Dr. Sherry Jarrell discusses the stock market’s effect on employment

10.22.2009 Article, General, School News

Some Ask Will Rising Stock Market Translate into Employment Gains?
Originally Posted on Thursday, October 22, 2009 | by Paul Johnson
Reposted from www.hpe.com

Breadwinners desperately seeking a paycheck hope there's a correlation between the recent rise of the Dow Jones industrial average above 10,000 points and a turnaround of the job market.

Economists caution the tie between the two outcomes might not be as direct as hoped.

The stock markets did provide a dose of positive news Thursday when the Dow rose 132 points, or 1.3 percent, to close at 10,081. The Dow finished above 10,000 for the first time in two years Oct. 14, and has hovered around 10,000 since then.

One complication in assessing the Dow's improvement on job prospects is the severe nature of the recession, said Sherry Jarrell, professor of finance and economics at Wake Forest University.

"What we're basically asking is what kind of a leading indicator is the stock market for the overall economy. I don't think there's been a time in recent memory when it was less predictable," she said.

When the stock market rises and reflects improved profits and earnings of companies, it can lead to job creation, Jarrell said. But if the rise in the stock market reflects companies reducing costs, that might not bode well for people seeking work.

"One of the ways for costs to go down is for businesses to be more efficient with their use of labor. During the last two years, businesses have had to use as slim a labor force as possible," Jarrell said.

The best hope is that the entrepreneurial drive of small businesses and larger employers will translate into new business and job creation as the overall economy improves, she said.

One factor that might keep the improving stock market from leading to job creation is uncertainty, said Mike McCully, associate professor of economics at High Point University.

"We aren't sure yet if the stock market rise is sustainable. If it falls back down, it would make people pessimistic again," he said.

But if stock markets keep improving, the odds are better that it will help, rather than deter, employment prospects over time, McCully said.

"The stock market could have an indirect effect. As the stock market goes up, people feel better about the economy, consumer confidence goes up. So people and businesses might go out and spend more and create jobs that way," he said.