Labor Economics – Page 65 – artdiamondblog.com

The Peril of Being a Bald Economist

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

‘The term ‘income inequality’ is a bit misleading because it suggests in a somewhat pejorative way that the rich are getting richer at the expense of the poor," Edward Lazear, a Stanford University labor economist who is now chairman of Mr. Bush’s Council of Economic Advisers, said last May. While it’s a concern that some people are being left behind, he said, "There is some good news…most of the inequality reflects an increase in returns to ‘investing in skills.’"

Mr. Lazear has nurtured his relationship with Mr. Bush. His office is decorated with photos of the two mountain biking. When he gave Mr. Bush a copy of the Economic Report of the President this year, Mr. Bush gave him a bear hug and kissed the top of his bald head, according to people who were present.

For the full story, see:

GREG IP and JOHN D. MCKINNON. "THE OUTLOOK; Bush Reorients Rhetoric, Acknowledges Income Gap." The Wall Street Journal (Mon., March 26, 2007): A2.

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

More Retirees Choosing to Become Entrepreneurs

Call them silver entrepreneurs or senior entrepreneurs or third-age entrepreneurs. They are people who do not want — or are not financially able — to idle away their retirement years and, instead, opt to start a business.

. . .

The numbers of retired people rejecting the unfettered leisure that has been the American model since the 1940’s in favor of starting up a small business are not exact. Federal government data suggests there are now at least three million entrepreneurs who are 55 and over — up one-third from the number counted in 2000.

”It’s like this sea swell that has been under the radar,” said Linda Wiener, the aging issues expert for Monster.com, the jobs search Web site. ”There are people who don’t want to work an hourly job, and are wondering what are they going to do for the next 30 years?”

A majority of 800 workers surveyed last year for the John J. Heldrich Center for Workforce Development at Rutgers University indicated in their responses that traditional retirement was obsolete. Two-thirds expect to work after 55, and about 15 percent wanted to start their own business after they retired, the survey found.

For the full story, see:

Elizabeth Olson. "Small Business; In Life’s Second Act, Some Take On A New Role: Entrepreneur." The New York Times (Thurs., September 28, 2006): C6.

(Note: ellipsis added.)

Beautiful Downtown Burbank, Runs Amok

Cultural history background for the young: at the beginning of every installment of the "Rowan and Martin Laugh-In" TV comedy review (circa 1968-1973), someone would sarcastically intone that the show was being broadcast from "beautiful downtown Burbank."

Excerpted below is Daniel Pink’s incredible conversation with a Burbank city clerk:

(p. 199) What led me to this 100,000-person city in California’s San Fernando Valley—past the fish fountains, to the steps of City Hall—was a rumor I’d heard that Burbank puts free agents in jail.

. . .

(p. 200) After fifteen minutes of probing, here’s the gist of what he tells me: If I want to write from a home office in Burbank, I first must apply for a home occupation license. The city would examine my application, and then come to my house to inspect the office from which I intended to work. Once the inspector deemed my home office safe for writing and unthreatening to my neighbors, I could begin earning a living, my workplace now officially blessed by the city.

But that was only the beginning. I’d have to pay a special tax. And I’d have to abide by the strictures of Burbank Municipal Code Section 31-672—which, among other things, said: My office couldn’t be larger than four hundred square feet or 20 percent of my home’s square footage. I couldn’t put my home office in a "garage, carport, or any other area required or designated for the parking of vehicles." The only "materials, equipment, and/or tools" I could use to do my work were things used by "a normal household." I couldn’t use my home office to repair cars, sell guns, or operate a kennel. And the only folks who could ever work with me in the office were people who lived with me.

That last provision alarmed me.

Pointing to Section 31-672(c), I ask, "Does this mean I can’t have a meeting at my house?"

"Yep," says the clerk. "You’d have to somewhere else."

"Let me get this straight," I say. "Let’s say I’m a writer collaborating on a screenplay. If my collaborator comes over and we work on the screenplay together, that’s against the law? It’s a misdemeanor to have a meeting at your house?"

"Yep," says the clerk.

"Isn’t California a ‘three strikes and you’re out’ state?"

"Yep."

Burbank, we we have a problem. I hope it’s unlikely that a free agent who has three meetings at her house, and gets caught, prosecuted, and convicted each time, goes to jail for the rest of her life. But the mere possibility reflects a wider problem with America’s legal, policy, and tax regimes. They were built for a (p. 201) work world that has largely disappeared, and are ill equipped for the new world that has arrived.

Source:

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

(Note: italics in original; ellipsis added.)

