Corporate Economics 101 – Recession is Good

Face-to-face trading interactions on the tradi...

Image via Wikipedia

Most economists prefer to forget the recession of 1994, but I remember it clearly. Jobs were cut left and right while corporate profit skyrocketed. Coincidence? I think not.

There are three big factors in the corporate equation – expenses, sales, and profits. The single most important part of that equation is profit, period, in any economic climate. Sales don't matter in a recession. When the economy turns sour, corporations get a clean excuse to cut expenses, be sloppy, and perform terribly – all the while making profits rise at an astronomical rate.

When consumer confidence drops, stocks collapse, and the government has to bail out banks to the tune of $7 billion, corporate cushy chairs rejoice – because now they get to dispense of their most expensive liability. People.

In the recession of 1994, corporations were starting to feel the aftershocks from the boom of '92. Skilled labor had become rare, and to get or keep great talent they had to provide steep benefits. The Heritage foundation reported at the time:

“There has been a decline in average real cash wages since 1973, but this does not mean a decrease in the American standard of living. In fact, most workers are better off today because their real compensation and real per capita income continue to increase. The reason for this is that workers are taking home more of their pay in the form of tax-free benefits than ever before.�

The same thing happened just before the Dot Com Bubble, remember? You see, corporate cushy chairs know you only need talent to get started. If you use their brains to create systems anyone can use, then you can dispense of the expensive talent later on, creating a rise in productivity and profits, and a decreased demand for skilled, benefit-seeking labor.

Not many industries are safe right now. Unless you're in a union or some kind of profession in which your time to learn it cannot be replaced by systems, then I suggest you start looking for a job.

You can find out more about Patricia Mayo and her other projects at Mayobrains.com or ComHacker.org.

Article written on November 4, 2008 9:35 AM

Send a comment to Patricia Mayo
Syndicate This Site
RDF XML
All Weblog Entries

Don't miss visiting our sister site, aimed at college students: College Finances

Personal Finance Articles

This site is intended to offer resources, not legal advice.

site map or tech support or business blog ||