Sunday, March 27, 2011
Payrolls May Not Be Growing Much, but Profits Are
The economy is slowly recovery from the recession that has effected it for several years. The recovery process has been slow. An encouraging sign is that firms are beginning grow profits. However, at the same time they are refusing to hire new workers, which is keeping unemployment high. This is also contributing to the higher profits because firms are not incurring the costs associated with hiring more workers.
Subscribe to:
Post Comments (Atom)
7 comments:
The increase in profits may be contributed to few employees who are working longer and harder.Why would a firm hire people, when they have laid off staff, and productivity and profits are increasing?
A good point. Employing less people reduces their fixed costs, but if the company can use their accumulated assets to buy more inputs and labor their production will increase. Theoretically this would grow their profits even more. Especially in the service sector, more hires increases the number of customers that can be served.
You would think that firms would want to start hiring more what with growing profits and the turnaround in the economy. This reluctance doesn't bode well for those who were laid off in the past, when actually it would make sense to start hiring these workers for full-time employment to increase profits and serve more customers.
When firms started laying off workers, they downsized their business. Firms wouldn't hire more, at least on a large scale, if they can't expand their business. Since banks won't lend out money, firms can't really do anything. Unemployment has been decreasing in the last few months, but I won't expect any dramatic change unless banks start to invest their money big time.
I think the point about reluctant banks is a very good insight. The firms are reluctant to hire new workers because they may have to incur training costs. Also, many people have delayed retirement and even taken a reduction in pay, which allows firms to keep already productive workers at a lower cost.
I think this is an example of a reaction taking place quickly to the recession and the road to recovery taking much longer. When the recession hit, the quick and easiest solution was to lay off workers. However, as the economy recovers, there was no way that firms were going to hire employees at the same rate that they were laid off when the recession struck. On the other hand, unemployment has been steadily dropping for months now, so I think we're headed in the right direction.
Firms are being very cautious due to the way things played out when the recession first hit. As mentioned before, layoffs were the easy way out and they happened in mass amounts. Now that profits are increasing firms will hire more workers but they will do so slowly in case any unpredictable things happen with the economy.
Post a Comment