Labor Economics – Page 61 – artdiamondblog.com

Median Household Income Rose, and Poverty Rate Fell, in 2006

Source of graphic: online version of the NYT article quoted and cited below.

(p. A1) . . . slight improvements in household income and a drop in the poverty rate came during a period of job growth, particularly toward the end of 2006, and declining inflation as a result of falling oil prices. . . .

Some Republicans seized on the new data as evidence that Bush administration policies had been good for people’s pocketbooks. In a statement, President Bush said the news was a sign that Congress should not raise taxes. The data, he said, confirmed “that more of our citizens are doing better in this economy, with continued rising incomes (p. A14) and more Americans pulling themselves out of poverty.”

. . .

Over all, the nation’s median household income rose to $48,201 in 2006, from $47,845 in 2005. It was the second consecutive year in which income rose slightly faster than inflation, after five years of decline.

Douglas J. Besharov, a resident scholar at the American Enterprise Institute, a conservative research group, said that while the year-to-year increase in household income was small, the broader picture over the last few decades was more promising and more important.

“Over all,” Mr. Besharov said, “a lot of groups have done better over the last 40 years.”

For the full story, see:

ABBY GOODNOUGH. “Census Presents Mixed View of the Economy.” The New York Times (Weds., August 29, 2007): A1 & A14.

(Note: the online version of the article had the title: “Census Shows a Modest Rise in U.S. Income.”)

(Note: ellipses added.)

Chinese Wages and Productivity Rise

“At the Dahon bicycle plant in Shenzhen, China, pay has risen 10 to 15 percent a year, but productivity gains have held down costs.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) SHENZHEN, China, Aug. 28 — At the Dahon bicycle factory here, Zhang Jingming’s fingers move quickly and methodically — grabbing bicycle seats, wrapping them in cardboard and smoothly attaching them to frames.
Working a 45-hour week, Mr. Zhang makes the equivalent of $263 a month; as recently as February, he was making just $197. Some of his higher pay comes from working more efficiently. “When I first started, I wasn’t this fast,” he said.
But a good portion reflects a raise Mr. Zhang got: to 1.45 cents for each bicycle seat from 1.32 cents. It is a small difference that signifies major change.
Chinese wages are on the rise. No reliable figures for average wages exist; the government’s economic data are notably unreliable. But factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money.
And higher wages in China are likely to lead to higher prices in the United States — at the mall, at the grocery, even at the gas pump.
Chinese companies are already passing along some of their higher costs to overseas customers. Prices for goods from China, after years of gradual decline, have risen 1.2 percent since February, according to the Labor Department. July’s increase was the biggest yet: 0.4 percent compared with June. Chinese companies and contractors are also passing on the cost of the rising value of their currency, the yuan, up 8.8 percent against the dollar in the last two years.
For decades, many labor economists said that China’s vast population would supply a nearly bottomless pool of workers. So many people would be seeking jobs at any given time, this rea-(p. A9)soning went, that wages in this country would be stuck just above subsistence levels. As recently as four years ago, some experts estimated that most of the perhaps 150 million underemployed workers in the countryside would be heading to cities.
Instead, sporadic labor shortages started to appear in 2003 at factories in the Pearl River delta of southeastern China. Now those shortages have spread to factories up and down the Chinese coast, specialists say.
. . .
(p. A9) The hardest variable to judge in China’s changing labor market is the pace of productivity growth. Since there are few reliable statistics, the best way to assess productivity is to look at individual factories like the Dahon operation here, which produces bicycles that collapse for easy storage.
David T. Hon, chief executive of the privately held Dahon Group, said that while he had been raising wages 10 to 15 percent a year, the average labor cost for each bicycle had actually edged downward. This is possible, he said, because sales are growing 30 percent a year and increasingly large-scale production has brought savings. The cost of engineering a new bicycle design, or handling the accounting and other back-office operations, is spread over more and more bicycles as production rises.

