American investors, happy days are here again! The Dow Jones Industrial Average (DJIA), the landmark statistical index of large corporate stock values in the United States, just nudged over the 11,000 level for the first time since May.
American firms are clearly recovering from the Great Recession, and their shareholders are benefitting as well. But the latest American unemployment figures are grim, with limited private sector hiring overwhelmed by government sector lay-offs.
How is this possible? How can American companies (and their investors) be growing stronger while their employees lose their jobs? And how long can these trends continue until employment finally strengthens …
… or, conversely, until American firms again weaken?
Gunning For Growth
The primary reason for this “disconnect” between American firms and their employees is that, to put it simply, American companies aren’t wholly American any more. Quintessential red, white, and blue firms like Coca-Cola, Disney, and General Motors are experiencing far more growth in global markets than in domestic markets, and thus they are inevitably hiring new employees in regions that are generating more business. Why would Coca-Cola, for instance, build its work force in the United States instead of Asia when its North American sales volume is dropping by 1% while its Chinese sales volume is soaring by 29%?
Other United States firms claim that they would prefer to hire more American workers, but immigration laws prevent them from doing so. Technology firms like Microsoft and Google note that many foreign nationals are attracted to American universities, where they are trained to perform highly sophisticated value-added functions. However, even though many of these individuals would prefer to remain in the United States and become American citizens, our immigration laws make it easier and cheaper (and, in fact, often legally necessary) for American firms to establish new locations in foreign nations and then to employ these graduates overseas.
The bottom line is that, for a variety of reasons, companies inevitably hire employees in locations where sales volume is growing and talented employees are eager to work at relatively affordable salaries. That’s why American firms are increasingly building their work forces overseas instead of in the United States. And, in the process, the companies are becoming less American themselves.
The Investor Class
This divergence of fortune between United States corporations and the American work force also impacts the differing circumstances of domestic investors and workers. Last month, for instance, the DJIA jumped by over 7%, while the Nasdaq stock index soared by over 12%. A 68 year old retiree with a fully guaranteed pension and a 401(k) investment “nest egg” worth $1 million would thus have seen his 401(k) savings soar by over $70,000 in just one month if he had invested all of his funds in a relatively conservative DJIA stock fund. Of course, he would have received his monthly pension payment and government funded social security and health care benefits as well.
Meanwhile, a lower middle class supermarket clerk scraping by on minimum wage would not have felt any benefit from the stock market surge; such individuals generally own few or no investment funds. He may well have felt the burden of soaring health care service costs, though. Many working Americans who possess no health insurance coverage, after all, are employed in clerical positions that offer no benefits.
Furthermore, the American income tax system places higher rate burdens on lower middle class supermarket clerks than on wealthy retirees. Most retirees are paying a long term capital gains tax rate of 15% on their retirement fund withdrawals, whereas employee wages are subjected to higher rates in total by the income tax, social security tax, and Medicare tax systems of revenue collection.
Valid Arguments, But No Solution
There are, quite naturally, perfectly valid arguments in favor of maintaining these status quo policies in the United States. After all, the United States does indeed maintain a mature economy and cannot possibly match the explosive economic growth rates of emerging nations. American firms are thus far better off pursuing explosive growth opportunities in emerging nations than not pursuing them at all.
Furthermore, the immigration laws have indeed been developed to protect the American labor market from being overrun by immigrants seeking better lives. And senior citizens don’t perceive their government financed retirement benefits to be wealth transfers from working adults; instead, they assert that they paid into the retirement system during their own decades of employment, and they are now simply receiving equivalent value during their retirement years.
These are all valid arguments, and yet they offer no solution to the problem that is now confronting American society. Namely, an economic recovery is clearly underway for corporations and their investors, but an end to massive unemployment is not yet in sight for the work force. And eventually, if America’s employee pool collapses entirely, it may pull all of the other American stakeholders down with it.