Why Starbucks Coffee is a Bargain

(p. 161) These coffee places, most of which didn’t even exist ten years ago, had several virtues. They were always in convenient locations. They permitted, even welcomed, patrons to sit and talk for several hours. And they had tables for spreading out my materials and electrical outlets for plugging in my equipment. In short, they provided a four-hour office rental for the price of a three-dollar latte.

. . .

(p. 162) Starbucks and its caffeinated cousins are part of what I call the free agent infrastructure. The components of this infrastructure, which I’ll review in a moment, include copy shops, office supply superstores, bookstore cafés, overnight delivery services, executive suites, and the Internet. Like America’s system of federal highways, the free agent infrastructures form the physical foundation on which the economy operates. But unlike the federal highway system, which was planned and paid for by the government, this infrastructure emerged more or less spontaneously. Like so many other aspects of Free Agent Nation, it is self-organized. Nobody is in charge of it. That’s why it woks. It works so well, in fact, that few people realize that this collection of commercial Establishments even constitutes an infrastructure.

Source:

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

Should Netscape Be Viewed as a Failed Company, or as a Successful Project?

(p. 53) Recall the story of Netscape, once the darling of the New Economy. Netscape was formed in 1994. It went public in 1995. And by 1999, it was gone, purchased by America Online and subsumed into AOL’s operation. Life span: four years. Half-life: two years. Was Netscape a company—or was it really a project? Does the distinction even matter? What matters most is that this short-lived entity put several products on the market, prompted established companies (notably Microsoft) to shift strategies, and (p. 54) equipped a few thousand individuals with experience, wealth, and connections that they could bring to their next project.

And Netscape is not alone. A University of Texas study found that between 1970 and 1992, the half-life of Texas businesses shrank by 50 percent. Likewise, a Federal Reserve analysis of New York companies found that the type of firm that created the most new jobs (microbusineses with fewer than ten employees) often had the shortest life span. The life cycle of companies has been that jobs, too, have diminishing half-lives. Ten years ago, nobody ever heard of a Web developer. Ten years from now, nobody may remember Web developers.

Most important, at the very moment the longevity of companies is shrinking, the longevity of individuals is expanding. Unlike Americans in the twentieth century, most of us today can expect to outlive just about any organization for which we work. It’s hard to imagine a lifelong job at an organization whose lifetime will be shorter–often much shorter–than your own.

Source:

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

“Free Agent Nation” Still Rings True

Source of book image: http://g-ec2.images-amazon.com/images/G/01/ciu/10/ae/8ca3d250fca0f5b077de4010.L.jpg

Daniel Pink’s 2001 Free Agent Nation has been on my to-read list since it first came out. It finally made it to the top—at least in the author-abridged two-cassette incarnation.

I always found the basic idea appealing: the appeal of the freedom of working for yourself—Harry Browne’s How I Found Freedom in an Unfree World, but for real.

But I also was a little anxious; fearful that the book would place too much emphasis on seeming flash-in-the-pan dot.com labor market phenomena and rhetoric.

To my relief, I can report that little in the book depends on the dot.com over-exuberance. The internet appears, as an infrastructure enabler, but the free agents are mainly doing more standard stuff, but doing it from a home office, and doing it project-by-project.

Pink is not an academic, which has pros and cons. One of the pros is that his prose is pleasant. Another is that he has an ear for a good story and a telling example. Perhaps a con is that he often hasn’t had the time, or the interest, (or maybe the data just don’t exist) to often follow-up with how widespread his examples are.

Still there’s some good stuff here. Like suggesting that free agency is what you would expect more of us to pursue, as we work our way up Abraham Maslow’s hierarchy of human needs. (In college I was enthused enough about Maslow that I was thinking of minoring in psychology, until they told me how many hours I would have to run rats through mazes before I’d be allowed to open a Maslow book.)

And there’s plausible discussion about how in some ways free agency is more secure than a regular job (multiple clients means diversification). And there is more freedom to control your own time, and be your authentic self.

There’s also some good discussion of how the government makes free agency harder through health care and taxation policies.

All-in-all, this book helps make the case that labor can thrive in a Schumpeterian world of creative destruction.

Reference to the book:

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

Under Capitalism, the “Innately Conscientious” Usually Earn More

In the excerpt below, the WSJ summarizes an article that appeared in Forbes on March 12, 2007. The summarized study implies that those who are innately conscientious end up being rewarded with higher income. I hope it is true. My guess is that the world comes closer to working that way under capitalist institutions, than under other economic systems. (Note that this study was done by the United States Bureau of Labor Statistics, which implies that we’re talking about what happens in the United States.)

