Tag: productivity

Talent Day

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As George Orwell demonstrated in his novels, words and word frameworks have tremendous power.  It’s time to replace Labor Day with Talent Day.

The term Labor Day reinforces several old misconceptions and needless conflicts.   Labor connotes physical labor, which became less important to the economy as energy and innovation moved the economic focus from agriculture to manufacturing to services to information.  Labor echoes the Marxian concept of class solidarity which has limited applicability in a dynamic world.  Labor is conceptually distinct from capital in the economic factors of production model, but the two are blended in many economic forms and their returns can be structured the same way.  Public sector (unionized) labor is contrasted with productive private sector capital in political ads, even though public sector employment is a shrinking share of the economy, supplanted by innovative contracting and outsourcing.  The old “labor” no longer exists.

Instead, firms rely upon a variety of human resource talents to succeed.  Physical labor or energy is the least important talent.  Hours worked or energy expended is a minor source of productivity and economic success.

Professional skills and knowledge have become more important and valued in all functions and industries.  Compare the skill levels of nurses, machinists, warehouse workers, purchasing agents, salesmen, engineers, maintenance technicians, auto mechanics, insurance adjusters, physical therapists, bankers or accountants today with those of 50 years ago.  Entry-level jobs today require professional, IT, process, quality and communications skills beyond those of master professionals in the post-war era.

The oddly named “soft skills” have also been upgraded in the last few decades.  In a world that is no longer static, mechanical and bureaucratic, all employees are required to have the skills required for a dynamic, organic and evolving workplace.  Individual character, responsibility and self-management is required.  Supervisors have been eliminated.  Research, development, innovation and improvement are expected of all employees.  Employees and contractors are expected to have teamwork skills, to understand processes that cut across functions and to manage constant change.

The human resources sector is also being asked to assume the risk management function once largely absorbed by capital.  With less labor intensive organizations, the role of financial capital is lowered.  With less employee loyalty, staff are asked to assume greater business risk of unemployment.  With greater outsourcing, contracting and narrow functional specialization in evolving technical fields, individuals are investing in skills with less assurance of ongoing usage.

On this Labor Day, let’s celebrate the value of talent in the new economy and the end of “labor” as a misused word and concept.

2009 and 2010 College Grads Struggle

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http://www.dailytoreador.com/la-vida/college-s-seniors-face-unusually-dismal-job-market-1.2245660

http://www.macon.com/2010/04/25/1106422/tough-assignment.html

http://www.marketwatch.com/story/2010-college-graduates-to-face-a-highly-competitive-job-market-but-one-that-may-pay-better-than-last-year-finds-careerbuilders-annual-forecast-2010-04-14?reflink=MW_news_stmp

http://www.tampabay.com/news/education/college/new-college-graduates-face-a-tight-job-market/1090306

http://www.economist.com/business-finance/displaystory.cfm?story_id=16010303

http://online.wsj.com/article/SB10001424052748704207504575130171387740744.html?mod=rss_com_mostcommentart

http://www.usnews.com/articles/education/best-colleges/2010/04/29/rosier-job-outlook-for-college-graduates.html

From sunbelt Florida to Georgia to Texas the local hiring reports remain negative for college grads for the second straight year.

When engineering students can’t find jobs, you know there’s a major problem.

When the Wall Street Journal  writes about white collar parents and unemployed children, you know there’s a major problem.

The recovery graph in the latest Economist article shows that recovery is far slower than in past recessions.

Only the US News & World Report headline writer could find a way to put a positive spin on the situation with “Rosier Job Outlook for College Grads”, but even they recognized that “the job market remains treacherous for college grads”.

Net job creation finally turned positive last month.  The leading economic indicators have been positive for 12 months in a row.  Some reports, like record 27% housing sale increases, are “off the charts” positive, even if driven by an expiring tax credit. 

Nonetheless, this will be a slow recovery.  The 2002-2008 recovery was panned as the jobless recovery.  Historically, financial crises require significant time to heal.  The overextended American consumer, government, banks and dollar need time to adjust.  The flexible US workforce has responded by increasing productivity by 6%, reducing the need to hire.  Corporations budgeted for capital projects and new hires in 2010, but have not yet released the funds. 

