A couple of weeks ago New York Magazine used The Hiring Gap chart (see picture) as their Intelligencer topic. It compares domestic employment powers of ten "most valuable" ( in terms of their market capitalization) public companies in America in 1964 (converted into 2011 dollars) and now. Even though the numbers on their own are very striking and Andre Tartar's few-lines of commentaries and footnotes cut right through the fact that
"being a top American business no longer… means employing lots of American workers,"
the data left my calculating mind somewhat unsatisfied; it begged for further interpretation.
First of all, it's the damned "market capitalization" crap, which nothing more than a perceived value of the company by investing public – the very same public that cannot evaluate companies on its own and follows the leads of their brokers, WSJ analysts, CNBC (especially if they are doled out by sexy Maria Bartiromo or engaging Jim "Mad Money" Cramer), etc. Thankfully, there is an instrument we can employ to make these numbers somewhat more real – Price-Earnings Ratio:
Here is the new ranking of the 2011 listing, based on the companies' earnings.
Only three giants retained their places in this modified view: Exxon, Berkshire and Google. And, by my standards, those three are overpriced anyway: any stock with P/E ratio higher than 11 is overpriced. Google with 20 – ridiculous. Of course, it's not as bad as some other stocks, like Wynn Resorts, for a example, with a preposterous 60. It always shocked me that people buy stocks like that and then act all surprised when their savings go, "Bye-bye."
Another interesting angle of the chart is its reflection of the fundamental changes in industrial mix of Large-Cap companies, which speaks volumes about this country's economic and social environment. The only two companies present on both lists are GE and IBM. In 1964 we did not have any financial institutions big enough to claim not just one, but two spots in the top 10. The three tangible goods manufacturers that drove the US to its economic dominance in the 60s are gone off the list – GM, Dupont and Kodak. So, is the telecommunication super-power of the time – AT&T. Now, we have Apple and Microsoft, dividing the world into two camps of PC vs. Mac users. And isn't it comforting to know that as far as our OIL-dependence is concerned, we are still at the same point as we were nearly half a century ago?
Now, the focal point of the piece – the dwindling number of the jobs infused by these companies into American economy. In accordance with proper statistical rules, let's explain away the two companies with the highest and the lowest number of workers. Walmart employs 2.1 million of people, but it is irrelevant, and not because their average salary rate is one of the lowest in the country, but because their expansion put out of business smaller chains and thousands of independent retailers. Google, on the other hand, generates the majority of its revenue without any human participation, so I am surprised even by the 24K number.
Look at our beacons of stability, though – GE's number practically did not change and IBM employs nearly three times more people now than they did 47 years ago. Holla to that! The rest of them… well, we all know the story – there are three reasons for jobs going away and never coming back:
- Technological advancements contributing into increased efficiency.
- Outsourcing = jobs going abroad.
- Globalization of manufacturing and support services = jobs going abroad.
At the time this issue of New York Magazine came out, the unemployment rate was at 8.8%. Now it's 9%, and I believe that unless something changes fundamentally in our economic structure, it is only going to get worse. The new reality is that we cannot look at the giants whose operations financed through their publicly-traded stocks as the source of new jobs.
As long as investors listen to analysts' opinions and follow the "trends," the large companies' executives will continue applying their hardest efforts to minimization of costs in order to preserve their multi-million compensation packages. The workload will continue being exported abroad and jobs will disappear.
At this point, we can only rely on small and midsize American business for the influx of new jobs. That's where the efforts must be concentrated: helping the existing smaller companies' survival and stimulating creation of new entrepreneurial businesses.
Those who read this blog consistently know that I am developing a product that will help small and midsize businesses in their daily struggle for success, assuming I manage to solicit sufficient venture capital.
The Frustrated CFO 