Labor Economics – Page 54 – artdiamondblog.com

Former French Student Protest Leader: “We’ve Decided that We Can’t Expect Everything from the State”

Source of graph: online version of the WSJ article quoted and cited below.

(p. A16) “The euro was supposed to achieve higher productivity and growth by bringing about a deeper integration between economies,” says Simon Tilford, chief economist at the Centre for European Reform, a London think tank. “Instead, integration is slowing. The lack of flexibility in labor and product markets raises serious questions about the likelihood of the euro delivering on its potential.”

Structural changes are the last great hope in part because euro zone members have few other levers for lifting their economies. Individual members can’t tweak interest rates to encourage lending, because those policies are set by the zone’s central bank. The shared euro means countries don’t have a sovereign currency to devalue, a move that would make exports cheaper and boost receipts abroad.
The remaining prescription, many economists say: chip away at the cherished “social model.” That means limiting pensions and benefits to those who really need them, ensuring the able-bodied are working rather than living off the state, and eliminating business and labor laws that deter entrepreneurship and job creation.
That path suits Carlos Bock. The business-studies graduate from Bavaria spent months navigating Germany’s dense bureaucracy in order to open a computer store and Internet café in 2004. Before he could offer a Web-surfing customer a mug of filter coffee, he said, he had to obtain a license to run a “gastronomic enterprise.” One of its 38 requirements compelled Mr. Bock to attend a course on the hygienic handling of mincemeat.
Mr. Bock closed his store in 2008. Germany’s strict regulations and social protections favor established businesses and workers over young ones, he said. He also struggled against German consumers’ reluctance to spend, a problem economists blame in part on steep payroll taxes that cut into workers’ takehome pay, and on high savings rates among Germans who are worried the country’s pension system is unsustainable.
“If markets were freer, there might be chaos to begin with,” Mr. Bock said. “But over time we’d reach a better economic level.”
Even in France, some erstwhile opponents of reforms are changing their tune. Julie Coudry became a French household name four years ago when she helped organize huge student protests against a law introducing short-term contracts for young workers, a move the government believed would put unemployed youths to work.
With her blonde locks and signature beret, Ms. Coudry gave fiery speeches on television, arguing that young people deserved the cradle-to-grave contracts that older employees enjoy at most French companies. Critics in France and abroad saw the protests as a shocking sign that twentysomethings were among the strongest opponents of efforts to modernize the European economy. The measure was eventually repealed.
Today, the now 31-year-old Ms. Coudry runs a nonprofit organization that encourages French corporations to hire more university graduates. Ms. Coudry, while not repudiating her activism, says she realizes that past job protections are untenable.
“The state has huge debt, 25% of young people are jobless, and so I am part of a new generation that has decided to take matters into our own hands,” she says. “We’ve decided that we can’t expect everything from the state.”

For the full story, see:
MARCUS WALKER And ALESSANDRA GALLONI. “Europe’s Choice: Growth or Safety Net.” The Wall Street Journal (Thurs., MARCH 25, 2010): A1 & A16.

Smarter Info Technology Frees Workers from Routine and Creates Jobs

(p. A22) Smarter computing technology, experts say, ought to make the most skilled workers — in science, the arts and business — even more productive and prosperous by freeing them from routine tasks. Their prosperity translates to spending that creates jobs in stores, schools, gyms, construction and elsewhere.

Artificial intelligence, experts say, should also generate new jobs even as it displaces others. The smart machines of the future will need programming, servicing and upgrading — work done, perhaps, by a new class of digital technicians. The intelligent machines, experts add, will be specialists in a field, like the medical assistant project at Microsoft. They must be tailored with specialized software, perhaps igniting a new industry for artificial intelligence applications.
Of course, no one really knows just what artificial intelligence will mean for jobs and the economy, but the technology is marching ahead. “Its potential is far greater than simply substituting technology for human labor,” said Erik Brynjolfsson, an economist at the M.I.T Sloan School of Management.

For the full story, see:
STEVE LOHR. “Jobs Created and Displaced.” The New York Times (Fri., June 25, 2010): A22.
(Note: the date of the online version of the article was June 24, 2010.)

U.S. Jobs Lost Due to Law Restricting Mexican Truck Drivers

“Carbonless paper comes off a coating machine at Appleton Papers in March. Mexican tariffs have hit sales.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) APPLETON, Wis.–Congress’s vote last year to keep Mexican truck drivers south of the border was good news for DuWayne Marshall.