Like “the little engine who could”, it will take time for this economy to build up a head of steam.  As the economy recovers, hiring will increase and employers will welcome those new college grads to cost-effectively replace those retiring Baby Boomers whose investments have gained 70% in the last year.

Labor and Tax Law Changes to Create Jobs

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The U.S. labor market remains mired in a post WWII land of large employer paternalism that is unsuited to the needs of global competition.  Major changes to labor laws should be made to lower the full costs of hiring employees.  At the same time, major changes to unemployment insurance should be made to provide a meaningful safety net, without reducing the incentives for the unemployed to actively seek re-employment, even at lower wages when needed.

In return for a variety of actions to reduce the unit cost of labor by more than 20%, employers should be required to fund one-half of an unemployment insurance fund that provides meaningful benefits.  Employees would fund the other half through payroll deductions.  Unemployed workers would receive an initial payment of one-half of six months’ worth of wages.  Additional 50% payments would be made at the beginning of third and fourth quarters of unemployment.  This lump-sum approach maintains the incentive to actively seek new employment, while providing a true safety net in a world where 6 month bouts of unemployment are recurring career experiences at all levels.

The federal government could lower the transaction costs of employment by maintaining a national ID card system that qualifies individuals for employment and removes the hiring cost and risk to employers.  The federal government could certify 3-5 firms to operate a standardized resume/profile system that records and certifies the basic education and employment history for individuals in one place. 

Employees would be more attractive to employers if they invested more in their professional skills.  A continuing education tax credit would improve candidate skills and remove the need for employers to offer most internal training and educational benefits.

Employers would hire more individuals if the terms of employment were more flexible.  Labor laws could more clearly allow “paid time off” banks to be used in place of overtime compensation.  The trigger for required overtime premiums could be raised from 40 to 48 hours for the first 10 weeks of annual overtime.  Seasonal positions could be exempted from employer unemployment compensation responsibility.  A new employment category could be created to clearly allow 100% incentive based sales positions.  The IRS rules defining employees and contractors could be simplified to reduce administrative costs and risks.

Federal labor laws and regulations could be simplified to reduce administrative costs and limits could be placed on potential liabilities.  The equal employment opportunity, family medical leave, disability and other employee “rights” acts incentivize employers to take extreme defensive steps and avoid hiring in order to avoid potential liabilities.

The federal government could incentivize the creation of new positions directly by paying half of the first six-months of wages.  The rules for unpaid internships could be clarified, allowing students to work up to 700 hours per year within win-win educational programs which lead to employment.  The labor laws could be clarified to allow “no fault” dismissals within 180 days.

In a globally competitive environment, labor laws need to benefit employers and employees.  Steps can be taken to reduce the total cost of employment and protect employed and unemployed workers.  The cost to employers and society through taxes is modest.

In addition to macroeconomic steps to improve the economy and administrative steps to provide meaningful unemployment compensation benefits and lower employment costs and risks, the federal government could change tax policies to significantly reduce the incremental costs of employing workers.

The federal government could incentive continuing education through tax credits.  Unemployment compensation insurance could be shared by employers and employees.  Family medical leave benefits could be funded by the federal government as is done in other developed nations.

Tax changes could be made to incentivize individuals to invest in their own life and disability insurance plans.  Tax credits could be used to promote individual charitable contributions and reduce the need for corporate gifts and matching programs.  The dollar and percentage limits for tax –deferred retirement plan contributions could be raised, increasing the value of compensation.  The rules for qualified plans could be modified to allow a greater share of “highly compensated” employee pay to be made on a pre-tax basis.

Finally, the two biggest fringe benefits – social security and health benefits – could be migrated to government and employee funded programs over a decade, releasing employers from this responsibility.  Social security can be funded from federal income tax revenues or simply made employee deduction.  Health care insurance programs could lose their tax-deductible status.  If no better option is found, employer contributions to consumer choice (HAS/HRA) plans could retain their tax-deductible status.

Allowing American employers to focus on creating jobs, operating their firms and making money will unleash incentives to increase productivity, competitiveness and our standard of living.  Finding the political will to fund desired public services will not be easy, but the total benefits justify the short-term challenges.

