Posts Tagged: unemployment

American Society / Business / Economics / Justice System / Political / law — 0 Comments
1
Mar 10

Labor and Employment Laws: The Hidden Job Killer

When we ignore government sleight of hand, the real number of unemployed Americans is a staggering 26.9 million.  In For 15 Million Unemployed any Job is a Good Job; Questions for Pollyannas; Wishes Aren’t Fishes, Michael Shedlock (“Mish”) continues his excellent analysis of the unemployment situation.  Contrary to Bernanke and Obama Administration rosy projections, Mish predicts that official unemployment will remain greater than 9 % through 2015.  In a quote from Allen Sinai, chief global economist for Decision Economics, Mish describes corporate hiring behavior:

American business is about maximizing shareholder value…You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.

Workers are expensive. Federal, state and local employment laws make them more so.

New Deal Labor Legislation

In the late 19th and early 20th century, rapid industrialization resulted in powerful owner/capitalists, virtually powerless workers, and deplorable working conditions.   Upton Sinclair’s The Jungle dramatized the deplorable state of affairs in the meatpacking industry.  In reaction, in 1935, Congress passed the Wagner Act to permit union organizing. Then it enacted the Fair Labor Standards Act to establish minimum pay, limitations on hours and pay for overtime work.  Perhaps labor legislation should have stopped at that point.

Nothing Succeeds Like Excess

New Deal labor legislation was just a springboard for greater federal control over the workplace.   Since 1964, there has been a flood of labor and employment legislation and Executive Orders.

  • The Civil Rights Act prohibits race, color, religion, sex or national origin and pregnancy discrimination.
  • The Age Discrimination in Employment Act prohibits age discrimination.
  • One Executive Order prohibits all forms of discrimination and requires affirmative action.  This includes training and outreach programs and other positive steps which must be incorporated in written personnel policies and a plan which must be updated annually.
  • The Equal Pay Act requires that men and women in the same workplace be given equal pay for equal work.
  • The Americans with Disabilities Act prohibits disability discrimination. The Rehabilitation Act requires most federal contractors and subcontractors to take extra measures to hire and promote qualified disabled individuals.
  • The Occupational Safety and Health Act requires employers to meet legal health and safety standards.
  • The Employment Retirement and Income Security Act (“ERISA”) sets uniform minimum standards to assure that employee benefit plans are established and maintained in a fair and financially sound manner.
  • The Workers Adjustment and Retraining Notification Act requires that covered employers provide notification sixty days before a plant closing or a mass layoff.
  • The Family and Medical Leave Act provides covered employees with entitlement to up to 12 weeks of job-protected, unpaid leave during any 12 months for the following reasons:

-Birth and care of the employee’s newborn or adoption or foster care of a child

-Care of an immediate family member (spouse, child, parent) who has a serious health condition

- The employee’s own serious health condition

These are the major pieces of federal labor and employment legislation, but there are additional enactments regulating the employment relationship.

Since we live in a federal system, state and even municipalities impose additional employment, benefit and labor obligations.  Moreover, the courts have intervened to create doctrines such as wrongful discharge to limit an employer’s right to dismiss an employee at will.

Real World Consequences

Much of the above legislation is grounded in noble sentiment: workplace fairness and employee protection.  But there are real world consequences: a loose definition of “serious health condition” allows employees to take large unpredictable amounts of time off, harming production schedules.  Affirmative action programs require lots of staff and recordkeeping, extra recruitment and training, and slower hiring.  ERISA imposes fiduciary liability on plan sponsors. With virtually every workplace sector protected, firing an employee is difficult, with the ever present danger of a discrimination or retaliation charge. And so the American workplace is now one of the most regulated areas of our economy.

Laws are often a hidden tax. See Ask Your Congressional Representative to Do Nothing.   Allen Sinai has reached the correct conclusion: why hire expensive workers who have a host of protections and entitlements when you can substitute cheaper capital (automated machinery, robots, computers, etc)?  In a globalized economy where a highly motivated, well-trained Chinese worker makes about $1 per hour, the over protected American worker may have priced himself out.

If the Obama Administration is serious about reducing the unemployment rate, it should be thinking about shelving expensive health care initiatives and the Employee Free Choice Act.  More employer cost will equal less American employment.

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American Society / Business / Economics — 0 Comments
2
Dec 09

Thinking About Jobs

Now that the US is mired in a recession and unemployment is more than 10% (and functionally more than 17%) it is worth thinking about jobs.  I worked for large corporations, a state government and a law firm for more than 35 years.   I also had the generational “good” fortune to graduate and be a job seeker during deep recessions.  I was always relieved and thankful when I was hired for a position. The way I expressed my appreciation was to “work my tail off” for my employer.  Working more than 60 hours a week, nights, weekends and much of my vacation time were the norm.  I often figured if I was not smarter than my co-workers, I at least could come to work prepared and outwork them.  Plus, I kept Woody Allen’s wisdom in mind: “eighty percent of success is showing up.”

