Network News

X My Profile
View More Activity

Companies hoarding cash but not adding many jobs

I have a story in Thursday's paper about why U.S. non-financial companies seem to be hoarding lots of cash but not spending it, especially on hiring.

Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms' coffers.
Yet all the good news from big business hasn't translated into much promise for jobless Americans, leading many to wonder: If corporations are sitting on so much money, why aren't they hiring more workers?

One major theory: companies don't want to expand when they're not sure there's the consumer demand to justify it -- and that confidence still isn't quite there.

Companies are also potentially nervous about their ability to borrow if the financial system were to come under stress again.

As other blogs, including The Big Picture, have noted already, there's evidence that companies have been on this cash-hoarding track since the early '80s.

I interviewed one writer of the study cited above, René Stulz, of Ohio State University. He mentioned some other research showing that the pool of publicly traded firms is riskier than it's been historically. More companies go public earlier in their life cycles, so that even when they're still fairly young (think of biotech companies), firms can tap public equity much earlier than before.

But Stulz added that even firms that aren't that young and have been publicly traded for decades have perhaps grown riskier too. Companies have grown more international. And there's arguably more financial uncertainty -- markets have become more fragile and prone to crises -- than 20 years ago.

There's also potentially a tax-based explanation for this -- one I didn't have space to include in the story. The U.S. tax code levies companies at the corporate income tax rate of 35 percent for foreign earnings they bring back to the U.S.--a relatively high tax rate compared to other developed economies. Some researchers say this policy encourages multinational companies to keep their money offshore, often in cash.

And there are even more theories floating around. To hear some of them, check out a great discussion on the topic going among some academics on Economist.com.

By Jia Lynn Yang  |  July 15, 2010; 8:44 AM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Departing Business Roundtable chief leaves White House relations up in the air
Next: Geithner, banks respond to Senate passage of financial overhaul

Comments

Lets see, employment is a problem if you don't have a job and have little in the way of reserves.

If you are an employer and have a wad of cash and no emplees, it is not a problem (for you).

perhaps the employers are waiting for more government stimulus (tax breaks, less regulation, administration in Washington change etc...) to start trhe hiring again...

that way somebody will be right and someone else will be wrong?

I guess if the jobs don't come we can learn to live with less and work for less.

Happy New Year.

Posted by: mtstewart1 | July 15, 2010 9:40 AM | Report abuse

Companies have also optimized, or are in the process of optimizing, their processes and technologies, including out-sourcing. This means that many companies, esp medium-sized companies that don't have the economies of scale to efficiently run some processes they once did, don't have the need for the same kinds of workers they once did. This means workers need to update their education and skills. This is a stark reminder to all of us that we are now at a time where saving for retirement may not be enough, we may need to save for or add to our emergency funds, for several years of re-training mid career. The problem is that the gov't keeps wanting to change the paradigm back and forth from a nanny state to a more open capitalistic one and those that prepare for either are at some point left in the lurch or penalized for their long-term planning. Point is, that even the government, if they had to re-org and optimize over a reasonable time frame of a few years would end up with tens of thousands of un-needed workers as processes and technology upgrades would leave open jobs with different skill sets, as is happening, but the gov't takes ten times as long to react as the private sector. We already have thousands of people doing far less than they once did utilizing systems that have made their jobs obsolete but the jobs remain for political and other non-business reasons. This is just a normal cycle that was hidden by a phoney economy driven by the internet boom that saw money poor into real estate once the bust began. Essentially, the economy dropped 15 years worth of jobs two. At least all this has opened my eyes to the fact that one should save in order to be able to re-train and continue education -- not the soft skills most continuing education is -- so those economists that incorrectly think that spending is the problem are sorely mistaken if the average American still with a job is intelligent about buying unneeded junk and instead saving for the future; and providing America with a more dynamic, prepared, and educated work force.

Posted by: NovaMike | July 15, 2010 9:43 AM | Report abuse

Oh, they'll start hiring again after their Republican puppets take over Congress again.

Posted by: lddoyle2002 | July 15, 2010 10:05 AM | Report abuse

Hasn't it occurred to anyone that maybe the culture of business in America has taken a very ugly turn over the past ten years?

It's all about rewarding the few at the expense of everyone else, including employees, shareholders and customers.

This won't get better at all until CEO salaries start to come back to earth.

North Carolina Blue Cross Blue Shield has announced massive layoffs to improve "efficiency." I have an idea, how about halving their CEO's (and other corporate officers) BLOATED SALARIES???

The economy has turned into a bad joke, now that the government has dropped its pants and will bail out almost anyone for any lame excuse some suit comes up with.

There is no accountability or consequences for anyone, except the poor shmoes who are out of work right now.

