"Do Stock Markets Reward the Creation of Jobs?"
Christoph Butz, Olivier V. Pictet
Pictet, June 2006
Given the current discussions about job cuts at large companies despite increasing profits, the correlation between the development in a company's staff numbers and the stock market performance of that company is clearly a subject of topical interest.
Among other issues, this study, subtitled "Job Creation as a straightforward proxy for companies' "Social Responsibility" and its implication for performance," looks into the question of how the creation of jobs can be measured in a meaningful way for stock market-listed companies. The authors of the study, sustainability expert Christoph Butz and Olivier Pictet, a specialist in quantitative analyses in Pictet Asset Management's sustainability investment team, have attempted to find answers to this and other similar questions.
In view of just how important an issue unemployment is, the authors were astonished at the scant attention that has been paid thus far to the creation of jobs, even among the so-called sustainable investment schemes that are now coming into vogue, and they therefore propose that job creation should be made the most important indicator of the social responsibility of companies.
In an attempt to find answers to the questions asked, 1,677 companies on the MSCI World Index, a globally diversified stock index, were evaluated in respect of their employment potential, and their stock-market performance was measured over a nine-year period (1997-2005).
The study finds a financial outperformance of about 15 percent over the full period for a portfolio that takes long positions in companies with strong job creation scores and shorts companies with weak job creation scores. The "out-of-sample" methodology results in a yearly underperformance of 0.44 percent for the people-weighted score and 1.29 percent for the equally-weighted score for the period under investigation.
