Dan Erwin

Big Is Beautiful

Small business may be beautiful, but it’s neither productive nor prosperous.

I’ve been suspicious for years about the hullabaloo from both Republicans and Democrats that small businesses are the drivers of the economy. It has crossed my mind on numerous occasions that this is merely a political calculation. There are hundreds of thousands of small business owners and they vote for tax and business policy issues. Furthermore, the small business lobby is very powerful.

But if you’re an HR person, I suspect you know the truth. Big business is the driver of the American economy. Not small business.

Think about it. If you really want an HR job (or any other function) so that you can learn the business, your first stop is at a large firm. The majority of small firms don’t even have an HR position. The office admin takes care of those matters. Don’t be too quick to occupy Wall Street. Just make sure the government gets it under control. That is, if you want a growth opportunity in HR or most any other function, and your name is not Zuckerberg. So make certain your crap detector is working the next time you hear all the bullshit about small businesses from the politicos and us small business owners. This is not a simple, straightforward issue. It’s highly nuanced, covert and subtle politics. Better reframe your mindset about big business—and small business!

He didn’t lay out the statistics, but James Surowiecki added a lot of information to the subject in a recent article, beginning with the fact that Americans have always been ambivalent about big business. Take the grocery business. In the first 50 years of the 20^th century A & P was the biggest and most important chain store. My family like most, enjoyed the low prices. But those low prices came at a cost to the small grocer. Until 1936 and the Robinson-Patman Act, suppliers could offer chain stores better deals than other retailer. That congressional act made it impossible for suppliers to legally provide the chains with better deals. The result, of course, was that prices increased for the public at large. In other words, it wasn’t consumers the government was trying to protect—but small business.

The global meltdown has surfaced still another intriguing insight about small businesses. The developed countries with the highest percentage of workers employed by small business are Greece, Portugal, Spain and Italy. Guess whose economic woes are wreaking the most havoc on financial markets. And guess which countries have the lowest percentage of workers employed in small business—Germany, Sweden, Denmark, and the U.S.—some of the strongest economies in the world. This is an intriguing set of correlations.

In his article, Surowiecki ticked off the economic advantages of big companies:

• Significantly higher productivity growth
• Economies of scale and scope
• Ability to invest in productivity-enhancing technology
• R & D spending

It has been ever thus.

In a new book, Marc Levinson shows that A & P, like the future WalMart, was able to invest in its own warehouse-and-delivery system, improve inventory management and make the supply chain more efficient. All investments not possible for the small business.

So why do people like me go into business? Well, as a recent study by Erik Hurst and Benjamin Pugsley shows, we have no interest in becoming big-business owners or even in bringing a new idea to market. Instead, most of us simply want to run a small company, do work we enjoy and have control over our financial lives. In commenting on these small business ideologies, James Surowiecki concludes his article with this:

Those are admirable goals, but they’re not going to make companies more productive. And that matters, because greater productivity is the main driver of long-term economic growth and higher living standards. Because big companies are more productive, they offer workers, on average, better wages and benefits—or, as in the case of Walmart, they offer consumers significantly lower prices. And the impact of these things on living standards is not trivial. It’s hardly a coincidence that in the decades after the Second World War, when ordinary American workers became part of the middle class, very big companies employed a huge percentage of the workforce: in the early seventies, one in five non-farm workers worked for a Fortune 500 company. Small may be beautiful. It’s just not all that prosperous.

And in a parting shot, Felix Salmon says it’s start-ups that create jobs and that the lionization of small businesses is “unhelpful.”

Quotation of the Week: President Theodore Roosevelt

Far and away the best prize that life offers is the chance to work hard at work worth doing.

               --Teddy Roosevelt, Labor Day, September 7, 1903

As the latest Economist points out, the billions who seek that prize are finding both feast and famine.

Why is that true in the US? The consensus is that there are two causes: globalization and technology. But Michael Spencer, the Nobel winner, argues, rightly, that globalization is the more potent cause.

Tyler Cowen, the economist and compulsive blogger, also agrees, but adds a different twist in his book, The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will Eventually Feel Better. (The title is classic Cowen.) Cowen argues that for much of our history, we enjoyed the benefits of free land, immigrant labor and powerful new technologies. Those advantages have faded, and now we need to start over again. In the meantime, there are winners and plenty of losers. And some of the problem is not fixable.

What do we do in the meantime?

The Economist answers that question with the obvious.  Lowering this new natural rate of unemployment will require structural reforms, such as changing education to ensure that people enter work equipped with the sort of skills firms are willing to fight over, adjusting the tax system and modernising the welfare safety net, and more broadly creating a climate conducive to entrepreneurship and innovation. None of these reforms is easy, and all will take time to produce results, but governments around the world should press ahead with them.

[I’ll add a not-too-welcome caveat. When voting time comes this means that you’d better make certain that jobs and education (a sub-topic of jobs) are a higher priority than fixing the deficit today. The deficit needs to be fixed, but it doesn’t have to be fixed today. On that, ninety-percent of those in the know are agreed. Too often fixing the deficit is more an ideological issue of downsizing government than taking care of our own backyard.]

What do we need to do for our careers?

Education and learning are an inevitable prerequisite for success and security. Or, as Laura Pappano has argued in a summary: The Master's as the new Bachelor's. Nearly 2 in 25 people age 25 and over have a master’s degree. That’s about the same proportion that had a bachelor’s in 1960. That’s not just the MBA, but includes such degrees as the M.S. in supply chain management, the M.S. in technology and etc. 

In her research she finds that the degree of the moment is the professional science master’s, or P.S.M., combining job-specific training with business skills. Where only a handful of programs existed a few years ago, there are now 239, with scores in development. Florida’s university system, for example, plans 28 by 2013, clustered in areas integral to the state’s economy, including simulation (yes, like Disney, but applied to fields like medicine and defense). And there could be many more, says Patricia J. Bishop, vice provost and dean of graduate studies at the University of Central Florida. “Who knows when we’ll be done?”

All of this means that your kids should do at least one of two things: go to an elite college where the major doesn’t matter (liberal arts, including the humanities are just as marketable from those schools), or major in one of the STEM areas (science, technology, engineering and math).

Although I’ve always thought that Teddy Roosevelt was the first master of spin, I started this blog with his statement because it is just as relevant today. For fun, Mark Twain once grumbled that Teddy Roosevelt, “would go to Halifax (that century’s Timbuktu) for half a chance to show off” and “to hell for a whole one.” Still, Roosevelt’s comment couldn’t be more prescient.

Have You Been Given an "Invisible Promotion?"

By that I mean have you been given more assignments and and wider responsibilities, along with an additional number of reports, all without a significant raise or formal promotion?  That's the focus of an intriguing and spot-on article in the February issue of Fortune Magazine. 

With unemployment at an all-time high, you may feel fortunate to still have a job after all the lay-offs.  But with that staff shrinkage many firms have brought a piling-on of responsibilities to an all-time high.  Sure, you remind yourself, productivity is high--but so is unemployment. 

So what can you do when you find yourself more and more in the throes of an "invisible promotion," and dealing with a lot of unwanted stress?  It is quite possible to make that extra work work for your career in the long run. The article in Fortune (see link above) makes a number of useful suggestions. 

Unemployment Claims DOWN for the Week Ending November 20

To the great surprise of nearly everyone in government and economics, initial unemployment claims went way down last week.  The adjusted figure was 407,000.  That's a whopping 34,000 fewer than the previous week.  There were 542,492 initial claims in the comparable week in 2009.  Now that's significant.

Typically, I would be skeptical of these figures this time of the year, considering them to be a response to holiday hiring.  But most importantly, the Department of Labor said nothing about the typical Thanksgiving/Christmas holiday.  Instead, it looks as though many firms are cutting back on layoffs.  That's real good news.

Again, it's important not to pay too much attention to a single week.  So it's appropriate to be cautious about those figures for several more weeks.  Remember from previous analyses that Mark Zandi is probably the best predictor (along with Larry Summers) of the economy and has written on numerous occasions that initial unemployment claims is the best statistic for the state of the economy. 

Again, the statistical summary from Zandi can be interpreted in this fashion:  Only when claims head down to 400,000 will the economy be creating enough jobs to maintain stable unemployment.  Closer to 350,000 will lower the unemployment rate and mean that the recovery is evolving into an expansion.  When we get to initial weekly unemployment claims of 300,000, boom times are back.

 

However, I've also noticed that there is an emerging consensus on the part of most of the leading economists of all stripes that by the middle of next year the economy should be on the way upward. 

One of the more intriguing insights I've gained over the past couple weeks is that economies that are doing well, especially Germany and China, build their domestic product out of exports.  In striking contrast, the U.S. economy builds its domestic product out of internal consumerism.  If you've got more insight on that issue, I'd appreciate your comment, and even some references.

There is also an exceedingly thoughtful article in the latest Fortune  on the highly influential Jim Chanos--the guy who called the Enron bust early on--who's betting that China's economy is about to implode in a spectacular real estate bust.  Although emotionally, there are a few who'd like to see China slow down, or even fail, a real estate bust and its aftermath would hurt a lot more than the Chinese.

Whatever, the economic news ought to support Thanksgiving shopping and make for a Merry Christmas for all.

Jobs Growth for October is Surprisingly Good, But "Not Good Enough."

Job growth accelerated in October to 151,000, largely in the private sector.  That's always good news.  Still, the unemployment rate remained at 9.6%.  This is the third month in a row showing some growth and slowly evolving strength.  Of course, the stock market, as usual, is ahead of jobs growth. 

But once more, how do you make sense of the jobs growth and unemployment claims?   The 4-week moving average was 456,000, an increase of 2,000 from the previous week's revised average of 454,000.  With those figures, it's obvious that the jobs growth is not good enough. 

Mark Zandi, who, aside from Larry Summers (I know some of you don't trust Summers, but in a study of accurate predictions by economists, Zandi and Summers continually lead the pack) tends to be the most the most astute and trustworthy economist today.  He understands that jobs are the biggest issue to most people.  So once more here's the interpretation of unemployment claims for filing away in your gray matter.

Zandi says that the most accurate and timely barometer of jobs and the economy is initial claims for unemployment insurance, a figure that's released every Thursday morning by the Labor Department.  You can get the information from the labor department here.   This indicator measures the number of people who go to unemployment offices and announce that they are out of work.

According to Zandi, here's how to make sense of the numbers.  Only when claims head down to 400,000 will the economy be creating enough jobs to maintain stable unemployment.  Closer to 350,000 will lower the unemployment rate and mean that the recovery is evolving into an expansion.  When we get to initial weekly unemployment claims of 300,000, boom times are back.

All of this is to say that it's the economy, stupid!

Jobless Claims Decline, But Financial Firms and United Health Care Make Huge Profits

The Labor Department said in its weekly report this morning that initial claims for jobless benefits fell by 24,000 to 456,000 in the week ended April 17. The drop was in line with the expectations of economists surveyed by Dow Jones Newswires. 

The levels still aren't low enough to be consistent with an improving job market, although the Labor Department's March report showed that jobs were being created.  Overall unemployment remains at 9.7%. 

In spite of the current job creation, economists believe that it will still take time to see an improved labor market.  Federal Reserve Governor Elizabeth Duke, said it will take "sustained, robust job growth for some time" to help repair the damage from the 8 million jobs that were lost in the past three years."

President Obama's speech to Wall Street ought to have some strong language for the financial market this morning.  The monstrous profits of Goldman Sachs and Citicorp will not be viewed positively by the public, and will provide significant fodder for congress to put financial reforms in place.

This morning's Minneapolis Star Tribune reported that Minnesota's United Health Group, the largest health insurer, by revenue, in the nation reported net income of $1.19 billion for the three months ended March 31.  David Heupel, the portfolio manager with Thrivent Asset Management in Minneapolis summarized the company's good earnings in the eyes of regulators:  "If you ever want to pour gas on the flame, United maybe just did."  The quarter may have been too good in the eyes of the regulators.  Just more reason to support health care regulations.

Why Does the Job Market Still Look So Bleak? What Will It Take To Succeed?

In my recent post on unemployment claims, I noted that 160,000 new jobs were added last week but that nearly 50,000 were part-time census takers.  Nothing to write home about.  In an article from this morning's Wall Street Journal, Robert Reich, the well-known labor expert from Clinton's administration, said that it takes more than 150,000 new jobs just to keep up the growth of the U.S. population. 

 Unemployment claims have been hovering around 440,000 per week for the last few months, not a hemorrhage, but still not at the 380,000 to 400,000 that would be a sign that the economy is creating enough jobs to maintain stable unemployment.  We'll have to get down to 350,000 to actually have a genuine recovery and more like 300,000 claims per week to have boom times back. 

Reich argues that it may take five to eight years to catch up, predicating his ideas on a number of issues:

1. The number of underemployed or unemployed is in the neighborhood of 11,000,000.
2. Consumers have been shedding debts, often by defaulting on loans.  Debt still averages nearly $45,000 per American, or about 122% of disposable income.  Reich suggests that most analysts believe a "sustainable" debt load is around 100% of disposable income.
3. The richest 10% of Americans accounted for half of total national income in 2007, but they only accounted for 40% of total spending. 
4. It's likely that many job losses will never return.  Cost-cutting moves by American companies, built on software, robotics and foreign labor support that structural change.

So what does all this mean?  The only way the jobless will retain their jobs is by settling for much lower wages and benefits.  The example Reich gives is of Ford Motor which added 1,200 jobs in Chicago, but those workers were hired at one-half the salary and benefits of what current workers were paid when they began their jobs. 

There's another issue beyond settling for lower wages and benefits.  It's obvious, based on the unemployment statistics: 

• unemployed workers with college degrees--5%
• unemployed workers with only a high school diploma--10.5%
• unemployed workers lacking a high school diploma--15.6%

What security you're able to gain will be enhanced by a college degree.  Although a degree is not a guarantee, it is the union card for the 21st century.  And if you already have a degree, I'd start thinking about how to gain a graduate degree. The graduate degree has paid phenomenal dividends for myself and all three of our daughters.  All three have created a niche for themselves, have developed large networks and stay on top of their relevant industries to see what's coming and make changes for themselves. 

The cost of education will require sacrifices for many.  But them's the facts!

Think also, about this.  I've seen families go way overboard in sports for their kids, missing and avoiding the opportunities for academics.  Instead of getting caught in that dead-end treadmill, teach your kids to use sports for maintaining fitness, and nothing else.  Thinking you're going to have a wealthy sports jock, a beauty queen for the movies, or a wealthy musician is a rejection of the statistics.  Those fields are so competitive as to be a dead-end.  Be sure your passion is highly realistic. 

Here's what I recommend to middle-class dads (and moms, too).  Learn to talk to your kid about something other than sports.  There'll be more than enough sports idiocy in grade school and high school.  Limit the tube and the computer.  Take him/her to museums, check out books from the library with them, and learn to enjoy science displays and exhibits.  Emphasize subjects in this order:  math, science, the humanities, and then the behavioral sciences, and help them learn how to ask questions, communicate and WRITE.  I'd bet that fewer than 30% of business people can write a sensible paragraph without typos and misspelling.  That shouts out loud for the better recruiters.  Finally, teach your kids how to do things that neither they (nor you) necessarily like to do.

And if you're really fortunate, your kid will say what my 14 year-old grandson said about the book, Lies my teacher taught me:  "It's filled with cool facts!"

WSJ article:  The Jobs Picture Still Looks Bleak, Robert Reich.

Will Your Credit History Impact Your Job Opportunities?

Many firms are using credit checks as a means of weeding out potential problem employees (translate that, thieves).  Of course, the major credit bureaus are selling credit histories as a profit center, arguing that the use of credit checks should be a major part of the hiring process.

The article by the Times' Andrew Martin says that retailers lose more than $30 billion per year because of employee theft, and that workplace violence costs employers more than $55 million per year in lost wages.

The problem, however, is that there is no supporting evidence for the credit bureaus' argument.  There is no indication that poor credit history is tied to subpar workers.  There is no research demonstrating a statistical correlation between credit histories and "job performance and the likelihood to commit fraud."  And as the writer noted, Bernie Madoff had a fine credit history. 

What's really frustrating is that as a result of the Great Recession millions of Americans are nursing a poor credit history.  It unfairly tars people who have been laid off, caught with unpaid mortgages and medical bills.  As a result many states are introducing legislation to stop the credit bureaus.  Business, of course, is fighting back, hoping to keep the profit center. 

What's a person to do?  This is a tough one.  You don't want to talk about a poor credit history and explain it.  Nor do you want to fudge your job application.  That's even more serious.  If you've been hired and then someone comes to you wanting you to explain, that's one thing.  But those situations are few in number.  It's also very difficult to prove that you were turned down from a job opportunity because of a poor credit history.

Forewarned is forearmed.  Anybody got any good ideas about how to deal with this issue?

Initial Unemployment Claims Up for Week Ending April 3

The Department of Labor reported the following stats for the week ending April 3:  seasonally adjusted initial claims were 460,000, an increase of 18,000 from the previous week's revised figure of 442,000. The 4-week moving average was 450,250, an increase of 2,250 from the previous week's revised average of 448,000.

As I've stated in past reports, don't pay much attention to a single week.  Historically, the week before Easter and the two weeks following have more volatile changes.  Economists say that figures in the low 400s indicate that the economy is neither getting much better or much worse.

A lot was written about the 160,000 new jobs that were added in March, however, 48,000 of those jobs were temporary workers for the 2010 census.

The most significant news came from the Business Roundtable.  For the first time in two years, more CEOs expect to be adding jobs rather than cutting jobs.  A survey of these CEOs of big U.S. companies, says that 29% of chief executives expect to increase corporate payrolls over the next six months, while 21% predict that the workforces will shrink.  Half see no change in jobs.  That's the first time since the first quarter of 2008 that more CEOs have expected to increase jobs rather than shrink them.

How Happy Are You With Your Job? Don't Make a Lousy Choice.

Whether you're a Gen-Yer or even a Boomer, Americans continue to grow increasingly unhappy at work.  A January press release from the Conference Board surveyed 5,000 U.S. households and finds that only 45% of those surveyed say they're satisfied with their jobs.  That's down from 61% in 1987, the first year in which the survey was conducted.  While one in 10 Americans is now unemployed, their working compatriots continue to grow increasingly unhappy.

The report on job satisfaction between 1987 and 2009 covers numerous categories including interest in work, job security, job design, organizational health, managerial quality and extrinsic rewards.  In fact, 22% of those surveyed don't expect to be in their current job in a year.  That's not primarily about being laid-off, but simply an issue of increasing dissatisfaction.

In extensive research summarized by Jeff Pfeffer of Stanford, Pfeffer emphasized that companies and their management practices have profound effects on human beings and their relationships.  And, he went on to conclude, the evidence suggests that in many instances the these effects are more pervasive and more harmful than the effects on the physical environment.  Among the issues described were lack of sick leave, little to no vacation time, workplace bullying, long work hours, as well as lack of health coverage or retirement assistance.  On the flip side, the evidence on the connection between bulding humane work places and corporate performance is voluminous. 

If you work in an unsatisfactory setting, you'll be looking for a new job as soon as the economy begins to turn up.  Make your choice of a new job very carefully.  Any kind of job change will cause all kinds of internal challenges.  It's not just the learning curve, the different managers, the change in organizational culture and expectations, it's also all the new organizational "rules," the adjustments to corporate "politics," having to navigate unclear expectations and learn the new organizational jargon.

Harvard's Boris Groysberg surveyed numerous execs and found common missteps.  Although the article is written to execs, all of his conclusions apply to any job change.  Here's a quick summary of three of Groysberg's warnings:

1. Failing to do enough research.  Study the firm with as much thoroughness as buying a block of stocks, a new car or a new house.
2. Focusing excessively on the money.  Sometimes the need for more cash overrides your analysis of the job opportunity and the organization.
3. Thinking short term.  Look beyond the immediate opportunity to what the future might hold.

If you're giving serious thought to this issue, it's worth putting out the $6.50 for a download from Harvard Business Review for Five Ways to Bungle a Job Change .