For the full story, see:
KEITH BRADSHER. “Wages Are on the Rise in China As Young Workers Grow Scarce.” The New York Times (Weds., August 29, 2007): A1 & A9.
(Note: ellipsis added.)

Source of graph: online version of the NYT article quoted and cited above.

Britain’s “Novel Immigration Problem”: Too Few Polish Immigrants

“Polish women selling sausages at the Borough Market in London. The British have also grown to enjoy Polish food.” Source of caption and photo: online version of the International Herald Tribune version of the article quoted and cited below.

(p. C1) LONDON, Oct. 18 — When Piotr Farbiszewski landed here three years ago, he had enough money in his pocket to live for two weeks.
A successful technology consultant in Warsaw, he and his wife, Ela, a schoolteacher, had come to London to try it on for size; if they liked it, they would stay. To earn money, he worked as a builder while she flipped hamburgers.
They decided that they liked London, and within a year, Mr. Farbiszewski was a senior programmer at a software company. In March, the couple bought a small terraced house outside London, where they plan to raise a family.
“We’re very happy here,” Mr. Farbiszewski, 31, said. “The quality of life is better, the economy is stronger, there is less bureaucracy, it’s a multicultural society and the lady in the supermarket will smile at me. People don’t smile at each other in Poland.”
The Farbiszewskis are small players in one of Europe’s most successful immigration stories. Since Poland joined the European Union in 2004 and Britain, unlike France and most other members, welcomed Polish workers, an estimated 1.1 million Poles, mainly young, have come to Britain. Today, they are the third-largest group of immigrants in the country, behind (p. C5) Irish and Indians.
Britain has benefited. On Tuesday, the Home Office estimated that immigration added £6 billion ($12.3 billion) to the nation’s economy last year. According to David Blanchflower of the Bank of England’s monetary policy committee, East European immigration has also reduced inflation pressure by increasing the supply of goods and services.
Indeed, Britain may soon face a novel immigration problem. As Poland’s economy has improved this year, immigration has slowed, which economists say could cause labor shortages in British industries.

For the full story, see:
JULIA WERDIGIER. “As the Poles Get Richer, Fewer Seek British Jobs.” The New York Times (Fri., October 19, 2007): C1 & C5.

Regular Employees Migrate to Pink’s “Free Agent Nation”

“Luis H. Rodriguez, an I.B.M. executive, with his children, Alec, 5, and Evia, 2, often works from his home or on the road.” Source of photo: online version of the NYT article quoted and cited below.

Daniel Pink in his Free Agent Nation argued that a growing number of American workers would want the control, challenge and freedom of working for themselves as entrepreneurs, or “free agents.” To attract workers who have the option of being free agents, it is plausible that employers increasingly will have to offer jobs that provide workers with greater autonomy. The article quoted below, suggests that this may in fact be happening, at least in information technology firms.

(p. A1) SOMERS, N.Y. — It’s every worker’s dream: take as much vacation time as you want, on short notice, and don’t worry about your boss calling you on it. Cut out early, make it a long weekend, string two weeks together — as you like. No need to call in sick on a Friday so you can disappear for a fishing trip. Just go; nobody’s keeping track.

That is essentially what goes on at I.B.M., one of the cornerstones of corporate America, where each of the 355,000 workers is entitled to three or more weeks of vacation. The company does not keep track of who takes how much time or when, does not dole out choice vacation times by seniority and does not let people carry days off from year to year.

Instead, for the past few years, employees at all levels have made informal arrangements with their direct supervisors, guided mainly by their ability to get their work done on time. Many people post their vacation plans on electronic calendars that colleagues can view online, and they leave word about how they can be reached in a pinch.

“It’s like when you went to college and you didn’t have high school teachers nagging you anymore,” said Mark L. Hanny, I.B.M.’s vice president of independent software vendor alliances. “Employees like that we put more accountability on them.”

