http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/?emc=eta1
http://www.nytimes.com/2013/06/17/opinion/krugman-fight-the-future.html?partner=rssnyt&emc=rss
***************
"A competent leader can get efficient service from poor troops, while on the contrary an incapable leader can demoralize the best of troops." (General John J. Pershing)
***************
If I could put two brilliant minds together and see how the IMF views the U.S. economy, that would be my objective for these thoughts.
Jared Bernstein's view on what the IMF has just published is that they see the U.S. stuck in a "sloggy," "backward-leaning," L-shaped recovery: "The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then." Not enough stimulus for not long enough.
IMF: "Underlying fundamentals have been gradually improving." Bernstein: "Whose fundamentals...? At times like this, there's a risk that the economy is doing well, EXCEPT FOR MOST OF THE PEOPLE IN IT!" (my caps)
IMF: "The modest growth rate of 2.2% in 2012 reflected legacy effects from the financial crisis and deficit reduction..." Bernstein: "Current growth rates are not fast enough to put much downward pressure on the unemployment rate...(20 million who are un- and underemployed). Moreover, the IMF predicts slower growth (1.9%) this year."
IMF: "...house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong..." Bernstein: "All true, and all helpful developments, especially the housing part, but there's a large imbalance between improving labor market conditions and corporate profitability...In fact, the compensation share of national income is at a 48 year low, the profit share at an all-time high."
Bernstein: "The picture painted in broad strokes by the IMF is correct and not all without hope. As they say, things are improving, albeit too slowly. But in every case, we could be doing better were it not for policy mistakes."
Krugman refers to an article in the IMF Survey magazine titled "Ease Off Spending cuts to Boost U.S. Recovery." The title speaks for itself. But, Krugman has an issue with Christine Lagarde, the fund's head, who called on us to hurry up and put in place a medium term road map to restore long run fiscal sustainability. Krugman's gripe: "Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we'll deal with fiscal issues of the 2020s, the 2030s and beyond?"
Krugman's answer: "No it isn't. And in practice, focusing on 'long-run fiscal sustainability' -- which usually ends up being mainly about 'entitlement reform,' aka cuts to Social Security and other programs -- isn't a way of being responsible. On the contrary, it's an excuse, a way to avoid dealing with the severe economic problems we face right now."
So, the time for big decisions about the long run is not yet: "And, because the time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now."
In addition to being a Nobel Prize winner in economics, Krugman authored a book published in 2011 entitled: "End This Depression Now." The book eloquently makes the case for a burst in government spending to jump start the economy. Proof that he's right is the underwhelming GDP growth in the U.S. since the original "stimulus" was enacted. Both Krugman and Warren Buffet said, at the time, that it (the "stimulus") would not be enough, and they have subsequently been proved right.
I'm going to guess that things will start moving again by 2020. They could have started "moving" again a lot sooner with more spending and cost cutting later on after things got better.
Thursday, June 20, 2013
Tuesday, June 11, 2013
The Unemployed Economy
http://economix.blogs.nytimes.com/2013/06/07/long-term-jobless-still-a-bleak-picture/
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
***************
"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
***************
I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
***************
"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
***************
I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
Monday, June 10, 2013
Global Human Capital
http://economix.blogs.nytimes.com/2013/06/10/the-once-but-no-longer-golden-age-of-human-capital/?emc=eta1
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
Thursday, June 6, 2013
The Current Employment Rate
http://economix.blogs.nytimes.com/2013/06/03/how-work-is-rebounding-or-not-globally/?src=recpb
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
Tuesday, June 4, 2013
What's Behind the Rise in Home Prices?
http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/?src=me
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
Friday, May 31, 2013
Why Companies Aren't getting the Employees They Need
http://economix.blogs.nytimes.com/2013/05/31/how-to-cure-the-college-dropout-syndrome/?ref=business
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
Thursday, May 30, 2013
CEOs & George Costanza
http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?ref=business&_r=0
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
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