Posted by: tony_in_Durham_NC | July 15, 2010 10:16 AM | Report abuse

The reason companies are not hiring is because they do not want to pay the health care costs that they are going to be taxed on. More employees = more taxes.

Also, Obama is not going to renew the Bush tax cuts and that is going to be an additional expense.

That's some change. Can't wait until Nov. Who would have thought anyone could be worse than Bush.

Posted by: ryanNdc | July 15, 2010 10:28 AM | Report abuse

Companies are moving most of their employees to "overtime exempt" status and working them to death.

Posted by: destinysmom | July 15, 2010 11:03 AM | Report abuse

BUSH SUPPORTS SHIFT OF JOBS OVERSEAS
February 10, 2004

The loss of work to other countries, while painful in the short term, will enrich the economy eventually, his report to Congress says.
WASHINGTON — The movement of American factory jobs and white-collar work to other countries is part of a positive transformation that will enrich the U.S. economy over time, even if it causes short-term pain and dislocation, the Bush administration said Monday.

The embrace of foreign outsourcing, an accelerating trend that has contributed to U.S. job losses in recent years and has become an issue in the 2004 elections, is contained in the president's annual report to Congress on the health of the economy.

more --
http://articles.latimes.com/2004/feb/10/nation/na-bushecon10


Posted by: angie12106 | July 15, 2010 11:06 AM | Report abuse

ryanNdc wrote>>>Obama is not going to renew the Bush tax cuts and that is going to be an additional expense.

Bush & Republicans gave 2 UNFUNDED tax cuts to Billionaires and Millionaires who used the savings to invest in companies that moved our jobs OUT of the U.S.
Yes, Republicans would extend the Wealthy's tax cuts - which will create more jobs in China and increase our deficit.

"Tax cuts create jobs." - Bush - hahahahaha - in China.

Posted by: angie12106 | July 15, 2010 11:14 AM | Report abuse

After reading this article and the linked comments by various economists, one thing is clear. Risk aversion and confidence are based on psychology and perception, rather than facts. In fact, the entire financial market system appears guided by animal spirits, exuberance, and fear, more than a desire to build a solid future by providing quality products and services.

Posted by: AgentG | July 15, 2010 11:15 AM | Report abuse

ryanNdc wrote>>>The reason companies are not hiring is because they do not want to pay the health care costs that they are going to be taxed on. More employees = more taxes.

Tucked into the Republicans UNFUNDED Medicare D was a taxpayer subsidy for large companies - partial funding for their retirees' health care benefits.
ObamaCare removed this taxpayer subsidy and the multinationals had a hissy fit - aired on Fox & Frightwing radio 24/7.

America is a capitalist "free market" country where taxpayers SUBSIDIZE the giant capitalists. This is basic Republican Ideology 101 which ensures I'll be voting Democratic in November.


Posted by: angie12106 | July 15, 2010 11:21 AM | Report abuse

ryanNdc wrote>>>The reason companies are not hiring is because they do not want to pay the health care costs that they are going to be taxed on. More employees = more taxes.

Tucked into the Republicans UNFUNDED Medicare D was a taxpayer subsidy for large companies - partial funding for their retirees' health care benefits.
ObamaCare removed this taxpayer subsidy and the multinationals had a hissy fit - aired on Fox & Frightwing radio 24/7.

America is a capitalist "free market" country where taxpayers SUBSIDIZE the giant capitalists. This is basic Republican Ideology 101 which ensures I'll be voting Democratic in November.


Posted by: angie12106 | July 15, 2010 11:21 AM | Report abuse

U.S. companies aren't interested in creating jobs in the U.S. and maintaining a "great America" - they're only interested in creating great global companies.

Posted by: angie12106 | July 15, 2010 11:26 AM | Report abuse

The greedy SOBs running these companies with only short term self enriching interests in mind have only one goal...to enrich themselves. They have to hoard cash for their exorbitant salary and bonus plans, remember a CEO makes the equivalent salary of on average 1100+ hard working Americans trying to support their families. These same greedy SOBs would rather offshore American jobs to cheaper foreign labor even if the work is sub-standard, more short term profit equals more self enrichment for themselves...the American worker and shareholder can just kiss their fat greedy arsses.

Posted by: Impeachbush99 | July 15, 2010 11:27 AM | Report abuse

The bush tax cuts for the wealthy were supposed to create the trickle down effect", creating jobs. NOPE!

The economy got worse under bush, as corporations were allowed to outsource jobs to China and India and all over Asia. US companies folded. Remember how on CNN Lou Dobbs used to DAILY list the number of jobs lost and WHICH companies were outsourcing?

