Business

High Company Profits and the Jobless Recovery

Fortune 500 companies are enjoying record profits in spite of massive layoffs. In the near future, that's not a bad thing

March 2010 was the best month for jobs in three years, but it didn't make a dent in the official unemployment rate. As we prepare for the long climb out of historic unemployment, Annie Lowrey of the Washington Independent submits "The Jobless Recovery in Two Simple Statistics":

1. Fortune 500 companies tripled their profits to $391 billion in 2009.

2. They also slashed their payrolls by more than 800,000 jobs.

It's provocative juxtaposition, but how meaningful is it? Profits are revenue minus costs, and the fact that F-500 companies slashed their payrolls dramatically in reaction to 9 percent drop of revenue explains the profit. If you flip the figures, it looks more like "The Case for a Job-ful Recovery in Two Simple Statistics"

1. Fortune 500 slashed their payrolls by more than 800,000 jobs in 2009...

2. And they tripled their profits to $391 billion. Time to grow those compensation pools!

In fact, Google, Intel and other tech companies and start-ups are set to expand payrolls this year on the back of significant profit jumps, according the Wall Street Journal.

But it's important to put the good news in perspective, because Annie's intimation is right: the recovery will have a fraught relationship with job creation, and full unemployment is years away. Consider that Intel, which announced this week that it had quadrupled its quarterly profit with a 44% jump in sales, expects to hire 1,000 to 2,000 people in 2010. That is good news, indeed. But it comes after the 80,000-person company slashed 20,000 workers from its payrolls since 2006. Let's say, optimistically, that Intel hires 2,000 people in 2010 and then doubles that hiring rate for 2011 and 2012. By the presidential election that November, the company would still have only hired back 50% of the positions it slashed since 2006. That's what a wide-U recovery looks like.

About the Author

  • Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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