Mr. Marshall, 49 years old, owns a truck and hauls loads all over the U.S. from his home in Wisconsin. “Why should I have to compete against Third World drivers within my own borders?” Mr. Marshall asked during a break on a run to San Diego. “By closing down the borders, we are saving American jobs.”
Elizabeth Villagomez, 38, isn’t so sure. A single mother of two teens, she has worked at a paper plant in this community near Green Bay for 15 years. After the Mexican government retaliated against the trucking ban by slapping $2 billion in tariffs on U.S. paper, produce and other goods, orders plunged and managers began slashing shifts and overtime for the unionized work force.
“The company has done all it can to cut costs,” Ms. Villagomez said. “I’m at the bottom of the list if they have layoffs. It’s kind of scary, not knowing if you’re going to have a job.”
. . .
At Appleton Papers Inc., the fight over who can drive a truck across a border 1,600 miles away has translated into falling wages and rising anxiety.
Rick Bahr, head of the United Steelworkers union local that represents more than 500 employees at the Appleton plant, said six shifts have already been cut, cutting down on overtime.
“The battle ends up union versus union, truckers versus the paper workers,” Mr. Bahr said. The national steelworkers’ union has been supporting the Teamsters on the issue of Mexican trucks in the U.S.
Nearly half the company’s revenue, about $420 million last year, comes from carbonless paper sales. Its largest foreign customer is Mexico. After Mexico put a 10% tariff on carbonless paper, revenue from Mexico fell to $37 million in 2009 from $46 million in 2008.
Now, more Mexican customers say they will look for alternative suppliers to avoid having to bear part of the tariff costs. Just last month a major customer told Appleton it was going to get its carbonless paper from a European producer.
Even before the tariffs were imposed, the company had seen business hit by the economic slowdown and had cut its work force in 2008 and stopped other benefits, such as reimbursing tuition and matching workers’ contributions to their 401K retirement plans. Company officials said it was hard to quantify what part of the business downturn could be blamed directly on the tariffs, but they noted that Appleton sold 18% fewer tons of carbonless paper in the U.S. last year, compared with 2008. The number of tons sold to Mexican customers was down 24%.
Inside the plant, the machine that coats 4,000-pound rolls of paper to make it carbonless was idle one recent afternoon. Once run 24 hours a day, it is now used only half that time.
Kevin Bunnow, 50, a 33-year veteran of the plant, said the reduction in shifts had meant a wage cut of several thousand dollars last year.
“When elephants fight, the grass loses,” he said. “It didn’t take me long to realize, we’re the grass.”

For the full story, see:
GARY FIELDS. “Trade Dispute Divides Workers; It’s ‘Union vs. Union’ as Ban on Mexican Trucks Cheers Drivers, Triggers Cut in Hours at Paper Plant.” The Wall Street Journal (Tues., April 6, 2010): A5.
(Note: ellipsis added.)

FDR Cared About the Politics, But Not the Economics, of Social Security

(p. 116) Roosevelt’s social security plan created an array of problems. First, it retarded recovery from the Great Depression by contributing to unemployment. From 1937 to 1940. employers and employees were docked for social security, and that money was out of private hands and lying fallow in the treasury. Lloyd Peck of the Laundryowners National Association concluded, “The burden of this proposal for employers to carry, through a payroll tax, will act as a definite curb on business expansion, and will likely eliminate many businesses now on the verge of bankruptcy.”
. . .
(p. 117) When an accountant quizzed Roosevelt about the economic problems with social security, especially its tendency to create unemployment, he responded, “I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through.” Roosevelt explained that “with those taxes in there, no damn politician can ever scrap my social security program. That’s why, as Roosevelt admitted, it’s “politics all the way through.” Most politicians, following Roosevelt’s lead, have taken delight in raising social security payouts and using that gift to plead for votes from the elderly at election time.

Source:
Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.
(Note: ellipsis added.)

Higher Unemployment Benefits May Result in Higher Unemployment Rates

The size and structure of the “safety net” is a subject of hot debate. Hayek in The Road to Serfdom suggested that higher benefits would lead to slower labor market adjustments.
There may have been multiple causes for the high unemployment rate in the U.K. in the 1920s and 1930s. But it is highly plausible that higher unemployment benefits would have made the unemployed more selective in which jobs they would accept, and hence would have contributed to higher rates of unemployment and higher average duration of unemployment.

(p. 7B) The ultimate evidence . . . is from the 1920s, when the Labour Party came to power in the U.K. for the first time. As scholars Daniel K. Benjamin and Levis Kochin pointed out in a Journal of Political Economy paper, the moment was one in which “unemployment benefits were on a more generous scale relative to wages than ever before or since.”

The result was the mother of all jobless recoveries. For almost two decades, from 1921 to 1938, U.K. unemployment averaged 14 percent and never got below 9.5 percent.

For the full story, see:
Amity Shlaes. “Help can hurt job hunters.” Omaha World-Herald (Friday April 16, 2010): 7B.
(Note: ellipsis added.)

If We Want More Jobs, We Need More (Steve) Jobs

(p. A19) Mr. Obama and his advisers need to grasp this essential fact: Entrepreneurs are not just a cute little subsector of the American economy. They are the whole game. They will give us tomorrow’s Apples and the multiplier effect of small businesses and exciting new jobs that go with them. Entrepreneurs are necessary to keep our large multinationals on their toes. It’s no coincidence that the entrepreneurial flowering of the 1970s forced a managerial revolution in large companies during the 1980s and 1990s. Without Steve Jobs, there would have been no Lou Gerstner to reinvent IBM in the ’90s. Entrepreneurs like Steve Jobs make everyone better.