The insight originates in 1979, when the Bureau of Labor Statistics paid 12,700 young people $50 to take a range of tests, one of which required a simple code to be deciphered. The BLS has since surveyed the test takers regularly. Going through the data, Carmit Segal, a postdoctoral fellow at Harvard Business School, found a strong relationship between someone’s score in the coding test and his or her income over 20 years later, even taking into account differences in IQ.

Ms. Segal argues those who did well on the test were driven entirely by an innate conscientiousness, because candidates had nothing to gain from doing well on it.

For the full story, see:

"The Informed Reader; Workplace; Job Test That Predicts Effort Gets Help From Professors." The Wall Street Journal (Mon., February 26, 2007): B6.

(Note: the online version has a different subtitle: "A Tricky Test Could Reveal Job Applicants’ Work Ethic")

Wal-Mart Improves Life in Mexico

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

(p. A1) JUCHITÁN, Mexico — For as long as anyone can remember, shopping for many items in this Zapotec Indian town meant lousy selection and high prices. Most families live on less than $4,000 a year. Little wonder that this provincial corner of Oaxaca, historically famous for keeping outsiders at bay, welcomed the arrival of Wal-Mart.

Back home in the U.S., Wal-Mart Stores Inc. is known not only for its relentless focus on low prices but also for its many critics, who assail it for everything from the wages it pays to its role in homogenizing American culture. But while its growth in the U.S. is slowing, Wal-Mart is striking gold south of the border, largely free from all the criticism. Like Wal-Mart fans in less affluent parts of America, most shoppers in developing countries are much more concerned about the cost of medicine and microwaves than the cultural incursions of a multinational corporation.

That fact is making Wal-Mart a dominant force in Latin America. Wal-Mart de México SAB, a publicly traded subsidiary, is not only the biggest private employer in Mexico — it’s the biggest single retailer in Latin America. Sales at Wal-Mex, as the Mexican unit is called, are forecast to rise 16% to $21 billion this year, representing a quarter of Wal-Mart’s foreign revenue. International revenue soared 30% to $77.1 billion, accounting for 22% of Wal-Mart’s sales, in the fiscal year ended Jan. 31. Wal-Mex profits are forecast to grow 20% to $1.3 billion this year.

. . .

(p. A14) In Mexico, Wal-Mart has been a counterweight to the powers that control commerce. One of the most closed economies in the world until the late 1980s, Mexico was dominated for decades by a handful of big grocers and retailers. All were members of a national retailing association called ANTAD, and cutthroat competition was taboo. At the local level, towns are still hostage to local bosses, known here as caciques, the Indian word for local strongmen who control politics and commerce.

. . .

In recent months, as rising prices for U.S. corn pushed up the price of Mexico’s corn tortilla, a staple for millions of poor, Wal-Mart could keep tortilla prices largely steady because of its long-term contracts with corn-flour suppliers. The crisis turned into free advertising for Wal-Mart, as new shoppers lined up for the cheaper tortillas.

Wal-Mart also overcame a Juchitán cacique, or local boss: Héctor Matus, a trained doctor who goes by La Garnacha, the name for a fried tortilla snack popular in town. Dr. Matus, 55, owns six pharmacies, stationery stores and general stores. He has also held an array of political posts, including Juchitán mayor and state health minister. As town mayor from 2002 to 2004, he says he blocked a national medical-testing chain from opening in town because it meant low-price competition to local businessmen doing blood work.

But Dr. Matus couldn’t persuade local and state officials to block Wal-Mart, and he is feeling the pinch. Sales are off 15% at his stores since Wal-Mart arrived, and he is now lowering prices in response. Even so, he’s still more expensive. A box of Losec stomach medicine costs 80 pesos ($7.30) at one of Dr. Matus’s stores, marked down from 86 pesos. The price at Wal-Mart is 77 pesos ($7.20).

Dr. Matus isn’t happy about the competition. "I could still kick them out of town, because I know how to mobilize people," he said, sitting in his living room surrounded by pictures of him with leading Mexican politicians dating back to the 1970s. Despite his bravado, town officials say Wal-Mart is staying. "The ones who have benefited the most [from Wal-Mart] are the poorest," says Feliciano Santiago, the deputy mayor. "I hope another one comes."

. . .

Gisela López, the 31-year-old head of billing at the Juchitán store, benefited from the retailer’s system of promoting from within. Raised by her uneducated, Zapotec-speaking grandparents, Ms. López earned a computer degree at Juchitán’s small technical college and then left for the booming northern city of Monterrey in search of opportunity.

