Unemployment, A Gift for Corporations

The increase in unemployment is directly associated with a fall in demand for laborers and constitutes an obstacle for the economy and for companies trying to recuperate from the crisis. Nonetheless, in the United States the actual recovery phase has worked itself out in strange ways. In this economy, unemployment has allowed productivity to increase and therefore profits as well. Unemployment has been something like a gift for big corporations. This sounds surprising but the facts don’t lie:

The global crisis brought about a dramatic rise in employment. Of course, European countries were hit hard by that increase, but according to statistics from the OECD, more than half of the jobs lost between 2007 and 2010 in the top 31 economies worldwide were located in the United States. This loss of jobs is out of proportion with the fall in the GDP of the U.S. economy. The statistics show that the GDP of the U.S. fell less than it did for the same group of countries between 2008 and 2010. How is that possible? The answer reveals the internal dynamic of capitalist economies.

During the last three decades, the United States imposed a flexible policy on the labor market. The protection of worker’s rights for both seasonal and permanent employees was slowly and inexorably reduced to nothing. For years, U.S. capitalists were able to boast in front of their European brethren that U.S. unemployment was reduced because they established a system where it was easy to hire and fire. Clearly, before the bubble burst (especially over the last ten years), workers overextended themselves and put themselves further in debt at each step.

The pressure placed on the work force was further reinforced by the outsourcing of jobs to foreign markets through the gigantic process of subcontracting called ‘globalization.’ But even this mechanism couldn’t reduce the number of jobs in the U.S. by more than 30%. In actuality, transnational corporations still employ two-thirds of their workforce in the United States (approximately 21.2 of their 31.2 million workers, according to a study by Martin Sullivan). For this reason, the offensive against worker’s rights intensified in the United States.

When the crisis started, U.S. businesses were able to cut their labor costs even more easily than their counterparts across the Atlantic and in Japan. The labor market’s flexibility allowed them to find little resistance to cutting costs and recuperating profit margins. Because of it, the United States has one of the worst rates of employment in the developed world. And if we count hidden unemployment (people who have given up the job hunt or seasonal workers searching for permanent work) the rate of unemployment shoots up to depression levels.

Today, job creation continues to be weak and does not account for the new workers entering the job market each year. At this rate of job creation, the pre-crisis levels of unemployment (5 percent in 2007) will not recover until 2031.

Besides that, close to 27 percent of jobs created in 2010 were temporary. The large majority of the jobs generated by the private sector are low paying and without benefits, and are almost all in the service sector. The disaster in the labor market within the U.S. economy has been marked by firings and salary freezing. In 2010, earned wages and salaries barely reached 42 percent of personal spending in the United States, a record statistic. The pauperization of the working class has already become a structural trait of the U.S. economy.

The labor cuts generated rises in productivity (less people producing the same amount of goods) and this translated to an important increase in profits between 2008-2009. Although profits suffered a minor setback in the first trimester of 2011, the data reveals that corporate profits constitute about 11 percent of the national income.

While the investment in fixed stocks stalled, big companies in the U.S. saw a rise in cash flow. In non-financial sectors, this improvement allowed more resources to be directed toward stock buybacks, new investments in emerging markets, and mergers and acquisitions (a typical trait of a capitalist crisis). In addition, the treasuries of the principal U.S. transnational corporations are brimming with cash flow, which has allowed them to increase their spending in emerging countries.

All of this is unsustainable. The gravity of the situation is that another collapse of the U.S. economy will have dire repercussions for global capitalism.