In Search of Ignorance
Tuesday, October 19, 2004
Mal Watlington, President, City Square Consulting
Thursday, April 15, 2004
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More reasons that job recovery is lagging.
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BUSINESS OUTLOOK
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BUSINESS OUTLOOK
U.S.: Speed Bumps On The Road To More Jobs
American businesses face powerful reasons not to hire
The labor market is always churning. Consider that in any recent month, some 3.8 million Americans were separated from their jobs, whether by layoff or by choice. At the same time, slightly more than 3.8 million people began new jobs, resulting in a small net gain in payrolls. This dynamism is the hallmark of a highly flexible labor market that can adapt quickly to changing economic conditions.
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In the current business cycle, however, the net result of this churning is far different than it has been in the past. As Federal Reserve Chairman Alan Greenspan noted in February, gross separations from employment have been about what one would expect, based on past experience. But gross hiring is running far below the historical pattern. Greenspan's explanation: Companies continue to identify and implement new efficiencies, allowing them to meet increasing orders without stepping up hiring.
But extraordinary growth in productivity is only the bottom line of the story. The details are much more telling. They show that businesses have rarely, if ever, faced such an overwhelming set of economic disincentives to hire U.S. workers.
To begin with, capital has never been so cheap relative to the cost of labor. The price of new equipment, down more than 3% per year in the late 1990s, has continued to decline since the recession ended, and ultralow interest rates mean that financing is historically cheap. Meanwhile, the hourly cost of labor has not slowed. Overall compensation is up 4% from a year ago, as the soaring cost of benefits offsets slower wage growth.
Then there are the inflation-crushing effects of global competition, which continue to weigh on pricing power, forcing companies to search for new efficiencies. Plus, the spread of globalization -- which moved from the market for goods in the 1980s to the financial markets in the 1990s and now to the labor markets -- means plenty of cheap foreign labor is increasingly employed in the huge service sector, which accounts for 83% of U.S. payrolls.
These job-market head winds are not likely to diminish anytime soon. And despite an economy growing 4% or more, payrolls are likely to lag behind their normal recovery pattern for some months to come.
THESE FORCES, which underlie the enormous productivity gains in recent years, explain why several usually dependable labor-market indicators have tended to overpredict payroll growth in recent months. That's especially true for one of the government's most reliable gauges, new weekly claims for unemployment insurance. On a four-week moving average, new claims dropped to a three-year low of 344,000 in the week ended Mar. 13. Because they track layoffs, new claims typically have been a good predictor of payroll changes. But given the current divergence between firing and hiring trends, a drop in jobless claims has not translated into new jobs the way it has in the past.
Indeed, an analysis by BusinessWeek shows that a given level and rate of decline in new claims yields progressively smaller projections of payroll increases since the 1980s. The rise in productivity growth appears to explain why. For example, based on data since 1990, the patterns of claims and the labor-force participation rate project first-quarter payroll gains averaging about 180,000 per month. But adding in the rising five-year trend in productivity growth yields a projection of only about 100,000 per month. Jobs in January and February increased by 97,000 and 21,000, respectively.
THE ATTRACTIVE COST of new high-tech equipment relative to those expenses associated with new hires gives businesses every economic incentive to boost output by using more machines and fewer workers. That's especially true in this recovery, because labor costs have not slowed as much as past experience would suggest, given the amount of labor-market slack.
Sure, companies have kept a lid on wage and salary increases since the last recession. As would be expected in a weakening job market, the growth of pay slowed to 3% in the year ended in the fourth quarter of last year, down from a 3.8% annual pace when the recession began in early 2001. But after slowing in 2001 and 2002, benefits are accelerating again. In 2003, benefits, which now account for 28% of all compensation, rose 6.5%. Not only is that rate faster than the 5% gain posted just as the recession began but it's also the fastest pace since 1990.
