Reflecting on a Job Market – Employee and Employer

To gain significant wealth in the US you have to take significant risk. Usually that means starting your own business or being on the ground floor with someone who is. The individuals who put their neck on the line deserve the spoils of that risk. The last three years proves the fittest survives in business.

We can somewhat reflect now. The once in a generation economy is behind us, so it’s time to see what the new world looks like. It’s lean and flexible. But a chasm is growing between the employer and the employees. Here are some stats from a Mercer survey I read about by Ben Rooney on CNNMoney called  Half of Workers Unhappy in their Jobs:

  • 32% of US workers are seriously considering leaving their job. Up from 23% in 2005.
  • Of the age group 25-34, 40% are seriously considering leaving. Within that number is 44% of employees who are 24 and younger. The cheap labor is ready to bolt.
  • And more alarming, 56% of senior managers are considering leaving. This compares to 34% of managers and 30% of non-managers. The experienced are also looking to jump to other opportunities.
  • A slightly different take, but 21% have disengaged from their employer, meaning they are not looking for a new job, but they are apathetic toward their current one. This could be burn out and it could mean the productivity gains via personnel has reached it’s limit.

Workers are getting disenfranchised by the circumstances of their employment. In addition to that, there are business owners who have moved away from the proper perspective. They’ve had leverage for over three years. Chances are they laid off some people. Those that remain should have a debt of gratitude. It could be worse.

The business owner who has survived is entitled to some fun, but they need to realize no one does it alone. I was out to dinner with a friend in the industrial fabrication and installation field of work. He had an exchange with his boss similar to the one in the movie below. I embellished it for effect, but much of this exchange is true, particularly the part about the water skis
http://www.xtranormal.com/watch/12155321/a-resignation-story

6.5 Graphs Outlining the US Economy

I’m in a room that’s 8 feet by 10 feet. It’s just me. There’s a small box playing loops of TV shows, but I’m ignoring it. The temperature is 95 degrees but its cold in here. And I have a lot to think about.

I know I’m going to pay for it. Situations like this require penance and it’s going to cost me. It’s part of life though and inevitably I’ll be back.

The bill was a shade under $200. Frankly it could have been a lot worse. My car hasn’t been serviced in a year; it needed an oil change, inspection, tire rotation, and the radiator hose had a hole in it. I paid for the car, but I got time to think.

This cycle of activity drove me to consider the business cycle. It normally looks like a sound wave with peaks (good times) and valleys (recessions).

Are we still in a recession? Are we in an initial recovery? Maybe even an early upswing? Chris Stuart wondered the same thing in his write up Why We’re At The Early Upswing Stage In The Business Cycle.

I predicted the recession after observing a lack of income appreciation and buying patterns changing in October 2007 and although this is a classic supply and demand cycle where aggregate demand is lacking it feels more structural. Structural means the skills needed in the employment arena are lacking in the environment, so a transitional period of training is required. Instead of a sudden shift in skills we have an elongated one. Globalization dramatically changed supply chains and created liquidity in the job market. Goods producing jobs like manufacturing are now feasible almost anywhere. And the education advantage of the US is no longer prevalent.

This is forcing the US to consider it’s jobs strategy, or at least create one in the first place. Many of the assumptions about the viability of the US worker are no longer true. And think about the US consumer. Will they always buy? Like an alarm clock introducing the morning, the US worker and US consumer realized better days are not guaranteed. People are starting to slowly de-leverage. It’s a huge adjustment in the way people live their lives and it will take time. The debt burden is simply too great.

So if this cycle is a classic supply and demand recession and the US consumer isn’t going to buy (low demand) then isn’t this going to take awhile? Yes, the rest of 2011 and 2012.

Here’s my outline of the timescale:

Jobs will be tepid but consistent for the rest of the year and next. Companies large and small are getting creative with their resources. Many are investing in equipment rather than people (you don’t need to buy health insurance for an industrial printer), but the gains will be positive. There is no double dip recession.

The best workers are beginning to jump to other opportunities. They’ve installed micro-innovations for their current employers, but since volume has been low these improvements haven’t knocked anyone’s socks off. But they will.

So after a period of discipline, brighter days are ahead.

——–

I wanted to pull together some graphs showing what’s happened since the beginning of 2008. Below are four time-scaled illustrations showing the situation with jobs.

  1. The first one is the overall jobs report. It shows how far we have to go to balance out the lost jobs.
  2. The second one is a growth rate of jobs for the private sector as they relate to Service Producing and Goods Producing industries. Goods Producing encapsulates manufacturing and construction, two of the harder hit industries. 
  3. Since the ratio of Service Providing jobs and Goods Producing jobs is 5 to 1, I wanted to show the relative impact and that is what the third graph depicts.
  4. The last one the Dow Jones during the same period. It’s the index that most people focus on as a reflection of the stock market.

Lastly, Wired did some research with Linkedin.com about what terms people were using in their titles after they changed jobs. The results below reflect a pool of 7 million linkedin users and a good indication of what jobs are in need in this day in age. But remember, people still need an oil change.

Working Thoughts 6/15/2010
We Respond To Cues Very Effectively

Working Thoughts 6/15/2009
Resilient Attitudes are Rare

Huge Layoffs and What They Mean

I got a great email from Rose King of Accountingdegree.com the other day. She shared with me a blog entry they authored about 13 Huge Layoffs. Below is an excerpt from it.

I’ve always been fascinated by layoff announcements. Not in a positive way, but in a curious way. It prompts questions about what went so wrong? I tend to group these reductions in one of two ways.
– The first is as a communication to their shareholders that they are working to reduce the imbalance built up in the cost structure. Usually, this is when the number of people is very high. A classic example is when orders have fallen off over an extended period and the company needs to face the music.
– The other is when the bottom line is going to be missed and the executives need to find a few million dollars. Usually this isn’t a high number, but rather its individuals with high compensation.

