By Howard Schneider
WASHINGTON (Reuters) - Employment growth at the largest U.S. companies has lagged far behind increases in revenue and operating profit since the start of the century, as firms reaped the benefits of globalization, technology, and other ways to operate more productively, according to a Reuters analysis of corporate data.
From 2001 to 2013, inflation-adjusted revenue at 100 of the largest publicly traded companies grew 71 percent and inflation-adjusted operating profit rose 150 percent. Global headcount reported in company financial filings rose 31 percent.
Their headcount grew faster globally than overall employment in the United States, but it is unclear from corporate disclosures how much of the hiring took place outside the United States.
Information from individual companies suggests a lot of the new jobs were created overseas, especially given that in this period there was offshoring and outsourcing of work that was done previously in-house and in the U.S. There was also substantial growth in sales in foreign markets and a resulting expansion of operations overseas.
The data highlight a central question that officials in the Obama administration and at the U.S. Federal Reserve confront: has the nation's ability to generate well-paying jobs in manufacturing and other sectors been fundamentally scarred by changes in the global economy that may predate the 2008-2009 economic crisis but were more starkly revealed in its aftermath. The answer could have major implications for economic policy decisions, such as how long the Fed keeps interest rates at very low levels to stimulate jobs growth.
At the Fed, Chair Janet Yellen has spoken of the steady drift in national income "away from labor and towards capital," while some policymakers worry the full depth of the changes are not yet clear.
"We have to understand what structurally is going on ... Is the country really changing in a fundamental way?" Atlanta Federal Reserve Bank President Dennis Lockhart said last month, citing the possibility that "polarized labor markets" could become entrenched. That would mean a workforce based on large numbers of lower paid workers, with a few highly paid managers, professional and technology workers, and a permanent hollowing out of the middle class. This would be a potential drag on overall purchasing power and economic growth.
Data on the 150 publicly traded companies with the largest sales was collected from Thomson Reuters' Eikon system. Banks and financial firms were excluded because the way they report results isn’t comparable to other companies and to tie the analysis more closely to the production of goods and services.
Several companies, such as energy investment company Energy Transfer Equity, were excluded because their records did not extend back far enough or were complicated by corporate maneuvers, such as breakups.
The resulting list of 100 large companies covers a range of industries, from consumer giants Wal-Mart (WMT.N) and McDonalds (MCD.N), to old-line industrials such as Caterpillar (CAT.N) and General Motors (GM.N) as well as technology giants like IBM (IBM.N) and Microsoft (MSFT.O).
Google was included but its public records did not include employee headcount for 2001 and 2002 and it declined to provide data for those years. The search company reported fulltime employment of 47,756 for 2013.
The collective headcount of the 100 fell in only one of the years included in the study, dropping 1.33 percent in 2009, the year in which the financial crisis and accompanying recession had the most savage impact.
TYSON WORKFORCE DROPS
But 30 of the companies actually cut jobs between 2001 and 2013 - even while managing, in some instances, very big increases in profit and revenue growth.
For example, between 2001-2013, Verizon (VZ.N) continued reshaping itself from a provider of landline phones to focus on wireless telephony and network services. Annual inflation-adjusted operating profit more than doubled while the workforce shrank more than 30 percent.
Meat provider Tyson Foods (TSN.N) grew through the efficiencies of scale that came through a series of strategic acquisitions, as well as technology that, for example, has pushed up the amount of meat that a beef carcass yields. Its operating profit increased an inflation-adjusted 20 percent between 2002 and 2013, and its revenue by an inflation-adjusted 14 percent. Yet, its headcount dropped 4.2 percent over that time. (Tyson's purchase of rival IBP in 2001 wasn't fully reflected in its public accounts until 2002).
Though fast-growing technology companies led employment growth over the period, that may not be sustained as those firms get bigger. The pace of hiring at Apple (AAPL.O) and Amazon (AMZN.O), for example, has slowed after a 12-year spell in which both companies boosted headcount roughly ten fold.