According to the latest data from the Labor Dept., private employers paid out, on average, $22.92 per hour worked in the fourth quarter. Of that, $6.43 was devoted to benefits. The rise in health-care benefits is gathering the most attention. Medical insurance rose 10.5% last year. But health care is not the only cost weighing on employers' bottom line. While health insurance cost $1.50 per hour, legally required benefits, from social security to workers' compensation, took up a larger $1.96.
Businesses are getting around these costs by depending more on contract workers and temporary help. And the cheaper wage structures overseas result in lower benefit costs, in addition to the fact that the governments of many other nations offer universal health-care coverage.
WHAT IS MAGNIFYING the impact of rising labor costs on hiring patterns in this recovery is that, unlike in past upturns, companies cannot lean on higher inflation to help them out. They still have very little pricing power. In this new era of global economics, that situation will not improve much this year.
Despite all the hubbub over the China-driven rise in commodity prices and possible inflation concerns, U.S. businesses have little new power to pass along the higher costs to consumers. For example, General Motors Corp. (GM ), stymied by climbing steel costs, is fearful of both disruptions in its supply chain and its inability to pass along the higher costs in a competitive market.
The latest price indexes tell the story. Yearly inflation for finished producer goods, excluding energy and food, is 1%, up from about zero a year ago. But consumer-goods prices are falling faster now than they did a year ago. In February, prices for consumer goods, less energy and food, fell 2%. The year before, they declined 1.4%.
The point here is that global competition is never inflationary. It's just the opposite, since it heightens the need for businesses to cut costs. That pressure has spurred the pursuit of efficiency and put the squeeze on new hiring. Globalization is exerting an even greater drag on hiring in this recovery. Thanks to cheap communication lines and technological advances, U.S. companies can tap foreign workers to perform more jobs in the service sector, which had been the main engine of job growth in past recoveries.
To be sure, the American job machine is not broken. It is a cinch that, at the current pace of economic growth, payrolls will be rising faster by the end of the year than they did at the beginning. But it's also certain that a return to rapid job growth will take a while.
By James C. Cooper & Kathleen Madigan
Tuesday, April 06, 2004
Human Capital Strategic Plan 2003 - 2008 Introduction
An excerpt from DOL's strategic plan points to the problems of the aging workforce.
Minimize knowledge loss and skills gaps caused by an aging workforce and employee turnover, and address changing; skill needs through succession planning, knowledge management, and developmental programs;
E-Recruiting for Government and Non-Profits
The U.S., for example, has an aging population, with more than 40% of current workers headed toward retirement in the next 10 years. The government is ramping up its hiring as many government employees approach retirement. It is projected that attrition in the public sector will soon reach a peak, with 25% to 50% expected to leave in the next four to five years. The loss of experienced people could throw some government agencies into crisis.
The real question is whether all these jobs need to be filled, and if so, how soon?
Monday, March 22, 2004
HBS Working Knowledge: null: An Opposing View on Corporate Social Responsibility: "In a day that celebrated social responsibility and corporate virtue, one speaker offered a counter view by calling such programs 'a complete fig leaf' and saying they can do more harm than good.
Matthew Bishop, business editor of The Economist, said company social responsibility initiatives could diminish shareholder returns, distract business leaders from their focus, and often allow companies to continue bad behavior in the shadows. "
"Are companies actually socially irresponsible? I think the overwhelming message is that they are not," said Bishop at the 5th Annual Social Enterprise Conference, held March 6 at Harvard Business School. "It has been the process of people seeking to make profit, and the expansion of an economic system where that pursuit of profit has been possible, that has made the world fantastically more wealthy than anyone thought possible, even thirty or forty years ago."
In the end, pressure put on businesses by non-governmental organizations and other advocates to create social as well as financial benefit may have the opposite effect of what is intended. Because of media attention, Bishop said, many companies are beginning to feel it is better to pull their factories out of countries where there is desperate poverty, rather than risk being seen operating at standards below what you might expect in, say, Massachusetts.
"It is troubling to see companies accused of treachery for trying to be economically efficient," he told the audience, which largely appeared to disagree with his comments.