Sadly, my attitude toward a job was not the norm.  I was always amazed at how casually some of my colleagues approached their work: often coming in late, exercising in the company gym for several hours mid-day, leaving early, never missing a child’s soccer match or play (I actually have regrets on this one), arranging vacations wherein they could not be reached, constantly complaining about pay, bad bosses or workload inequities.  A job had become an entitlement. Gratitude for their good fortune at being employed, often in high level positions, was sadly lacking.

Jobs as Annuities

In a world of zero interest rates, it is worth looking at employment in another way.  Until the current recession, a job was often a 20-30 year annuity within a large corporation. Better than a real annuity, the employee did not have to part with a large sum of money to purchase this “work annuity.”  The only entry fee was a best effort in performing the job.

Now, let’s use the annuity model to value a job. Thus, if one is paid $100,000 a year (a relatively low salary in corporate law) and applies a 1% interest rate (an amount lower than the 2-year Treasury note) one would need to invest a principal amount of $10m dollars to replicate a $100,000 income stream.  Even if the 10-year Treasury bond is used as the benchmark, which is now yielding approximately 3.3%, one would need to invest a principal amount of about $3m. Of course, I am simplifying the model and leaving out actuarial factors.

Implications

This analysis highlights and suggests a whole different paradigm of job behaviors.  Jobs are incredibly valuable.  Perhaps, the new American employee might want to work harder, they also might want to emulate the Japanese custom (oseibo/ochugen) of thanking their supervisors for being employed and bringing them gifts.  Second, this illustration explains why employers are unwilling to hire.  Zero interest rates do not exist in a vacuum, they signal a zero or negative growth economy.  It also signals very low returns on labor and capital.  Third, exacerbated by outsourcing and international wage arbitrage, it is not surprising to see employers actually reducing compensation.

Conclusion

The self reinforcing cycle of expanding credit, wages, corporate earning and GDP has come to an end.  The workplace is going to get a lot tougher before the good old days return, if the ever do.  Employees might want to be looking for that special gift for their employer.

‘Tis the season.

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American Society / Business / Economics / Political — 0 Comments
13
Nov 09

The New Reality: Permanent Job Loss

On November 12, 2009, weekly initial reported jobless claims were announced as 502,000. While an improvement from last week initial jobless claims have remained over 500,000 per week for all of 2009.  In response to these continuing dreadful unemployment numbers President Obama announced a job summit to be held in December:

Obama said the White House forum will gather CEOs, small business owners, economists, financial experts and representatives from labor unions and nonprofit groups “to talk about how we can work together to create jobs and get this economy moving again.”

“We all know that there are limits to what government can and should do, even during such difficult times. But we have an obligation to consider every additional, responsible step that we can take to encourage and accelerate job creation in this country,” he said.

Marketwatch, November 12, 2009

By employing classic Keynesian remedies, the White House hopes that the right level of stimulus will overcome economic realities and persuade employers to resume large scale hiring. But, the President and his advisers have missed the basic structural changes in the job market.

Breakfast with Dave

In his letter Breakfast with Dave, David Rosenberg one of the most perceptive practicing economists currently writing, discusses the new labor market paradigm:

There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market that need to be discussed

The Big Picture- US Unemployment Rated Headed for 12-13%

Rosenberg points out the unique aspects of this recession.  There has been a structural change where 6.2 million jobs have been permanently eliminated.  The workweek has been reduced to 33 hours per week.   Employers will avoid hiring well into the future, choosing instead to lengthen the workweek.  In a slow top line growth environment, this trend will be exacerbated as companies will be forced to continue slashing labor costs.

Rosenberg is validating the basic thesis in my prior blog entry, Why This May Be Worse than the Great Depression:

The government is still stuck in a 1950’s employer mentality.  Can we implement New Deal-type of public improvement efforts such as road repair or retrofitting government buildings?  How many credit derivative specialists have the ability to perform road paving or asbestos removal?

Similarly, the government is banking on new industries to be engines of growth. Is banking on this type of job growth realistic?  High growth industries such as biotechnology and solar cell companies employ few and highly specialized employees.  Even the modern US military needs fewer soldiers, as technology has revamped war.

The Great Depression ended when large numbers of employees were recalled by auto, steel, chemical and rubber companies to support the war effort.  There is no massive recall or even new industry on the horizon to absorb the unemployed.

Politicians Continue to Fight the Last War

Government intervention has its limits.  The Administration has not convinced banks to lend in the face of poor credit conditions.  To maintain profitability, companies have focused on controlling labor costs. Despite the upcoming jobs summit, the Administration will be equally ineffective in fighting the tide of this new reality: basic structural unemployment.

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