion is simply, business owners don’t know what to expect so they are not hiring.

From the article,

“So, what does this mean for today? Why aren’t business owners hiring people? Like the 1973-75 and 1990-91 recessions, why is there such a lag with job growth? I think businesses have uncertainty around oil prices, yes, but the real cause is their uncertainty about conditions and interferences with their operating environment. If not this, what else?? Interest rates are low. Inflation has largely been under control since the late 1970s. And GDP is growing, probably the most important barometer.”

Such explanations are fine for political banter and I am sure there is an air of truth to it.  As a business owner I am certainly concerned about all of these things but would it prevent me from hiring an employee I NEED?  Not only no but HELL NO.  If I need and can afford talent I am going to hire it.  If they change the tax code and I can’t afford said talent after the change I will lay them off or more likely I will lay off a lesser employee.  Business people, successful ones anyway are logical not emotional.  We do not fear that we will get emotionally attached to our employees, we hire, fire, give raises, cut salaries, upgrade our talent pool and we do it all the time based on our needs and the situation on the ground.

Now uncertainty will have a bigger effect in states that are not “right to work” states and with bigger businesses that have a bit of a harder of a time (due to unions and regulation) getting rid of new hires as necessary.  Trust me though if GM, Ford, Lockheed or General Electric NEED an employee, have the money and can find the applicant they are going to hire them.  Why?  It is how business works, people who have signed the front side of a paycheck understand this.

So what is the real reason hiring is lagging behind profit and output?  Companies are doing more with less, many of the lost jobs are exactly that LOST, they are not coming back, not today, not tomorrow and not next year.  I am going to do something for you right now that you won’t get from most media and certainly most politicians.  I am going to be brutally honest with you.  Here is comes…

Business is a bitch, it can and will kick your ass if you don’t play the game smart and do what needs to be done.  Successful business people are successful because they do what needs to be done, when it needs to be done and if it harms some people, so be it, the company’s survival (and the employees who keep their jobs) out weigh any personal attachment to individuals.

Some companies can slack a bit on this during the best of times.  Or as my old mentor Frank Madren used to tell me, “Jack even a turkey can fly in a tornado”, but when the boom cycle stops you either follow the rules of business or you die, unless the government pays your bill for you of course.

So here is what no politician or media talking head will tell you.  The recession came, companies tightened up, improved efficiency, adapted, got leaner and ELIMINATED jobs.  They didn’t do “lay offs” in the traditional way.  This isn’t like some companies that lay off every winter and rehire in spring.  No they found all the fat, trimmed it, trimmed even more, hired back where they over trimmed and upgraded talent.  They are now running under a new model that provides the same output with less head count.

In the government when you have a surplus of cash you grow a department because goverments spend money.  In a business when you have a surplus of cash it is called profit, that is why you go into a business in the first place, to make money, not to hire people until no profit remains.  You want to know why companies are not hiring people with their new found profits?  Simply put they don’t need them under their new more efficient models.  In business only idiots hire people that are not needed and recessions quickly educate such idiots who either learn or go out of business.

Efficiency is also operates on an exponential curve.  Meaning a small efficiency increase has a magnified effect on the total systems output.  Making it simple if a company finds a way to run well with 20% less employees they are going to grow far more than 20% before they need to increase headcount back to the original levels.

The upshot is simple, about 10 million jobs in a nation of over 200 million adults are now gone, they will not return.  10 divided by 200 yields us about 5% of the adult population who no longer are, and this is the key, no longer are needed by their prior employers.

Does this mean these people have no hope of finding a good job ever again?  No it isn’t that bad there is hope.  Yet there are only two things that will create an environment where these individuals can hope to find jobs to replace what they have lost.

1.  The economy must outgrow the efficiency increases businesses made from 2008-2011

and/or

2.  New industries and new companies must form and hire them

It doesn’t matter what your long term view of our economy is, those two things will take a lot longer to occur than a rise in GDP, Corporate Dividends or the Down Jones Industrial Average.

5 comments to GDP is Up, Profits are Up, So Where are the Jobs?

  • Jack, you hit the nail on the head.
    There are still companies hiring as they ramp up their business.
    I work in the healthcare IT industry, and we haven’t had any significant layoffs.
    The downside is that most of the jobs available in this field require some re-training though.

  • Josh

    Jack, I certainly agree with all of your points. I’ve seen it first hand. However, uncertainty does affect some groups. Most notable are first time small business prospects, those people who have never owned a business and don’t know the ropes of red tape and are uncertain they can even be successful in the current markets and government interventions. Fear is a big factor – fear of the unknown is man’s number one fear and potential new business owners are no exception. Some may even be fearful their new ‘idea’ and plan will be illegal or not feasible in the near future after things like Obamacare kick on.

    This is also exactly the sector(new businesses)we need most to bring new jobs! The big boys have cut and learned new ways, we can’t count on them until they need new jobs. We desperately need a free market where creative minds can apply themselves unhindered by artificial unknowns.

    • ModernSurvival

      @Josh, sorry but here is the reality if the fact that corporate taxes might go up is going to effect what you do today with your business you have no acumen for business, what you do doesn’t matter because you are simply put, doomed to fail.

      I can also tell you first timers starting a business are generally so short sighted something like oil prices or tax rates down the road is the last thing on their mind. Most are lucky if they even know how much they must sell gross to make an income sufficient to provide for their needs.

      Small businesses do create jobs, first time new business owners generally don’t, they are generally nothing more than the glorified self employed, sort of like I am now. There is nothing wrong with it but the only job I provide now is my own.

      I didn’t do that to lower my tax bracket, I did it to simply my life.

      Again reality is SIMPLE, you hire when you need people.

  • Kymbleg

    Well said. As an owner of 2 small business’s we hire whenever our work load requires us to and we cut when work load drops. Small business owners don’t have people sitting around not working unless that talent just cant be replaced. We have hired 2 new employees this year and as long as the economy holds together we will keep them. I always laugh when the media or the government talk about tax incentives to hire people. That might work for the 100+ small businesses and large companies, but the 30 employee or less companies don’t hire someone unless we have the sales to justify paying the salary.

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