Job Creation Remains Job One
The one thing that nearly always makes the stock market go up is job creation.
By Vikram Rangala
Wednesday, February 18, 2015
Whatever else is happening in oil, global security, or the credit markets, the stock market likes for people to be working in jobs they enjoy, do productively, and receive benefits from.
Some economists, like Fed Chair Janet Yellen, see job creation as job #1 of monetary and economic policy. They aren’t surprised when the stock market goes up even as wages and hiring go up.
Others maintain that even a minimum living wage is a burden on businesses. The movement to eliminate the minimum wage still gets a lot of media attention and sends large political donations to agreeable candidates. The chief political strategist for Charles and David Koch’s Americans for Prosperity recently called the minimum wage a precursor to fascism. The Koch brothers recently announced that they plan to spend $889 million on political activities ahead of the 2016 election.
Raising the minimum wage doesn’t affect employment
Nevertheless, a US Labor Department review of 64 studies found that raising the minimum wage has no effect on employment. In the 2014 elections, a record number of states, counties, and municipalities voted to raise minimum wages. 2014 also saw the creation of 3,116,000 jobs, the highest number since 1999. (Bureau of Labor Statistics)
In short, the argument that raising the minimum wage might force employers to lay off workers might seem logical. But workers earning a little more put that extra money right back into the economy; Walmart workers, for example, shop mostly at Walmart. A January 2015 poll found that 75% of Americans, including 53% of Republicans, favor raising the minimum wage.
When a company lays off workers to downsize, thereby meeting quarterly earnings expectations, the stock often shoots up, at least in the short term. But in the long run, companies that do nothing but downsize to keep their books balanced are not sustainable, and investors know this.
Happy workers lead to happy shareholders: Costco
In the long run, many of the best investments are companies whose workers are well-paid and happy. Costco, for example, has a stock price chart that looks like an endless staircase upwards. Their employees make an average $21 per hour, their CEO makes less than $5 million a year, and 88% of them receive health insurance. Costco even bucked the layoff trend during the financial crisis and raised worker wages an extra $1.50/hour in 2008-11.
Maybe it comes down to what we can see. We can’t see shareholders receiving larger profits or dividends—and if they send them to offshore accounts, neither can the IRS in many cases. But in the past year, I’ve seen friends and relatives (and myself) getting dressed to go to a new job, taking a long-overdue family vacation, making a purchase that was impossible a couple years ago. I see more people walking with purpose, as though they have somewhere to go, something to do.
I see the pride with which they join in conversations with others who have jobs, complaining about the new commute or office politics, talking about how tired they are. But I can tell by the look in their eyes, how happy they are not to have to mumble the same old “still looking” story and here the same “hang in there” from friends and loved ones. Our economy still needs a lot more such stories, but we're making them faster than we have in over a decade.
Good things happen when people have good jobs. You can put it in fancy terms about the ratio of domestic consumption versus capital expenditure as drivers of GDP growth. You can talk about shifts in the sector weightings in the S&P 500 and how they reflect more people driving or buying homes.
Then again, the reason why job creation makes the stock market happy may lie closer to home. In the next 24 hours, hundreds of millions of people are going to get asked a simple question they’ve been asked many times since 2009: “How was your day?” The answers they are able to give in February 2015, or the answers they hope to give soon, are probably happier than they used to be.
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