Lacking connections, she couldn’t find the office job she dreamed about, and took a job at one of Wal-Mart’s stores. After three months, Ms. López made cashier supervisor, and later moved over to the billing department. When Wal-Mart opened a store in Juchitán, Ms. López jumped at the chance to move home — and was promoted to billing chief in the process.

"It’s a very different place to work, because you can succeed by your own effort," says Ms. López, whose $12,000-a-year salary now puts her in Mexico’s middle class.

Ms. López’s story of economic mobility is a rare one. Most of her childhood friends don’t have steady jobs, she said. The success stories are friends who inherited jobs from their parents at the state oil company’s big refinery in Salina Cruz, about an hour away.

For the full story, see:

JOHN LYONS. "SOUTHERN HOSPITALITY; In Mexico, Wal-Mart Is Defying Its Critics; Low Prices Boost Its Sales and Popularity In Developing Markets." The Wall Street Journal (Mon., March 5, 2007): A1 & A14.

(Note: ellipses added.)

Source of map and images: online version of the WSJ article cited above.

Kodak Tries to Survive Creative Destruction

A Kodak digital production printer. Source of photo: online version of the NYT article cited below.

Digital photography replacing film technology is an example of Schumpeter’s process of creative destruction, and maybe also of the gradual growth of a disruptive technology. Leading incumbent firms frequently have trouble prospering, or even surviving, during such a change. Both the Wall Street Journal and the New York Times had articles on the latest news from Kodak. Here is an excerpt from the New York Times version:

On Tuesday, as the Eastman Kodak Company unveiled its long-anticipated consumer inkjet printer in New York, the mood at the company’s Rochester headquarters could not have been more positive.

“People know we are back on the offensive,” said Frank Sklarsky, Kodak’s chief financial officer. “And that’s making them a lot more charged up about coming to work.”

But yesterday, Kodak gave them reason again to feel depressed. The company said it would cut 3,000 more jobs this year, on top of the 25,000 to 27,000 it had already said would be gone by the end of 2007. At that rate, Kodak will end the year with about 30,000 employees, half the number of just three years ago and a fraction of the 145,000 people it employed in 1988, when its brand was synonymous with photography.

Kodak executives insist that the new cuts do not indicate any snags in the continuing struggle to transform itself from a film-based company into a major competitor in digital imagery. And analysts, too, say the cuts are inevitable, and probably healthy.

For the full NYT story, see:

CLAUDIA H. DEUTSCH. "Shrinking Pains at Kodak." The New York Times (Fri., February 9, 2007): C1 & C4.

For the related WSJ story, see:

WILLIAM M. BULKELEY and ANGELA PRUITT. "Kodak Sees More Job Cuts, Higher Restructuring Costs." The Wall Street Journal (Fri., February 9, 2007): B4.

Source of the first and third graphic: the WSJ article cited above. Source of the second graphic: the NYT article cited above.

Preventing Creative Destruction Slows Economic Growth

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

It would be interesting to explore why the gap in growth rates was smaller last year than previously. Was it a statistical fluke? Or did the U.S. labor market become somewhat less flexible? Or maybe the job market in Europe and Japan became somewhat more flexible?

FOR more than a decade, many American economists have pointed to Europe and Japan as prima facie evidence that layoffs in the United States are a good thing. The economies in those countries were not nearly as robust as this country’s. And the reason? Too much job security in Europe and Japan, the economists said.

American employers, in sharp contrast, have operated with much more “flexibility.” Hiring and firing at will, they shift labor from where it is not needed to where it is needed. If Eastman Kodak is struggling to establish itself in digital photography, then Kodak downsizes and labor moves to industries and companies that are thriving — software, for example, or health care, or Wal-Mart Stores or Caterpillar.

This shuffling out of one job and into another shows up in the statistics as nearly full employment. Never mind that the shuffling does not work as efficiently as the description implies or that many of the laid-off workers find themselves earning less in their next jobs, an income roller coaster that is absent in Europe and Japan. A dynamic economy leaves no alternative, or so the reasoning goes among mainstream economists.

“Trying to prevent this creative destruction from happening is a recipe for less economic growth and less productivity,” said Barry Eichengreen, an international economist at the University of California, Berkeley.

For the full commentary, see:

LOUIS UCHITELLE. "ECONOMIC VIEW; Job Security, Too, May Have a Happy Medium." The New York Times, Section 3 (Sun., February 25, 2007): 5.