Posts Tagged ‘profits’

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profits

The Wall Street Journal reported today that U.S. corporations “posted record profits during the second quarter.”

After-tax corporate profits, without inventory valuation and capital consumption adjustments, rose 6% from the first quarter to a seasonally adjusted annual rate of $1.840 trillion—after two consecutive quarters of declining profits. Profits last quarter were up 4.5% from a year earlier. Thursday’s report included the first profit estimates, which aren’t adjusted for inflation, for the second quarter. . .

As a share of nominal GDP, corporate profits rose last quarter but fell short of an all-time high.

Profits hit a record 10.7% of GDP in the third quarter of 2013, slipping to 10.5% in the fourth quarter and 10.2% in the first quarter. They totaled 10.6% of GDP in the second quarter.

At the same time, consumer spending declined in July. Why?

On the surface, the weak spending figures appear at odds with accelerating job creation. The last six months saw the strongest stretch of payroll gains since 2006. Underpinning those gains, however, was hiring in low-wage fields such as restaurants, retailers and temporary jobs. At the same time, a historically high number of Americans aren’t participating in the labor force or are working part time but would prefer a full-time job. . .

“Higher wages have been slow to appear and gains in the stock market are not enjoyed by all,” said Chris Christopher, an Global Insight economist. “More widespread income gains are needed to get all consumers back on solid footing.”

In other words, it’s still a tale of two recoveries: the best of times for corporate profits, the worst of times for the vast majority of the population.

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Job-satisfaction-statistics

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One way of thinking about workers’ happiness is to measure the extent to which it contributes to higher stock returns for the corporations in which they work. That’s exactly what Alex Edmans, Lucius Li, and Chendi Zhang did and the result is not particularly surprising: employee satisfaction is, in fact, associated with positive abnormal stock returns. But there’s a caveat: the positive relationship really only holds in countries that have “flexible” labor markets (such as the United States and the United Kingdom), that is, where it is relatively easy to hire and fire workers. In other countries (such as Germany), where “regulations already provide a floor for worker welfare,” there’s very little effect.

As Mark Thoma explains,

Why might this be the case? One suggestion is that when a company spends money to make workers happier in a flexible market, it can then attract the most productive workers from other firms. But when labor markets are less flexible, it’s harder for workers to change employers, and the payoff from spending on worker satisfaction is much lower.

The U.S. has a relatively flexible labor market, and one reason for that is the “commodification” of labor. Increasingly, labor has come to be treated like any other input to the production process. All that matters is the contribution to the bottom line.

Of course, another way would be to move beyond the choice between flexible and not-so-flexible labor markets: by eliminating the commodification of labor power, letting workers themselves democratically decide how to increase their happiness, and ultimately changing what the bottom line means.

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