. . .

(p. 18) Aided by broadband connections, cellphones and video conferencing software, 40 percent of I.B.M.’s employees have no dedicated offices, working instead at home, at a client’s site, or at one of the company’s hundreds of “e-mobility centers” around the world, where workers drop in to use phones, Internet connections and other resources.

. . .

Luis H. Rodriguez, the director of market management in I.B.M.’s software group, said he visits his office here in Somers about once a week, working the rest of the time on the road or at his home in Ridgefield, Conn., where he sat one recent afternoon at the kitchen table with his laptop open.

He said that in six years at I.B.M. he can recall only one time when he asked a co-worker not to take a long weekend off — when their group was about to buy another company — and that calling colleagues or checking e-mail while visiting relatives in Texas or Illinois is a fair trade for being able to work from home so he can spend more time with his children, Alec, 5, and Evia, 2.

. . .

“If you look at the organizations that have done more radical things, they tend to be technology companies with salaried people,” where flexibility in job performance “is embedded into the culture of the place,” noted Max Caldwell, a managing principal in the work force effectiveness area at Towers Perrin, a human resources consultant.

Indeed, I.B.M.’s Mr. Calo said that the flexibility has helped the company compete with the more freewheeling atmosphere at start-up rivals in the technology world that have lured away some of its talent over the years.

For the full story, see:

KEN BELSON. “At I.B.M., a Vacation Anytime, Or Maybe No Vacation at All.” The New York Times (Fri., August 31, 2007): A1 & A18.

(Note: ellipses added.)

The reference for the Pink book, is:

Pink, Daniel H. Free Agent Nation: How America’s New Independent Workers Are Transforming the Way We Live. New York: Warner Business Books, 2001.

Innovative New Products Often Expensive at First, But Price Soon Falls

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

(p. 14) To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.
As the second chart, on the spread of consumption, shows, this wasn’t always so. The conveniences we take for granted today usually began as niche products only a few wealthy families could afford. In time, ownership spread through the levels of income distribution as rising wages and falling prices made them affordable in the currency that matters most — the amount of time one had to put in at work to gain the necessary purchasing power.
At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.

For the full commentary, see:
W. MICHAEL COX and RICHARD ALM. “You Are What You Spend.” The New York Times Company, Week in Review section (Sun., February 10, 2008): 14.

Persistence and Efficiency Matter More than Teamwork and Enthusiasm, for CEO Success

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

(p. B3) What are the traits that chief executives of successful companies share? A new study suggests that hard-nosed personal virtues such as persistence and efficiency count for more than “softer” strengths like teamwork or flexibility.

The findings are sure to intensify debate about how much toughness is appropriate in a CEO. Some famously hard-charging bosses of big companies have retired or been shunted aside in recent years. Successors at companies such as General Electric Co., International Business Machines Corp. and Hewlett-Packard Co. are seen as quieter, less strident team-builders.

But the new study, by three University of Chicago business-school professors, draws on detailed personal assessments of 313 CEO candidates to present a starker view of good leadership’s ingredients. Of these candidates, 225 were hired. Their subsequent performance fuels most of the study’s conclusions.

“We found that ‘hard’ skills, which are all about getting things done, were paramount,” says lead author Steven Kaplan, a professor of finance and entrepreneurship. “Soft skills centering on teamwork weren’t as pivotal. That was a bit of a surprise to us.”

Prof. Kaplan and colleagues Mark Klebanov and Morten Sorensen didn’t size up the CEOs themselves. Instead, they tapped into a consultant’s database long coveted by academic researchers. It contains assessments of individuals’ strengths and weaknesses compiled by ghSmart Inc. The Chicago management-assessment company evaluates CEO candidates on behalf of corporate clients.

For the full story, see:

GEORGE ANDERS. “THEORY & PRACTICE; Tough CEOs Often Most Successful, A Study Finds.” The Wall Street Journal (Mon., November 19, 2007): B3.

