Living in a Changing World

An article in Forbes by Tim Worstall (6/21/2016) caught my attention. In it the author discusses his views regarding the White House’s Report on Unemployment and Labor Participation Rates.

Massaging the Numbers

One of the issues the report addresses is the declining labor market participation rate among prime aged males. When people drop out involuntarily, that is a big problem. 

In America, labor statistics are compiled in a very different way than our European counterparts. Elsewhere less than 60% of median household income (after housing costs) is used to define poverty. In the U.S. the Official Poverty Measure is an absolute standard of poverty. The European poverty lines are determined after the influence of the tax and benefits system.

The U.S. measures poverty after cash welfare but before the influence of the tax system or transfer of goods or in kind.  As a result, EITC, Section 8 vouchers, SNAP, Medicaid, in fact 70-80 different programs are left out.

Therefore comparisons across countries are misleading and hard to make.  For example, the way we measure our GNP is different than how our European counterparts do it. They include prostitution and drugs in their calculations – a fact that impacts the measure of labor participation -- and we do not.

A higher proportion of working age men is in the labor force in many countries with more rigid labor market policies than the U.S. In the U.S. 12% of 25-54 year-old men were neither working or looking for work in 2014. This number compares with 7% in Spain and France, and 4% in Japan, even though these countries have a more generous social safety net. Thus, the unemployment rate bandied around by our politicians is misleading, it is used primarily as propaganda to justify social policies.

The U.S. has a lower unemployment rate across the OECD countries, yet the U.S. has a much higher rate of non-participation. Why? It all depends on how the rate is calculated. It has been estimated that about 95 million eligible Americans are not participating in the work force. The unemployment rate might measure the involuntary portion and does not include those who cannot participate because they are physically or emotionally disabled and those who choose not to because they receive assistance that makes work unattractive financially. There is no question that financial assistance programs are another way of shifting (redistributing) income from one group to another.

Creating Dependencies

Psychologists have taught us that if you pay people to be inactive, there will be more inactivity. It makes more sense to pay people for being active – working, training, apprenticing etc. to improve their employability.

In Europe about 4% of the workforce has been out of work for more than one year, compared with a much lower rate reported in the U.S.  One of the most obvious explanations is that U.S. employment benefits run out much sooner than they do in Europe. The U.S. welfare reforms of the 1990’s did validate this finding.

So, are politicians cooking the numbers to justify their policies? Some folks think so. Statistics can be manipulated to support a point of view or to suggest a change in direction, from worse to better, from just to unjust, and so on.

Telling the Truth

Politicians want us to believe that, if they are elected, employment opportunities will increase, some exported jobs will be brought back, working class wages will significantly improve, higher taxation on the wealthy will improve the economy, and our economic problems are mostly the result of unscrupulous behavior by corporations and Wall Street.

·      Governments do not create jobs, except within their own bureaucracies. It is the private sector that creates most jobs. Government policies friendly to business make it easier for companies to compete, grow, and as a result employ more people.

·      Most jobs that went elsewhere were semi-skilled. These jobs will not return. Most are now performed in low cost areas with less stringent regulations or by robots. Technological advances will reduce the need to employ people to perform repetitive tasks.

·      Increasing taxation on the wealthy will not solve our economic woes. As we have been taught, capital seeks the highest return. If the profitability in the U.S. is driven down by excessive taxation, capital will fly away to other countries. We already see this phenomenon in action in California and other states. Many wealthy people are moving their residence to more tax friendly states or countries in order to escape rising state income taxes.

·      Wall Street benefits from laws designed to maximize their profits. These laws need to be changed, loopholes must be done away, and fairer laws must be enacted. Appointing Wall Streeters to regulate Wall Street is an oxymoron. Too much influence by Wall Street and other lobbies tend to create laws that do not benefit society. Similarly, crony capitalism is just another mechanism to shift wealth to a favorite group by politicians. 

·      Our corporate tax system is broken. Corporations compete in a global economy. To compete they look for advantage. Competitive advantage comes from one of three sources: quality, cost, service. In the non-durable goods arena, the major competitive factor is cost. Laws that prevent corporations from competing properly will encourage them to go elsewhere taking tax revenues and jobs overseas. American companies have parked more than two trillion dollars in profits outside the United States; and billions in taxes are flowing into the coffers of countries where American companies have established skeleton headquarters.

·      Millions of Americans are unemployable. They lack the skills to match current demand. We bring in thousands of people on H1B visas annually. Why? Because we cannot find qualified people here at home. The solution is not to send everyone to college. We are dumbing down college in order to make it possible for more people to become so-called college educated. We need to teach, train, and mainstream the unemployed proactively -- by anticipating the decline of certain occupations and by taking the required precautions to avoid worker obsolescence.

The Changing Nature of Work

For some reason, we still use archaic ways to look at the future. What got us to the 21^st century might not be good enough to takes us to the 22^nd. Why? We now live in a more discontinuous period with many emerging disruptive technologies and innovative ways to solve or cope with problems.

The post-industrial age requires increased agility, more flexibility, and the savvy to navigate through uncertainties. Many factors that were critical to our success in the past have become major barriers to change. Traditional ways to organize, established methods of effective job design, and proven approaches no longer work as in the past.

We used to design organizations hierarchically with detailed job descriptions. While it made communication more accurate, it did so at the expense of time and efficiency. Hierarchies are more expensive and slower to act because they involve multiple levels of management. We now must adopt flatter, more fluid, and mission-oriented teams (one or two levels of management) with flexible and interdependent job roles and non-stationary leadership practices.

In a world of increased complexity and interdependencies, we are bound to deal more with “wicked” problems than with “tame” ones. A wicked problem has no ready-to-use, off-the-shelf solutions. No particular person or discipline has all the answer. In fact, there might not even be an answer. In the past our problems were tamer; they were more technical in nature, and experts could be called upon to solve them. 

Those of us born before or immediately after WWII expected, when we joined the workforce, job security, pleasant working conditions, and competitive wages and benefits. These were the union’s clarion call when attempting to unionize a plant or a labor category.

Mobility (by companies and workers) has pretty much decimated the notion of one job for life. Companies and people do move more frequently in search of better conditions or new opportunities. Entire industries left the North for the South, and later some went overseas.  Demand for semi-skilled and unskilled labor has been on the decline during the past 50 plus years. Many unskilled or manual jobs are undesirable to many, thus luring undocumented workers to fill them.

Millennials are a different story. They are inventing new ways to work, and alternative ways to live. They don’t mind sharing jobs, cars, rides, homes, and resources. They are creating new industries. They have moved away from the notions of job security and safe working conditions to challenging work and superior working conditions. They expect involvement and a piece of the action; and they shun conformance. They are less set in their way; more flexible and open to change.

We cannot continue to look at work in the same way our predecessors or we looked at it. It is now a completely new ball game. Rather than regurgitating old solutions to contemporary problems, we need to experiment with and be open to new, and often untried, ways to work.

It has been suggested that cycle time can be an additional source of competitive advantage, e.g., those who do it faster can gain a bigger share of the pie. Many opportunities flow when we improve the cycle time of product development, market introduction, and support and service.

A well-known management guru suggested years ago that if you focus on speed you would get better quality because you cannot achieve speed when you have to stop to fix errors and mistakes. If you just focus on quality you might not get speed. The case of the Japanese experience during the past 25 years illustrates this point.

Let’s seize the moment!