Friday, December 27, 2013

Unemployment and Profits: A dirty little secret

by Bill McBride on 12/27/2013 09:55:00 AM

I'd like to repeat something I wrote 2 1/2 years ago:

[I]t really isn't much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is "dirty" in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings - and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don't want to see Depression era unemployment - but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK.
Not much has changed (the unemployment rate is still high at 7%).  And I still think unemployment should be the #1 political issue.

For more, see Paul Krugman's The Plight of the Employed and Why Corporations Might Not Mind Moderate Depression and The Fear Economy
[M]ay I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy. I don’t think I’d go so far as to say that there’s a deliberate effort to keep the economy weak; but corporate America certainly isn’t feeling much pain, and the plight of workers is actually a plus from their point of view.
A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor.   This is not an ideal economic situation for most Americans (but ideal for a few).   Enough rant - and I hope I don't repeat this again in another 2 years.

best to all
 

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