Included with the WSJ article was an interesting summary table:

LEADING PROFILE

Here are five CEO traits that correlate most closely with business success at buyout companies — and five that score lowest, according to University of Chicago researchers.

Traits that matter…

• Persistence
• Attention to detail
• Efficiency
• Analytical skills
• Setting high standards

…and not so much

• Strong oral communication
• Teamwork
• Flexibility/adaptability
• Enthusiasm
• Listening skills

Unhappy Italians: “More Fear than Hope”

"A priest passes an abandoned garage covered with graffiti in Milan. Italy’s malaise, an economic, political, and social funk, was summed up in a recent poll: Italians report themselves to be the least happy people in Western Europe." Source of caption and photo: online verison of the NYT article quoted and cited below.

(p. A1) ROME — All the world loves Italy because it is old but still glamorous. Because it eats and drinks well but is rarely fat or drunk. Because it is the place in a hyper-regulated Europe where people still debate with perfect intelligence what, really, the red in a stoplight might mean.

But these days, for all the outside adoration and all of its innate strengths, Italy seems not to love itself.   The word here is “malessere,” or “malaise”; it implies a collective funk — economic, political and social — summed up in a recent poll: Italians, despite their claim to have mastered the art of living, say they are the least happy people in Western Europe.

“It’s a country that has lost a little of its will for the future,” said Walter Veltroni, the mayor of Rome and a possible future center-left prime minister. “There is more fear than hope.”

. . .

. . .   In 1987, Italy celebrated its economic parity with Britain. Now Spain, which joined the European Union only a year earlier, may soon overtake it, and Italy has fallen behind Britain.

Italy’s low-tech way of life may enthrall tourists, but Internet use and commerce here are among the lowest in Europe, as are wages, foreign investment and growth. Pensions, public debt and the cost of government are among the highest.

. . .

(p. A18) . . .  entrepreneurs complain that they are alone. Politicians offered little help making Italy competitive, and this remains a major impediment to making their gains grow. Businesses want less bureaucracy, more flexible labor laws and large investments in infrastructure to make moving goods around easier.

. . .

. . .   Many worry . . . that Italy may share the same fate as the Republic of Venice, based in what many say is the most beautiful of cities, but whose domination of trade with the Near East died with no culminating event. Napoleon’s conquest in 1797 only made it official.

Now it is essentially an exquisite corpse, trampled over by millions of tourists. If Italy does not shed its comforts for change, many say, a similar fate awaits it: blocked by past greatness, with aging tourists the questionable source of life, the Florida of Europe.

. . .

. . .   “We have reached a point where hoping for some kind of white knight coming in saying, ‘We’ll sort you out,’ is over.”

“We Italians have our destiny in our hands more than ever before,” he said.

For the full story, see:

IAN FISHER "In a Funk, Italy Sings an Aria of Disappointment." The New York Times (Thurs., December 13, 2007): A1 & A18.

(Note: ellipses added.)

Information Technology Increases Choices on Where to Live

Stephanie and Bill Faunce moved their marketing company from Los Angeles to Steamboat Springs, Colorado. Source of photo: online version of the NYT article quoted and cited below.

Information technology is making life better by providing greater choice on where to live. There is still a lively debate about which regions and cities will prosper.

One popular take on this issue is Richard Florida’s The Rise of the Creative Class.

(p. A1) As technology enables people to live and work wherever they want, increasingly they are clustering in resort playgrounds like Steamboat Springs (pop. 9,315) that have natural amenities, good weather — and, now, lots of people like themselves.

In places like Nantucket, the Upper Peninsula of Michigan and Teton County, Idaho, the migrants are creating hybrid communities, implanting urban incomes, tastes, careers, ambitions, restaurants, cultural activities and networking opportunities into small towns that un-(p. A15)til recently could support none of these, and for which there has been little planning and still no consensus.

