Dividing Economic and Employment Recovery

Monday, 12th October 2009 at 8:00 UTC Leave a comment

Economics is not my strong point, but I think its worth digging into one of the assumptions being made by the media, especially in the language it uses whilst debating signs of an economic recovery. We here about economic recovery, and we assume this is good for the mere mortals at the bottom of the chain, but does this really hold truth? (With apologies to Naomi Klein from whom I learnt most of this).

The first thing I want to say is that the state of unemployment and the state of the FTSE-100 are completely different. I don’t have the unemployment figures to hand, but I the FTSE-100 graph for the last three months will be useful in this. Note the significant rise, taking the index up 25%. That might look like economic growth; it is, but its not economic growth as you or I experience it (unless you’re a stockbroker or paid more than about £100k).

Put simply, the stock market shows confidence in companies abilities to turn a profit. To increase profit capacity, either find new markets, advertise your product (to sell more) or cut costs. One of the most expensive costs a company has is its staff. Therefore, when markets are shrinking or stagnant, if a company lays people off, its profitability rises. Therefore laying off you or I, the annoying fact of life during increases in sales, make a company more profitable. Thus, companies are rewarded for making unemployment worse. Only rarely, in the most rapidly expanding markets, does a company become more attractive to investors by involving itself in the lives and finances of even more people as workers.

There is also an investor confidence element to manager’s ability to fire staff. It shows that the boss is in control. Economic recovery, or at least the earliest stages of it, will involve bosses taking the initiative to cut costs, which means cutting payroll, which means longer dole queues. Thus a recovery will, in the first instance, make things worse and not better for the poorest in society, and even for those who were doing alright in previous years.

In the last few decades, we have seen the tendency to seek weightlessness and impermanence in companies, especially those at the very top of the pecking order. This is done through “externalising” anything that could possibly become a problem, such as factories and premises, making sure someone else will suffer if the house of cards collapses. If you want to learn the extent of this, even 10 years later, Naomi Klein – No Logo is probably the best place to start.

Its a nice story to be able to proclaim recovery, and if recovery passes into growth there will be more jobs and some new market will put a category or more of workers in demand to the extent that their pay increases. But for now, the economic recovery has more to do with companies making layoffs and cutting back on the expenses. During this period we should assume life will be hard for all but a few of those with ‘normal earnings’. Also, with buyable housing in short supply due to buy-to-let, there’s no guarantee that any benefit will be felt by those in the middle of the pile looking to take on housing. Its nowhere near over for the rest of us.

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Entry filed under: Economics, Language, News, Unemployment, Workers.

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