Then, as we headed for a recession, bush cried for TARP funds to bail out the banks and Brokerage firms, Insurance companies and the Auto Industry. Wall Street, with NO oversight, drove the downfall! The auto industry, unable to compete because of Union demands, was broke.

And now..... with bush's tax cuts about to EXPIRE IN 2011, the GOP is out to destroy Obama and the Democrats in order to gain control again. IF they do NOT, the tax cuts for the wealthy will expire.... and that is what makes up the GOP... the WEALTHY! Those tax cuts is what drove up the deficit, $439 BILLION the first year!

There is no trickle down, only trickle UP! There WILL be no new jobs. I don't see how there could possible be new jobs unless they are created by the US Government. Of course, the WEALTHY do not want this to happen! THEY want it ALL!

Posted by: cashmere1 | July 15, 2010 11:51 AM | Report abuse

Angie is dead on.....

We're got a serious problem in the US with moneyed interests willing to destroy their host nation/citizens to continue an unfair gravy train. Cut their nose to spite their face is the phrase that fits best.

These masters of the universe are the same idiots who didn't think real estate could ever come down, that demand driven by credit was sustainable AND profitable, and assuming that we're going to tolerate it. They've got another thing coming.

Posted by: theobserver4 | July 15, 2010 11:53 AM | Report abuse

Well, corporate interests are clearly reluctant to give up some of those short-term profits in the interest of long-term growth. Not a surprise given the trend toward short-term thinking during the past decade. There may be a 5 year growth plan locked somewhere in a closet, but nobody's consulting it. All they're thinking about is how to look good to investors on the next quarterly statement.

If you're looking to corporate CEOs for America's leadership, forget it. They're mainly interested in taking credit for success and shifting blame for failure -- the twin skills of the modern leader.

What's needed to revive the economy is the thing voters are afraid of -- enormous government investment. Think about what ended the Great Depression: the vast sums of money spent and vast numbers of jobs created by WW II. Hardly any of that expenditure went to overseas firms. The money stayed at home.

Posted by: Samson151 | July 15, 2010 1:03 PM | Report abuse

Basic economics... Supply, Demand, etc.

What business owner or corporate CEO would be stupid enough to hire more employees unless and until the demand for product and services exceeds their company's present capacity?

The major reason for the collapse of the American auto industry was the business model they used: create supply based on the number of vehicle sales they needed to reach revenue goals regardless of demand.

Posted by: Hazmat77 | July 15, 2010 1:17 PM | Report abuse

Obama's problem is simply a matter of timing. People are saving more, which in the short run will reduce the amount of consumption, reducing the need to higher more workers. Once people have re-established their financial safety, demand will return. China's inflation will lead to a re-leveling, but also over the long term, not immediately.

The programs his administration has put into place are both noble and beneficial - but mostly long term in scope. Things will correct in 3-5 years but he'll be gone by the time they've improved.

Posted by: getmecharles | July 15, 2010 1:49 PM | Report abuse

Upon reading the post of NovaMike, I felt compelled to call 911. It appears this gentleman hit his head very hard on something and is, obviously, suffering from a major head concussion. Read his posted nonsense, and you'll know what I mean.

Posted by: bigisle | July 15, 2010 1:54 PM | Report abuse

there is no motivation for companies to hire if they can get the same level of output from a smaller workforce. PLUS, there is the added benefit of threatening the folks who do have jobs with layoffs and getting even MORE output. yeay, corporate captialism! ain't it fun?

Posted by: birdynumnum | July 15, 2010 3:22 PM | Report abuse

We are still running a massive deflation ~ which means that for every dollar you spend today on salaries or supplies you could have spent less than a dollar if you waited a week or so.

It's just part of the same sort of deflationary cycle that crushed Roosevelt.

Plus, this regime simply can't be trusted to have the interests of the American people at heart.

Posted by: muawiyah | July 15, 2010 4:21 PM | Report abuse

Preppers depression now has teeth.

Look for the numbers of home turn in's to increase.
Huge mistakes followed by worse ones not welcomed by the public, are sheer folly.

Posted by: dottydo | July 15, 2010 5:30 PM | Report abuse

Interesting reading but it doesn't answer the jobs question. Yes companies hoard cash for many reasons , especially in the Silicon Valley. Between Apple, Oracle, and Cisco, there are 10's of billions of dollars of cash. This behavior has been in place since the jobless % was at 4 and 5%. I work with "Valley" execuutives for a living. They are telling me it's the lack of tranparancy in the policies being driven out of Washington and essentially the anti-business mood in this administration. Some companies are paying a premium for consulting help rather than hiring to get work done until they see what the effects of the new regulations, health care, etc are. On top of that, poor consumer sentiment and you have the "perfect storm" for lack of job creation.

Posted by: sfborn60 | July 17, 2010 10:49 AM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company