Prospective workers line up during a job fair.

Judging from corporate profits, we should be enjoying a powerful economic recovery. During the recession, profits dropped by about a third, apparently the worst decline since World War II. But every day brings reports of gains. In the second quarter, IBM’s profits rose 9.1 percent from a year earlier. Government statistics through the first quarter (the latest) show that profits have recovered 87 percent of what they lost in the recession. When second-quarter results are tabulated, profits may exceed their previous peak.

The rebound in profits ought to be a good omen. It frees companies to be more aggressive. They’re sitting on huge cash reserves: a record $838 billion for industrial companies in the Standard & Poor’s 500 Index (companies like Apple, Boeing, and Caterpillar) at the end of March, up 26 percent from a year earlier. “They have the wherewithal to do whatever they want—hire, make new investments, raise dividends, do mergers and acquisitions,” says S&P’s Howard Silver-blatt. Historically, higher profits lead to higher employment, says Mark Zandi of Moody’s Economy.com. Except for startups, loss-making companies don’t generate new jobs.

So far, history be damned. The contrast between revived profits and stunted job growth is stunning. From late 2007 to late 2009, payroll employment dropped nearly 8.4 million. Since then, the economy has recovered a scant 11 percent of those lost jobs. Companies are doing much better than workers; that’s a defining characteristic of today’s economy.

Jobs That are Recession Proof

The most obvious explanation is that the relationship between labor and capital (to borrow Marxist vocabulary) has changed. Capital has gotten stronger; labor has weakened. Economist Robert J. Gordon of Northwestern University argues that the “shift of executive compensation towards much greater use of stock options” has made corporate managers more zealous cost-cutters in recessions and more reluctant hirers early in recoveries. Lowering the head count is the quickest way to restore profits and, from there, a company’s stock price.

In a new paper, Gordon dates the economy’s changed behavior to the 1980s. Until then, companies tended to protect career workers. Since then, “jobless recoveries” have become standard. After the 1990–91 recession, consistent employment growth did not resume for about a year; the lag was nearly two years after the 2001 recession. (The National Bureau of Economic Research, an economists’ group, determines the end of recessions, usually when economic output begins expanding. Job growth does not automatically coincide with output expansion. The difference reflects productivity gains—greater efficiency, or more output per worker.)

“Businesses can’t cost cut their way to consistent profit growth,” argues Zandi of Moody’s Economy.com. “Eventually, they need to generate revenue growth that requires investment and hiring.” There are some favorable signs. Companies seem to have stepped up the replacement of aging computers; that could create new jobs. General Electric says its research-and-development budget is up 18 percent since 2006 and supports new products from batteries to solar films.

But it’s unclear whether corporate elites were so traumatized by the crisis that they’ve adopted a bunker mentality. That, as much as uncertainty over Obama’s policies, is fearsome. If labor is cowed and capital is overcautious, the recovery must suffer.

Robert Samuelson is also the author of The Great Inflation and Its Aftermath: The Past and Future of American Affluence and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong.