by Adam Hartung | Apr 8, 2017 | Economy, Employment
The Labor Department March jobs report came out last week, and it disappointed a lot of people. At 98,000 new jobs, the number was about half what economists predicted. Simultaneously, the report revised January and February down a combined 38,000 jobs. Retail workers lost 30,000 jobs in March, which combined with February means 56,000 retailers lost jobs in just two months. There was ample disappointment to go around.
But, if we take a longer-term view the trend is much more pronounced, and we can easily see that overall the jobs market is very, very healthy – forcing employers to raise wages.
Brookings – Hamilton Project – Kristton McIntosh, Managing Director
As the chart above indicates, America has recreated almost all the jobs lost in the Great Recession (chart courtesy of Kriston McIntosh of The Hamilton Project – Brookings). Almost 10 million jobs were lost between 2008 and 2010 as the financial crisis wiped out banks, and lending. That was a staggering decline of about 420,000 jobs per month.
Because businesses were loath to re-invest following the economic meltdown, the rate of job creation has been considerably slower than the speed with which executives laid off employees. However, since the end of 2011 the U.S. has been adding jobs at the rate of over 200,000 per month – a dramatic growth in job creation over an extraordinarily long-term period. Literally, unprecedented.
And, if we average the job creation rate the first three months of 2017 it comes to 178,000 per month. At this lower pace the jobs market will have fully recovered within the next four months (by August, 2017). This jobs growth rate may be less than the last six years, but it is far more than is necessary to maintain employment rates – including population gains.
We see this very healthy improvement in the jobs situation in other statistics. Those in part-time positions seeking full-time positions fell to the lowest in several years at 8.9%. And, unemployment declined to 4.5% from 4.7% – a clear indication that there were more people finding work than losing work, pulling more people into the workforce for yet another month. At 4.5%, this is the lowest unemployment rate in a decade.
Net/net, America is rapidly approaching “
full employment” – a term that means everyone who wants a job either has one, or is intentionally looking for a job and reasonably expects to find one in three months. Or, in other words, if you know somebody complaining they can’t find a job it is either because they aren’t really trying, or they are picky about what they want to do, or they can find a job but won’t take it because they want higher pay.
And hourly pay continues to rise, increasing 2.7% versus March, 2016. This is less than in good times, when pay tends to rise at 3-4%/year – but the fact that pay is going up means the labor market is tightening. And as the economy reaches higher levels of employment, and lower levels of unemployment, companies will have to pay more to find new workers – and increase wages on current workers to keep them from leaving. Thus, it is a surety that pay will rise throughout 2017, and probably into the foreseeable future.
Whether you liked President Obama or not, the policies of the last six years allowed America to escape the Great Recession. Today 78.5% of all working age people are in the workforce – that is the highest labor participation rate of working age people since 2008 – indicating a complete recovery from the job collapse.
Thus, it is time for changes in economic policy. To keep calling for job creation is, classically, “fighting the last war.” Even as government is reducing employment, and some industries (like traditional retail) are collapsing employment, there are other parts of the economy growing jobs. Amazon.com, for example, has announced it will be adding 100,000 U.S. jobs by the middle of 2018.
For President Trump to claim there are 100 million people in the USA looking for work is an impossibility. There are only 325 million people in America, and 26.4% of those are between under the age of 17 and over 65 – so 86 million. That only leaves 239 million people of working age in the country. We know that of those at least 78.5% are employed – which is 188 million. Thus, at its maximum, there are only 51 million people who could be looking for work. But we know that many are not because of ill-health, or simply choice. According to the Labor Department, there are about 5 million people looking for work in the U.S. at this time, which is just about the same number of job openings.
It’s time to get over the constant complaining about a job shortage. And here’s what this means for you:
1. After a long decade of stagnation, we can expect everyone to receive higher pay.
2. Job mobility will improve. If you don’t like your current job you can probably find another one.
3. Employers will have to stop burning out employees and do more to keep them as unemployment rates decline.
4. Immigration will be less of an issue, because America will need people to fill jobs (many employers are already complaining about changes to H1-B visa rules).
5. Employers will pay more for employee training and retraining.
6. People 30 and younger have struggled to build careers and start families during the recovery. Expect that situation to reverse.
7. More jobs, more money, a faster growing economy is better for tax receipts. This will relieve stress on government budgets.
8. Higher real estate prices. Some markets are already back to pre-recession levels, yet others have languished. Expect across the board increases.
9. Interest rates will go up (from record lows). Lock-in your mortgage now. Adjust your portfolio from bonds to stocks.
10. Expect the dollar to remain strong, so imports will be cheap and exporting will continue to be more difficult. It’s a good time to visit foreign destinations, and it will be a struggle to attract international tourists.
Look beyond short-term numbers. Month-to-month, even quarter-to-quarter, numbers often yield little analytical value. Look at the long-term trend. Then make sure you, and your business, are ready. Don’t keep fighting the last war, prepare to capture the next opportunity.
by Adam Hartung | Feb 3, 2011 | Defend & Extend, eBooks, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Openness
Summary:
- Company size is irrelevant to job creation
- New jobs are created by starting new businesses that create new demand
- Most leaders behave defensively, trying to preserve the old business
- But success comes from acting like a start-up and creating new opportunities
- Companies need to do more future-based planning that can change the competitive landscape and generate more growth, jobs and higher rates of return
A trio of economists just published "Who Creates Jobs? Small vs. Large vs. Young" at the National Bureau of Economic Research. For years businesspeople have said that the majority of jobs were created by small companies, therefore we should provide loans and other incentives for small business. At the same time, we all know that large companies employee millions of people, and therefore they have received benefits to keep their companies going even in tough times – like the recent bailouts of GM and Chrysler. But what these researchers discovered was that size was immaterial to job creation – and this ages-old debate is really irrelevant!
Digging deeper into the data, they discovered as reported in the New York Times, "To Create Jobs, Nurture Start-Ups." Regardless of size, most businesses over time get stuck defending their original success formula. What helped them initially grow becomes locked-in by behavioral norms, structural decision-making processes and a business model cost structure that may be tweaked, but rarely changed. Best practices serve to focus management on defending that business, even as market shifts lower the industry growth rate and profits. It doesn't take long before defensive tactics dominate, and as the leaders attempt to preserve historical practices there are no new jobs created. Usually quite the opposite happens as cost cutting dominates, leading to outsourcing and lay-offs reducing the workforce.
Look no further than most members of the Dow Jones Industrial Average to witness the lack of jobs created by older companies desperately trying to defend their historical business model. But what we've failed to realize is how the same management practices dominate small business as well! Most plumbing suppliers, window installers, insurance agencies, restaurants, car dealers, nurseries, tool rental shops, hair cutters and pet sitters spend all their time just trying to keep the business going. They look no further than what they did yesterday when making business decisions. Few think about growth, preferring instead to just keep the business the same – maybe by the owner/operator's father 3 decades ago! They don't create any new jobs, and are probably struggling to maintain existing employment as computers and other business aids reduce the need for labor – while competition keeps whacking away at historical margins.
So if you want to create jobs, throwing incentives at General Electric, General Motors or General Dynamics is not likely to get you very far. And asking the leaders of those companies what it takes to get them to create jobs is a wasted conversation. They don't know, and haven't really thought about the question. Leaders of almost all big organizations are just trying to make next quarter's profit projection any way they can – and that doesn't involve new hiring. After a lifetime of cutting costs and preservation behavior, how is Jeffrey Immelt of GE supposed to know anything about creating new businesses which leads to job creation?
Nor is offering loans or grants to the millions of existing small businesses who are just trying to keep the joint running going to make any difference. Their psychology is not about offering new products or services, and banks sure don't want to take the risk of investing in new experimental behaviors. They have little, if any, interest in figuring out how to grow when most of their attention is trying to preserve the storefront in the face of new competitors on-line, or from India, China or Vietnam!
To create jobs you have to focus on growth – not defense. And that takes an entirely different way of thinking. Instead of thinking about the past you have to be obsessive about the future, and how you can do things differently! Most of the time, business leaders don't think this way until their backs are up against the wall, looking at potential failure! For example, how Mr. Gerstner turned around IBM when he moved the company away from mainframe obsession and pointed the company toward services. Or when Steve Jobs redirected Apple away from its Mac obsession and pushed the company into new markets for music/entertainment and smartphones. Unfortunately, these stories are so rare that we tend to use them for a decade (or even 2 decades)!
For years Cisco said it would obsolete its own products, and by implementing that direction Cisco has grown year after year in the tech world, where flame-outs abound (just look at what happened to Sun Microsystems, Silicon Graphics, AOL and rapidly Yahoo!) Look at how Netflix has pushed Blockbuster aside by expanding its business from snail-mail to downloads. Or how Amazon.com has found explosive growth by changing the way we read books, now selling more Kindle products than printed. Rather than thinking about how each could do more of what they always did, fearing cannibalization of the "core business," they are aiding destruction of their historical business by implementing the newest technology and solution before some start-up beats them to the punch!
As you enter 2011 and prepare for 2012, is your planning based upon doing more of what your business has always done? A start up has no last year, so its planning is based entirely on views of the future. Are you fixated on improving your operations? A start up has no operations, so it is fixated on competitors to figure out how it can meet market needs better, and use "fringe" solutions in new ways that competitors have not yet adopted. Are you hoping that market shifts slow, or stop, so revenue, market share and profit slides abate? A start up is looking for ways to disrupt the marketplace to it can grab high growth from existing solutions while generating new demand by meeting unmet needs. Are you trying to preserve resources in order to defend your business from competitors? A start up is looking for places to experiment with new solutions and figure out how to change the competitive landscape while growing revenues and profits.
If you want to thrive you have to grow. To grow, you have to think young! Be willing to plan for the future, like Apple did when it moved into new markets for music downloads. Be willing to find competitive holes and fill them with new technology, like Netflix. Don't fear market changes – create them like Cisco does with new solutions that obsolete previous generations. And keep testing new ways to expand the market, even as you see intense competition in historical markets being attacked by new competitors. That is the only way to create value, and generate new jobs!
by Adam Hartung | Jan 27, 2011 | Current Affairs, Innovation, Leadership, Lock-in, Science, Web/Tech
Summary:
- The President has called for more innovation in America
- But American business management doesn’t know how to be innovative
- Business leaders focus on efficiency, not innovation
- America has no inherent advantage in innovation
- To increase innovation we need a change in incentives, to favor innovation over efficiency and traditional brick-and-mortar investments
- We need to highlight leaders that have demonstrated the ability to create jobs in the information economy, not the “old guard” just because they run big, but floundering, companies
It was good to hear the U.S. President call for more innovation in his State of the Union address this week. And it sounded like he wants most of that to come from business, rather than government. But I’m reminded the President is a lawyer and politician. As a businessman, well, let’s say he’s a bit naive. Most businesses don’t have a clue how to be innovative, as Forbes pointed out in November, 2009 in “Why the Pursuit of Innovation Usually Fails.”
Businesses by and large are not designed to be innovative. Modern management theory, going back to the days of Frederick Taylor, has been dominated by efficiency. For the last decade businesses have reacted to global competitive forces by seeking additional efficiency. Thus the offshoring movement for information technology and manufacturing eliminated millions of American jobs driving unemployment to double digits, and undermines new job creation keeping unemployment stubbornly high.
It is not surprising business leaders avoid innovation, when the august Wall Street Journal headlines on January 20 “In Race to Market, It Pays to Be Latecomer.” Citing a number of innovator failures, including automobiles, browsers and small computers, the journal concludes that it is smarter business to not innovate. Rather leaders should wait, let someone else innovate and then hope they can take the idea and make something of it down the road. Not a ringing pledge for how good management supports the innovation agenda!
The professors cited in the Journal article take a fairly common point of view. Because innovators fail, don’t be one. Lower your risk, come in later, hope you can catch the market at a future time. It’s easy to see in hindsight how innovators fail, so why take the risk? Keep your eyes on being efficient – and innovation is anything but efficient! Because most businesspeople don’t understand how to manage innovation, don’t try.
As discussed in my last blog, about Sara Lee, executives, managers and investors have come to believe that cost cutting, and striving for more efficiency, is the solution for most business problems. According to the Washington Post, “Immelt To Head New Advisory Board on Job Creation.” The President appointed the GE Chairman to this highly visible position, yet Mr. Immelt has spent most of the last decade shrinking GE, and pushing jobs offshore, rather than growing the company – especially domestically. Gone are several GE businesses created in the 1990s – including the recent spin out of NBC to Comcast. It’s ironic that the President would appoint someone who has overseen downsizings and offshoring to this position, instead of someone who has demonstrated the ability to create jobs over the last decade.