Robert Litan, a Brookings Institution scholar who has been studying employment at the country's older companies, said the recession in 2001 marked a turning point when firms began managing headcount more aggressively through the use of more efficient global supply chains, technology and other methods such as outsourcing U.S. work.
A recent analysis he co-authored with economist Ian Hathaway found the U.S. economy and employment increasingly dominated by older companies - suggesting that the workforce decisions of large, legacy firms may be growing more important to employment overall.
That could be a problem in itself. The United States’ capacity to produce new jobs may take a hit if the country does not find ways to encourage more start-ups and find ways to help young companies succeed and grow.
"We cannot count on the Fortune 500 to absorb all our workers. That is not what they do. They make more out of what they've got," Litan said.
Company officials and outside analysts say several complementary forces are at work: globalization and outsourcing, investments in labor-saving technology, and the more traditional efficiencies gained through takeovers and scale.
Much of this has been positive for the U.S. and global economies – for example by manufacturing more goods in China using lower-cost labor the prices for computers and TVs has plunged in the past 20 years, a benefit for consumers. But this may only partially offset the impact on many families of a loss of higher-paid manufacturing and other jobs.
Some of the employment trends began many years ago but may not have been obvious because they were masked by changes in demographics. The increasing numbers of women in the workforce, for example, kept family incomes growing through the 1990s, White House economic adviser Jason Furman recently noted.
Some analysts caution that it is difficult to draw broad conclusions based on data from the largest companies.
Through the 1990s, firms shed "non-core" operations, such as in-house security, something that boosted jobs at smaller companies, noted David Chavern, president of the U.S. Chamber of Commerce's Center for Advanced Technology and Innovation.
Advances in global trade and logistics allowed companies like Apple to rely on contractors such as China's Foxconn for their production of iPhones, iPads and other products.
To that extent, Apple's formal headcount does not reflect many of the people who rely on the company for jobs. Apple's headcount skyrocketed more than eight-fold over the last 12 years to more than 80,000. But reported headcount at Hon Hai Precision Industry Co Ltd (2317.TW), the Taiwan listed name for the Apple contractor Foxconn Technology Group, has grown even faster, to more than 1 million workers from just 1,528 in 2001. Foxconn does work for a lot of companies but a significant part of its growth is because of orders from Apple.
The U.S. economy is also one where small- and medium-sized firms drive much of the job growth. Verizon, for example, cut call center staffing as Internet startups began providing 411 directory assistance service for free, often financed by advertising. Some jobs, such as web design and technology consulting, also lend themselves to freelance careers as much as working inside a large company.
Technology may allow top companies to perform well but also "opened up other venues of success for labor that we would be thrilled with," said Joel Prakken, a senior managing director at the Macroeconomic Advisers consulting firm.
Companies are not required to include payroll data in their financial filings so the analysis could not include wage trends.
But amid overall wage stagnation there is concern about a growing divide. According to Bureau of Labor Statistics data, the number of people employed in the top ten highest paying job categories fell 4 percent from 2001 to 2013 while their pay rose 28 percent on an inflation-adjusted basis. The number of people employed in the lowest ten paying jobs expanded nearly 15 percent, while their inflation-adjusted wages fell 5.5 percent.
Some of the high-end manufacturing and research industries often seen as critical for U.S. job and wage growth are also those where revenue and profit have become more clearly divorced from the need for more workers.
Retailers like Wal-Mart - which by their nature are more labor intensive and pay lower wages - were among the businesses where employment and financial performance increased more in-line with one another, according to the analysis.
"Whether you like it or not what the global economy is delivering is that the productivity growth that has been realized has been earned by a small fraction of highly skilled people and returns to capital," said Matthew Slaughter, a management professor at Dartmouth's Tuck School of Business.
(Reporting by Howard Schneider; Editing by Martin Howell)