For the full story, see:
RICH KARLGAARD. “Apple to the Rescue?” The Wall Street Journal (Thurs., JANUARY 28, 2010): A19.

Daniel Pink on What Motivates Workers to Work Well

Source of book image: online version of the WSJ review quoted and cited below.

Daniel Pink’s Free Agent Nation was a provocative account of how the entrepreneur benefits from being an entrepreneur. I enjoyed the book, and reference it frequently.
I have not had a chance to read Pink’s recent Drive, but hope to do so soon.

(p. A17) Science, Mr. Pink says, has shown that we are motivated as much intrinsically, by the sheer joy and purpose of certain activities, as extrinsically, by rewards like pay raises and promotions.

The science that Mr. Pink is referring to rests largely on the work of Edward Deci and Richard Ryan at the University of Rochester and Mihaly Csikszentmihalyi at Claremont Graduate University. These three researchers have found that we do our best work when motivated from within, when we have control over our time and decisions and when we feel a deep sense of purpose. Under such conditions, we can achieve real mastery over whatever it is that we do.
The modern workplace, Mr. Pink laments, is too often set up to deny us this opportunity. Firms that hope to optimize efficiency by making their employees clock in and out, attend compulsory meetings, and receive pay for performance are de-motivating through excessive control. What they should be doing, he argues, is giving workers the chance to do their best work by granting them more autonomy and helping them to achieve the mastery that may come with it.
Mr. Pink cites an Australian software firm, Atlassian, that allows its programmers 20% of their time to work on any software problem they like, provided it is not part of their regular job. The programmers turn out to be much more efficient with that 20% of their time than they are with their regular work hours. Atlassian credits the 20% with many of its innovations and its high staff retention. Companies as large as Google and 3M have similar programs that have produced everything from Google News to the Post-It note.
. . .
. . . : Beyond serving our basic needs, money doesn’t buy happiness. We need a greater purpose in our lives. Our most precious resource is time. We respond badly to conditions of servitude, whether the lash of the galley master or the more subtle enslavement of monthly paychecks, quarterly performance targets and the fear of losing health insurance. Work that allows us to feel in control of our lives is better than work that does not. . . . , these lessons are worth repeating, and if more companies feel emboldened to follow Mr. Pink’s advice, then so much the better.

For the full review, see:
PHILIP DELVES BROUGHTON. “More Than a Paycheck; Workers are more efficient, loyal and creative when they feel a sense of purpose–when work has meaning.” The Wall Street Journal (Tues., Feb. 2, 2010): A17.
(Note: ellipses added.)
(Note: the online version of the review is dated Feb. 5, 2010.)

An “Entrepreneur’s Visa” to Let the Future Sergey Brin In

(p. A19) . . . , there is one way to create a lot more jobs without spending federal money. Let’s import them. More precisely, let’s import the people who create them: entrepreneurs.

A bipartisan bill that would begin to do just that was introduced on Feb. 24 by Sens. John Kerry (D., Mass.) and Richard Lugar (R., Ind.). Their “Startup Visa Act” would create a new, two-year visa for immigrant entrepreneurs whose firms attract at least $250,000 in financing from American angel investors or venture capital firms.
. . .
Here’s a way to improve on the Kerry-Lugar plan. Create a true “job creator’s visa,” one tied directly and only to job creation by new immigrant entrepreneurs. The visa could be a temporary one for immigrants already here on another visa who establish a business. It could then be extended if the firm hires at least one American non-family resident. The visa should become permanent once the enterprise crosses a certain job threshold (such as five or 10 workers). But it would not be tied to financing.
. . .
Google was founded by Sergey Brin, a Russian immigrant, and American Larry Page by borrowing funds from their own credit cards. Why on earth would we want to create an entrepreneurs’ visa that couldn’t let in the future Sergey Brin?

For the full commentary, see:
ROBERT E. LITAN. “Visas for the Next Sergey Brin; To create more jobs, let’s import more employers.” The Wall Street Journal (Mon., MARCH 8, 2010): A19.
(Note: ellipses added.)
(Note: the online version of the article is dated MARCH 7, 2010.)

Largest Decline in Private Sector Union Members in 25 Years

(p. A3) Organized labor lost 10% of its members in the private sector last year, the largest decline in more than 25 years. The drop is on par with the fall in total employment but threatens to significantly limit labor’s ability to influence elections and legislation.

On Friday, the Labor Department reported private-sector unions lost 834,000 members, bringing membership down to 7.2% of the private-sector work force, from 7.6% the year before. The broader drop in U.S. employment and a small gain by public-sector unions helped keep the total share of union membership flat at 12.3% in 2009. In the early 1980s, unions represented 20% of workers.

For the full story, see:
KRIS MAHER. “Union Membership Declines by 10%.” The Wall Street Journal (Sat., January 23, 2010): A3.
(Note: the online version of the article has the slightly different title “Union Membership Drops 10%.”)

Entrepreneurial Judgment Can Be Right Even When It Is Hard to Articulate

Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.
The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hence would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.

(p. 91) I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”

“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.