As one can easily imagine, efficiency is not the handmaiden of innovation. To the contrary, as we build organizations the desire for efficiency and “professional management” impedes innovation. According to Portfolio.com in “Can Google Be Entrepreneurial” even Google, a leading technology company with such exciting new products as Android and Chrome, has replaced its CEO Eric Schmidt with founder Larry Page in order to more effectively manage innovation. The contention is that the 55 year old professional manager Schmidt created innovation barriers. If a company as young and successful as Google struggles to innovate, one can only imagine the difficulties at traditional, aged American businesses!
While many will trumpet America’s leadership in all business categories, Forbes‘ Fred Allen is correct to challenge our thinking in “The Myth of American Superiority at Innovation.” For decades America’s “Myth of Efficiency” has pushed organizations to streamline, cutting anything that is not totally necessary to do what it historically did better, faster or cheaper. Innovation inside businesses was designed to improve existing processes, usually cutting cost and jobs, not create new markets with high growth that creates jobs and economic growth. Most executives would 10x rather see a plan to cut costs saving “hard dollars” in the supply chain, or sales and marketing, than something involving new product introduction into new markets where they have to deal with “unknowns.” Where our superiority in innovation originates, if at all, is unclear.
Lawyers are not historically known for their creativity. Hours spent studying precedent doesn’t often free the mind to “think outside the box.” Business folks have their own “precedent managers” – internal experts who set themselves up intentionally to block experimentation and innovation in the name of lowering risk, being conservative and carefully managing the core business. To innovate most organizations will be forced to “Fire the Status Quo Police” as I called for last September here in Forbes. But that isn’t easy.
America can be very innovative. Just look at the leadership America exerts in all things “social media” – from Facebook to Groupon! And look at how adroitly Apple has turned around by moving beyond its roots in personal computing to success in music (iPod and iTunes), mobile telephony and data (iPhone) and mobile computing (iPad). Netflix has used a couple of rounds of innovation to unseat old leader Blockbuster! But Apple and Netflix are still the rarities – innovators amongst the hoards of myopic organizations still focused on optimization. Look no further than the problems Microsoft – a tech company – has had balancing its desire to maintain PC domination while ineffectively attempting to market innovation.
What America needs is less bully pulpit, and more action if you really want innovation Mr. President:
- Increase tax credits for R&D
- Increase tax deductions and credits for new product launches by expanding the definition of what constitutes R&D in the tax code
- Implement penalties on offshore outsourcing to discourage the efficiency focus and the chronic push to low-cost global resources
- Lower capital gains taxes to encourage wealth creation through new business creation
- Manage the deficit by implementing VAT (value added taxes) which add cost to supply chain transactions, thus lowering the value of “efficiency” moves
- Make it much easier for foreign graduate students in America to receive their green cards so we can keep them here and quit exporting some of the brightest innovators we develop to foreign countries
- Create more tax incentives for investing in high tech – from nanotech to biotech to infotech – and quit wasting money trying to favor investments in manufacturing. Provide accelerated or double deductions for buying lab equipment, and stretch out deductions for brick-and-mortar spending. Better yet, quit spending so much on road construction and simply give credits to people who buy lab equipment and other innovation tools.
- Propose regulations on executive compensation so leaders aren’t encouraged to undertake short-term cost cutting measures merely to prop up short-term profits at the expense of long-term viability
- Quit putting “old guard” leaders who have seen their companies do poorly in highly placed positions. Reach out to those who really understand the information economy to fill such positions – like Eric Schmidt from Google, or John Chambers at Cisco Systems.
- Reform the FDA so new bio-engineered solutions do not follow regulations based on 50 year old pharma technology and instead streamline go-to-market processes for new innovations
- Quit spending so much money on border fences, DEA crack-downs on marijuana users and giant defense projects. Put the money into grants for universities and entrepreneurs to create and implement innovation.
Mr. President,, don’t expect traditional business to do what it has not done for over a decade. If you want innovation, take actions that will create innovation. American business can do it, but it will take more than asking for it. it will take a change in incentives and management.