“You are seeing a transformation of rural communities,” said Jonathan Schechter, executive director of the Charture Institute in Jackson, Wyo., a nonprofit organization that studies small recreational towns.

Into quiet resort spots the migrants have come, laptops on their knees: fund managers from New York, software developers from California, consultants, proofreaders, engineers, inventors. “The same processes that led to the suburbanization of the United States after World War II,” Mr. Schechter said, “are now producing a virtual suburbanization in places like Jackson or Steamboat Springs.”

From 2000 to 2006, population in the 297 counties rated highest in natural amenities by the United States Department of Agriculture grew by 7.1 percent, 10 times the rate for the 1,090 rural counties with below-average amenities, the department reported.

In towns that once emptied after the ski season or the beach season, these “location-neutral” migrants are complicating the traditional dynamic between tourists and locals. Here as elsewhere, average homes have become unaffordable for teachers, firefighters and others — the people who created the good schools and community closeness that newcomers said drew them. The rate of change “is causing a whiplash,” Mr. Schechter said, “because the towns don’t have the political and economic systems in place to deal with them.”

Routt County, which includes Steamboat Springs, is one of the first places to identify these new émigrés as a source of economic growth and, paradoxically, community stability. A 2005 survey found that as many as 1 in 10 year-round households was involved in a location-neutral business. Unlike retirees and second-home buyers, who are also roosting in vacation towns, they send children to the local schools. “Without kids, you don’t have a community,” said Scott Ford, a counselor at the Small Business Resource Center at Colorado Mountain College.

Cloistered in home offices, isolated from the local economy, location-neutrals are often invisible even to one another, except when they appear on local committees.

Many work as hard as their urban counterparts, often juggling commitments in several time zones, but can step from their offices to a hiking trail or mountain stream.

. . .

For Bill and Stephanie Faunce, who run a marketing company for cable operators, small-town life often means starting work at 7 a.m. and quitting at 11 p.m., but with breaks to hike, ski or be with their two young children. Their goal in coming here was not to slow down but to eliminate urban distractions and pressures.

“There are no stressors here,” said Mr. Faunce, 43. “In L.A., it took 90 minutes to get to the office, so we had a Mercedes and a Land Rover. Now we drive a Suburban. In three years we’ve put 15,000 miles on it.”

For the full story, see:

JOHN LELAND. "Off to Resorts, and Carrying Their Careers." The New York Times (Mon., August 13, 2007): A1 & A15.

(Note: ellipsis added.)

The reference for Florida’s book, is:

Florida, Richard. The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life. New York: Basic Books, 2002.

Source of maps: online version of the NYT article quoted and cited above.

Raghuram Rajan on the Current Economic Downturn and the Subprime Mortgage Mess

“Traders in the oil futures pit of the New York Mercantile Exchange on Tuesday” (January 22. 2008). Source of caption and photo: online version of the NYT commentary quoted and cited below.

Raghuram Rajan is mentioned in the article quoted below. I first ran across him as the co-author of a book that was billed as applying Schumpeterian ideas of creative destruction to issues of economic growth and development.

Then, at the American Economic Association meetings in New Orleans in early January, I was on my way to a History of Economics Society reception, when I stumbled by chance into a modest reception in which Rajan was giving an informal speech on the subprime mortgage crisis.

It was such an interesting presentation, that I ended up totally missing the History of Economics Society reception. Rajan argued that the main problem was one of misguided incentives. Bonuses at top investment firms like Merrrill Lynch and JPMorgan Chase, are supposed to go to those whose investments produce high returns, with modest risks. The problem with the complicated securities based on the subprime mortgages was that they produced high returns, but the risks were actually also fairly high. The high-flying investors probably had some knowledge of this, but the public did not. In most years the investors could invest in the high return, but high risk, securities, and collect huge bonuses. But now the chickens have come home to roost.