Infinite Progress

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At the start of 2010, I put a positive spin on the nascent economic and psychological recovery with blogs on “The Sky Has Stopped Falling”, “Good Riddance to Utopian Views of 2000” and “Self-Improving Systems”.  Today, I want to promote the broader subject of “Infinite Progress”.

Economics has earned its label as “the dismal science”.  It has been serious, analytical, realistic, short-term and marginal.  Imitating calculus and physics, it has sought to optimize production functions and maximize results subject to multiple linear constraints.  Like other academic disciplines, economics has been shaped by the dominant culture.  Economics has progressed through the Physiocrats, Marxists and Marginalists who in turn proclaimed that land, labor and capital each held the key to economic value.  Even Paul Samuelson’s neoclassical synthesis focused on these three “factors of production”, while mentioning that there was some remaining role for “technology” and “entrepreneurship”.

The “law” of diminishing marginal returns emphasizes that in the short-run, with given technology, additional inputs eventually yield lower incremental results.  This is certainly true, but development and growth economists focusing on the international and business sectors have demonstrated that this fourth factor (technology/entrepreneurship) is the primary driver of progress.  In fact, rather than being subject to diminishing returns, knowledge is the one factor that is subject to increasing returns through time!

In spite of the slow recovery in the current economic cycle, I believe that we are only 50 years into the greatest productivity expansion in history.  Annual labor or multi-factor productivity growth of 2-4% has become commonplace.  Even in the recession, we experienced 6-8% productivity growth.  Productivity growth will accelerate in the coming years to a minimum of 5% annually, in spite of our various challenges (aging population, protectionism, extremism, political polarization, religious stagnation, terrorism, global warming, limited natural resources, multi-polar international powers).

In no particular order, knowledge and practice has expanded and will continue to expand in all of these fields:

  1. Trade.  Lessons were learned in the Great Depression.  Tariffs have continued to fall.  Multilateral treaties have stalled, but bilateral trade agreements are accelerating.  English is becoming the global language, followed by Mandarin Chinese and Spanish.  A majority of the global population produces at a near-subsistence level.  They will all generate modern western levels of output within 40 years, providing added value globally.
  2. Physics/Engineering.  Basic physics, mechanical and civil engineering continue to advance.  Modern materials, energy, devices and structures will advance and be refined in light of breakthrough understandings (supercollider).
  3. Chemistry.  “The Graduate” whispered “plastics” as the key to the 20th century.  Plastics has delivered, but has not exhausted its secrets.
  4. Biology.  Biotechnology and modern medicine is on the verge of major breakthroughs in individualized medicine, medical information, preventive medicine, devices, new drugs and nano-technology based solutions.  Mental health care is leveraging improved understanding of the mind, behavior and chemistry.
  5. Energy.  Delayed by politics and prices, energy exploration and solutions are emerging.  Wind, solar, nuclear, clean-coal, tidal and other answers are now real.  Break-through shale, gas and deep-sea extraction technologies are imminent.  Major investment in alternative transportation options is producing results.
  6. Natural Resources.  The food, fiber and natural resources sector continues its 200 year track record of innovation, with genetically modified organisms, drip irrigation, weather forecasting, satellite guided farming and fish markets adding value.
  7. Transportation. New highways, hiking, biking, high-speed trains, point to point aircraft, larger container ships and usage tolls suggesting continued progress.
  8. Electronics.  Songs, movies, video, instruments, observation, robots, entertainment, games, virtual reality, and the list goes on and on.
  9. Computer Power.  Moore’s Law. ‘Nuff said.
  10. Telecommunications.  Cell phones, internet, computer integration, GPS, much faster speeds.
  11. Integration.  Electronics, telecommunications, media, entertainment in one place, on demand.
  12. Community.  Tribes, cities, nations, world.  Clubs, games, blogs, social media, Face book, LinkedIn, Twitter, no limit.
  13. Specialization.  Professions, suppliers, outsourcing, matrix organizations, consultants, global suppliers, increasing economies of scale, niche markets
  14. Process Improvement.  Process, quality, cost of quality, value added, variability, bottleneck, ISO, TQM, benchmarking, process re-engineering, quantum leap, lean manufacturing, lean, six sigma, kaizen, self-improving systems.
  15. Computer Systems.  Automation, systematization, mainframes, minicomputers, personal computers, applications, man-machine, GUI, windows, mouse, ERP, cloud computing as a utility.
  16. Library Science.  Dewey decimal, multimedia, informatics, knowledge management, Wikipedia, Amazon.com, tripadvisor.com, Angieslist.
  17. Economics.  Markets, global trade, auctions, information, behavioral economics, EDI, e-commerce, capitalism embraced everywhere in one form or another.
  18. Finance.  Stocks, bonds, pork-bellies, futures, puts, calls, mutual funds, checkable deposits, insurance, hedges, securitized debt.
  19. Management/leadership.  Strategic planning.  Product innovation. Growth/margin. Core competencies.  Discipline of Market Leaders.  First or second. Operational excellence.  Situational leadership.  Theory X, Y, Z.  Motivators and de-motivators.  Covey’s 7 habits, urgent and important.  Meyers-Briggs, personality styles and Gallup talents.  Change management.  Engaged/disengaged.  Creativity and thinking hats.  Accountability/Oz Principle.  Good to Great, Both/And. 

