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Clear the Fog, Bring on the Jobs

May 13, 2011 by Harold L. Sirkin
May 13, 2011

While the U.S. economy added 244,000 net new jobs last month, the unemployment rate increased from 8.8 percent to 9 percent as discouraged workers started looking for jobs again and the total number of unemployed remained at an all-time high of 13.7 million, according to the Bureau of Labor Statistics. The bright spot, of course, is manufacturing. U.S. factories, especially in the low-cost Sun Belt, are starting to hum again. As wages in China increase, U.S. factories should continue to gain. Still, we have a long way to go. Millions of U.S. jobs have disappeared in recent years, and Washington’s best efforts to put Americans back to work seem to have had little impact.

The reason? Perhaps many, in Washington and elsewhere, don’t really understand why companies hire. Do businesses hire because Washington will spend taxpayer dollars to underwrite basic research, green energy, high-speed rail, and other politically popular programs? Certainly, some do: those that directly benefit from such spending. The vast majority of U.S. companies base the decision to hire new employees on the need to fill shortages of critical skills, gain a talent advantage over competitors, or ramp up production to meet customer demand.

For most businesses, the cost of new employees is a concrete line item. Companies don’t hire for altruistic or patriotic reasons. They hire for economic reasons: the cost of each new employee, according to the company's calculations, must be exceeded by the additional revenue the employee will help generate. We call this profit.

Most major U.S. corporations have been reporting strong profits, but their hiring has lagged. So what's the problem?