Recalling his recent experience at the World Economic Forum in Davos, Switzerland, in February, Bishop said that CSR proponents have terrified the CEOs of the world. Nestlé CEO Peter Brabeck-Letmathe was the only chief executive willing to say for the record that the primary role of the company is long- or medium-term profit maximization to benefit shareholders. "All of the other chief executives with whom I spoke said they thought he was completely mad to get up and say that in a public forum," Bishop said. But privately they agreed with him.
On the defensive
Companies are funding CSR initiatives not because they are in the best interest of the company or shareholders but to get NGOs off their backs, Bishop said. "Bad press has put everyone on the defensive."
In addition, there is no guarantee that cooperating with NGOs buys a company any long-term reputation protection, he said. Both Nestlé and Nike have spent millions to improve social conditions in their factories, yet get little credit in the press because they work outside of the CSR movement, Bishop said.
It is troubling to see companies accused of treachery for trying to be economically efficient.
— Matthew Bishop, The Economist
Bishop criticized the media for contributing to the problem. Media companies are out to make a profit, and many have cut back on foreign coverage. "You've got a group of people who are not well paid, who are not in the same mindset as people who work in companies, and who haven't really been exposed to the realities of what corporate life is like."
NGOs often feed journalists stories of supposed corporate malfeasance, which the reporters are happy to print without much on-the-scene checking. "They are desperate to get noticed because your main professional reward as a journalist… is to get your name in lights by saying something interesting. So there is a tremendous appetite for powerful stories."
Another worrying issue, he said, is that the climate for open debate about free trade and the business pursuit of profit is being destroyed.
As a remedy, Bishop said the media and the public should start putting pressure back on governments to improve labor and social issues. In effect, we are letting government and politicians off the hook by pressuring the companies we work for and invest in to take on additional financial and social burdens.
Bishop compared using company money to further socially responsible causes with a CEO deciding to buy a corporate jet. The executives shouldn't be spending shareholder money on things that aren't directly related to the bottom line, Bishop said.
In a world where governments/NGO's and business can each take responsiblity for their role in the world, Bishop makes a good case. However, in the US, where business sets the government agenda, there will potentially be no one who says "social responsibility is OUR role."
Wednesday, March 10, 2004
Alliance Builder - Creating the Partnership
An excellent site. Alliances are typically non-productive, but this site courageously suggests that there may yet be hope.
Friday, August 08, 2003
What lies right around the corner for many businesses is a marketplace that is so fundamentally changed that they will be playing catch-up. The buyer is leaving, moving on to a self-driven and self-modulated sales experience. Gone are the days of the hyper-active salesman trying desparately to flim-flam an ignorant consumer into buying a shoddy piece of worhtless merchandise. This is a model that is rapidly moving to extinction. The Web today offers complete market knowledge for the consumer. Without ever leaving the comfort of home the consumer can research the cost of virtually any product or service, compare features and look for "consumer" given information on which to determine the utility of making the purchase. This was never possible in the past.
Sunday, March 30, 2003
More on Poster Puppet and the remnants of the dot com era. Sad results of this ignorance and arrogance are inflation of self-value and the hyper inflation of salary expectations. Just because a fool running a failed dot com, hemorraghing someone else's money faster than a gunshot victim, offered a recent college graduate with virtually no experience or even record of accomplishment a huge salary, does that entitle the individual to receive a permanently inflated salary? No! This defies the laws of economics. The dot com era also made titles, long the reward of years of work, worthless. We instead have a business landscape that is littered with Directors of First Impressions -- receptionists. It used to be shoe shine humor, that the shoe shiner was a footwear maintenance engineer. It was a jest. Perhaps the dot commers will discover that much of their career has been a series of cruel jokes --- hyperinflated salaries, inflated titles, just waiting for someone to hit the punch line.
I read that more than two-thirds of those looking for jobs have in fact turned down a job because the salary was not what wes expected. The joke has not set in yet, the punch line is missed, the old rules are now being applied. You are paid based on value of your contribution to the organization, not the size of your lifestyle. Readjustments are occurring, but what lies ahead.