Rajan suggested that the answer would be a change in the way in which the traders are given bonuses. Instead of handing them out annually, let them become vested only after observing the investment’s track record for several years. If the investment goes south before the bonus is vested, the trader does not get the bonus. This would provide an incentive and reward for those who accurately accessed the risk of their investments.

(p. A1) . . . , Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s Economy.com. They’re not being dishonest; they just haven’t untangled all of their complex investments.

“Part of the big uncertainty,” Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, “is where the bodies are buried.”

As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms’ holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.

This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.

For the full commentary, see:

DAVID LEONHARDT. “ECONOMIC SCENE; Worries That the Good Times Were Mostly a Mirage.” The New York Times (Weds., January 23, 2008): A1 & A23.

(Note: ellipsis added.)

The Schumpeterian book co-authored by Rajan, is:

Rajan, Raghuram G., and Luigi Zingales. Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity. New York: Crown, 2003.

Alaska Air Used Skunk Works to Develop Check-In Innovation

Source of graphic: online version of the WSJ article cited below.

The innovation described in the article excerpted below is credited as arising from a ‘skunk works’ project. There’s a neat book called Skunk Works that describes how Lockheed set up an autonomous unit to develop the first stealth air force technology. (Their plant was in a smelly part of town, so it was dubbed the ‘Skunk Works.’)

Clayton Christensen has recommended that established incumbent companies set up skunk works operations in order to develop disruptive technologies that would not survive if they were developed within the main corporate culture and infrastructure.

(In the article excerpted below, it is puzzling to read that Alaska Air went to the trouble to take out a patent, even though they apparently have no intention of enforcing it.)

(p. B1) ANCHORAGE, Alaska — When the Ted Stevens Anchorage International Airport was planning a new concourse, prime tenant Alaska Airlines insisted on a counterintuitive design: "The one thing we don’t want is a ticket counter," said Ed White, the airline’s vice president of corporate real estate.

So the 447,000-square-foot Concourse C, which opened in 2004, has only one small, traditional ticket counter, even though the carrier’s 1.2 million Anchorage passengers checked in through that area last year. This unconventional approach — which uses self-service check-in machines and manned "bag drop" stations in a spacious hall that looks nothing like a typical airport — has doubled Alaska’s capacity here, halved its staffing needs and cut costs, while speeding travelers through the building in far less time.

. . .

(p. B4) Alaska’s design in Anchorage has turned heads in the industry, and in 2006 the airline was awarded a U.S. patent for the check-in process, something it calls the two-step flow-through. Mr. White says his company isn’t trying to keep competitors from going down the same path, but pursued the patent more to reward the many employees who helped to bring the idea to fruition.

Other airlines quickly sent scouts up to Anchorage to check out the new concourse, including a team from Delta Air Lines Inc., Mr. White says. A few months ago, Delta completed a $26 million renovation of its check-in hall at Hartsfield-Jackson Atlanta International Airport, and the finished product looks remarkably similar to that of Alaska Airlines. Greg Kennedy, Delta’s vice president for customer service there, says the new layout has enabled the airline to process passengers checking in during the peak spring break travel period in 20 to 30 minutes at most, compared with two or three hours three years ago — and all in the same amount of square footage but 50% more usable space. Mr. Kennedy says he isn’t aware of a visit to Anchorage but doesn’t dispute it.

. . .

Alaska, the nation’s ninth-largest carrier by traffic, started a "skunk works" lab a decade ago to figure out how to use technology to make air travel less of a hassle for passengers. Out of that effort came the airline’s ground-breaking ability to sell tickets on the Internet and allow fliers to check in online, developments other carriers quickly followed.

For the full story, see:

SUSAN CAREY. "Case of the Vanishing Airport Lines; Alaska Air Speeds Up Flow Of Passengers by Jettisoning Traditional Ticket Counters." The Wall Street Journal (Thurs., August 9, 2007): B1 & B4.

Source of graphic: online version of the WSJ article cited above.