The Jobless Recovery

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The U.S. unemployment rate is 9.1 percent. The stock market has seen better days, and American consumers are barely spending.

But if you look at the balance sheets of many U.S. companies, you might be surprised at how healthy they look. According to a recent moody's report, U.S. non-financial companies held $1.2 trillion in corporate cash at the end of 2010, up 11 percent from the previous year. But instead of using that money to hire workers, companies are stashing the cash.

I first became aware of this stash and burn philosophy in 1998, the year I sold my company. In my new position, I was encouraged to make radical internal and external efficiencies, a euphemism for reducing the work force and getting more work from a smaller staff. The new owners called this improved productivity.

Part of this phenomenon may be attributed to corporate greed, but more likely, it is a complex new-age environment caused by the need to compete globally as well as the efficiencies created by an explosion of cost-effective software. I don't think corporations are skimping on employment, they are simply creating more ways to be efficient. Also, more profits are coming from offshore business and U.S. companies are becoming less dependent on a U.S. workforce. These profits are staying overseas and are not coming home to fuel expansion in the U.S.

Allowing the Bush tax cuts to expire at the end of 2012 and replacing them with tax cuts to the middle class will fuel consumer demand, help companies grow and subsequently drive employment. Also, Congress should enact tax modifications that will allow U.S. companies to repatriate their profits and bring the cash home.


In an ideal world, it would be wonderful to see corporate executives exhibit a strong social conscience and hire workers as part of a jobs program. Economist Milton Friedman spoke to the issue of a corporate social conscience 40 years ago, and made this point. A corporate executive is the agent of the shareholders who own the company, and their primary responsibility is to them.

Until corporations start investing their cash at home, the U.S. jobs picture has a bleak outlook in both the short and long term.

With a Perspective, this is Joe Epstein.