 

Knowledge will continue to increase in every discipline.  Market pressures will ensure rapid adoption, expansion and innovation.  The work world in 2010 could not be seen in 1980.  The work world in 2040 will exhibit the same degree of discontinuous change from a much higher base.

Indiana Redistricting Proposal Adds Value

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“For the want of a nail, the shoe was lost; for the want of a shoe the horse was lost; and for the want of a horse the rider was lost, being overtaken and slain by the enemy, all for the want of care about a horseshoe nail.”  —  Benjamin Franklin

 Now, more than ever, society must rely on real economic growth to make the pie larger and allow us to choose how to divide the pie.  In the hot policy areas – global warming, health care, unemployment, alternate energy, retirement security, national security, adequate food – all solutions depend upon our ability to grow the economy.

 The private sector, especially in the last 30 years, has demonstrated its nearly unlimited ability to create value.  The contrast between productivity growth in the competitive sectors (ag, manufacturing, distribution, communications, mining, transportation, media, banking, IT, services) and the others (government, social services, utilities, education, health care) is instructive.  About 60% of the economy delivers 3-5% annual productivity improvements, while the other 40% is stuck at 0-1%.

 The slow growth sectors are all in areas where market failure is the rule – sometimes because services are natural public goods and sometimes due to natural monopolies, externalities, or unequal information.  In each case, there is a key role to be played by the government in shaping these industries to pursue continuous improvement as happens naturally in other sectors.

 Unfortunately, our political system does not produce “philosopher kings” who cooperate to find optimal solutions.  In a two-party democratic system, the best that can be hoped for is that the two parties will define contrasting, yet centrist policies and employ politicians who can seek re-election by solving some problems rather than merely demonizing the other side.

 The gerrymandering of Indiana congressional, senate and representative districts every 10 years encourages a polarized political environment.  The party in power draws districts to maximize their representation by creating as many 55-60% safe districts as possible, while consolidating their opponents into as few 80-90% majority districts as possible.

 This process results in extreme left and extreme right candidates winning nearly all races.  Centrist candidates have no chance in stacked districts.  Centrist voters have no influence in stacked districts.  The political parties attract extremist candidates.  They attract extremist supporters.  Only in a small minority of districts do voters have a choice between two qualified centrist candidates who mainly differ by a modest degree on the political spectrum. 

 The Indiana Senate’s Republican Caucus, Secretary of State Todd Rokita and Carmel representative Mike Delph have floated various proposals to turn redistricting over to some form of non-partisan commission, required to take advantage of the computer software which can define boundaries to maximize the compactness of each district, without considering socio-economic, religious, racial or political factors. 

 A visual example of the current skewed districts versus neutral districts is shown at http://bolson.org/dist/IN/.

 Members of both political parties should be able to see that the skillful use of gerrymandering today is a recipe for failure.  Even California voters are now seeing that structures that lead to polarization can bankrupt a state.  Indiana voters who care about the future should pursue this “good government” initiative.