Help Not Wanted

Companies are flush, but they still won't hire

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Coming out of recessions, companies are supposed to make more money and hire more workers. In the 18 months since the Great Recession, which ended in June 2009, U.S. annualized corporate profits rose 42%, to a record $1.68 trillion in the fourth quarter of 2010. The unemployment rate, however, spiked to 10.1%, before ending last year at 9.4%.

"Companies are hoarding cash," says Nobel Prize--winning economist Michael Spence of NYU. As Spence and co-author Sandile Hlatshwayo argue in a Council on Foreign Relations working paper, "growth and employment are set to diverge" as emerging-market demand boosts corporate bottom lines without creating jobs at home. That's particularly bad news at a time when government and health care, which created some 10 million new jobs from 1990 to 2008, have stalled. The upshot is that there's now a fundamental disconnect between the fortunes of American firms and those of American workers. That's a recipe for political as well as economic turmoil.