Is it all due to inflation and the interest rates? Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Or anyone know why this is happening?
A lot of people exited the labor market (disabled or killed by COVID, pulled the trigger on retiring, etc.). Unemployment was very low and it was very difficult to hire. And companies had opportunities for growth, but taking advantage of those opportunities required workers, which were hard to get.
So companies responded by hiring whenever possible and keeping more employees around than they normally would. If there was less work to do, they'd reduce hours instead of letting employees go. Better to pay more labor costs now than to be stuck unable to get employees later. You pay a cost (larger payrolls) to reduce a risk.
Hoarding can be kind of self-reinforcing because as everybody grabs what is available (job seekers), it becomes more scarce, so people want to grab up even more.
But hoarding tends to stop eventually. Companies don't want to pay more for payroll if they don't have to. Once they feel the risk is gone, they'll aim to adjust things back to normal.
Once layoffs start, they could have a domino effect on labor hoarding. If a bunch of companies do layoffs, then other companies think, "Well, if we did need to hire, we could get some of those laid off workers." And then they reevaluate their own situation.
If this is what's happening, then it will take some time for it to play out. Eventually all the hoarding-related layoffs will have been done.
issuing stock and selling it into the market doesn't make the stock price go down. Raising money for this activity on a large scale is why the stock market exists.
The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership.
If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
There are many ways to increase profits. Diluting existing shareholders by increasing outstanding shares should not be a bandaid for inefficient application of capital, which would juts cause a vicious cycle.
Stock issue dilutes ownership and lowers share price. Why would people paid in stock do that when they can just offload labor? Also, they'd be competing with market makers, winkwinknudgenudge.
adrianmonk|2 years ago
A lot of people exited the labor market (disabled or killed by COVID, pulled the trigger on retiring, etc.). Unemployment was very low and it was very difficult to hire. And companies had opportunities for growth, but taking advantage of those opportunities required workers, which were hard to get.
So companies responded by hiring whenever possible and keeping more employees around than they normally would. If there was less work to do, they'd reduce hours instead of letting employees go. Better to pay more labor costs now than to be stuck unable to get employees later. You pay a cost (larger payrolls) to reduce a risk.
Hoarding can be kind of self-reinforcing because as everybody grabs what is available (job seekers), it becomes more scarce, so people want to grab up even more.
But hoarding tends to stop eventually. Companies don't want to pay more for payroll if they don't have to. Once they feel the risk is gone, they'll aim to adjust things back to normal.
Once layoffs start, they could have a domino effect on labor hoarding. If a bunch of companies do layoffs, then other companies think, "Well, if we did need to hire, we could get some of those laid off workers." And then they reevaluate their own situation.
If this is what's happening, then it will take some time for it to play out. Eventually all the hoarding-related layoffs will have been done.
tyree731|2 years ago
Yes, but then the stock price would go down, which obviously isn't allowed.
FrustratedMonky|2 years ago
or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?
fsckboy|2 years ago
The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership.
If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
andsoitis|2 years ago
yterdy|2 years ago
oldpersonintx|2 years ago
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