But both are an admission that the strategy isn’t panning out. The company should state what is changing in their business plan or their focus. Is the product portfolio no longer innovative? Can extraneous business units be sold off? and so on.

The sports fan in me is wondering when we’re going to hear about mass layoffs by the NFL? I guess pay cuts have already begun.

The other aspect of this blog entry that grabbed my attention is how most of these are fairly recent (within the last decade).

These days, many Americans are suffering at the hands of layoffs,
but mass job cuts are hardly a new thing. Often a result of new
efficiency or simply running low on cash, thousands of employees can be cut at a time. Here we’ll take a look at 13 massive layoffs in American history.

  1. Intel:
    In 2006, Intel announced a major restructuring that included the layoff
    of 9,500 employees, and an additional 1,000 managerial jobs. Then in
    2009, Intel closed chip plants, resulting in up to 6,000 layoffs.
  2. Microsoft:
    In its then-34th year of business without mass layoffs, Microsoft cut
    an initial 5,000 jobs, and even more by the end of 2009. The layoffs
    came in response to a major loss in profits and a need to reduce
    operating expenses and capital expenditures.
  3. Airlines:
  4. Citigroup:
    In 2008, Citigroup laid off 52,000 employees, making up for massive
    write-downs. The number of jobs cut by Citi is about the same as the
    total amount of cuts in the entire US financial services industry in
    2006. As New York City’s second largest private employer, Citi’s
    layoffs had a major impact on the city, as well as Citi stock.
  5. Merck:
  6. Dow Chemical:
  7. US Postal Service:
    The public workforce is not immune to layoffs, as evidenced by the USPS
    cut of 7,500 administrative positions. This cut impacted 2,000
    postmasters, which will likely mean closing the post offices they
    operate.
  8. HP:
    After an acquisition of Electronic Data Systems Corp, HP cut 7.5% of
    its workforces fo realize savings. That amounted to a cut of 24,600
    jobs over three years. Additionally, HP announced plans to spend $1
    billion and cut 9,000 jobs over three years to move to fully automated
    commercial data centers, with job cuts stemming from automation and
    productivity gains.
  9. Borders:
    The popular bookstore Borders announced plans to close 200 of 488
    superstores as part of a bankruptcy protection filing. These closings
    resulting in the laying off of 6,000 employees out of 19,500.
  10. IBM:
    IBM made drastic new cuts in 1993, letting go of 35,000 jobs as part of
    an $8.9 billion program to cut costs. The company also let go of some
    factories and equipment, shuttering plants. The measure was applauded
    by investors, and was praised for being a clean, drastic cut, rather
    than dragging out painful layoffs over several years. Employees were
    given incentives to leave, and there was also an early retirement
    program to encourage a positive outcome for both employees and the
    company.
  11. NASA:
  12. Automakers:
  13. Pfizer:

Split Personalities – Tax Breadth and Tax Depth

We seem to have split personalities when it comes to the news and our politics. In the news we hear about natural disasters and the sour economy. In politics we hear about the failings of the President and the deficit. Why are these two voices talking about different subjects?

The truth is they are talking about the same problem, just different ends of it. The US is maturing. A large portion of the population is entering their retirement years. Every day, for the next 19 years, 10,000 baby boomers will turn 65. By 2030, 18% of the U.S. population will be over 65, compared with today’s 13%.

This is important for several reasons, but here are two:

  1. Federal tax collection is based on income. Those that are retired usually don’t make significant income, so the taxes they contribute are very low. A change or decrease of 5% is a huge impact to the revenue of the government. Or said another way, 10,000 people, who have a high average income, can drop out of the tax pool everyday.
  2. The baby boomers have been in leadership positions for two decades. The groups behind them, smaller in numbers, will need to fill the void.

The first reason is why you hear about Medicare and the budget. The second reason is why you hear about stimulus and silicon valley.

– When we talk about the deficit and paying down the debt we are talking about the inevitability of time. Our demographics show an aging population who will not be contributing to tax rolls. Less income means less spending. Tax Breadth.

– When we talk about innovation and stimulus spending we are pushing for investment and hopefully an improvement in future wealth and the standard of living. This would offset the loss of tax income from those no longer in the workforce. Tax Depth.

Both of these are concerns. I tend to be more transfixed with the latter. Many young professionals are either not entering the workforce or they are at compensation levels below the norm of 5 years ago. This lag in pay is not easily overcome and tends to persist for a career. Smaller income means smaller taxes paid. In addition to that, younger professionals are not moving into challenging roles as they would have in the past. Opportunities for learning experiences are reduced. Plus what they’ve been taught in school isn’t applicable e.g. China has changed dramatically since 2007, but the text books didn’t.

The 18% not in the workforce is unavoidable, but what should be asked is what’s to come of the under employed?

There will always be some number of the under employed, but we are currently looking at a devastating mix of long durations and loss of skills. The recession as it began in 2007 was a supply and demand recession, meaning nothing out of the ordinary occurred. But the last two years has led to a structural recession. This means that the skills and knowledge the US worker has isn’t quite matching up with what labor is needed. If this is more than a blip then high unemployment will continue for a few years as education and training requirements sort themselves out.

But I also feel like the 16-24 group, or more broadly the under 30 age group, is pioneering a new track. The way the view the world is much different than their older counterparts. As a consumer group they can influence the creation and offering of products and services. The next 24 months will be telling about the future of this country.

The Train with No Known Destination

Last week news broke of Eric Schmidt leaving the CEO post at Google. He’s replaced by Larry Page. Speculation is that Schmidt no longer felt he was in control of the company. The triumvirate of Sergey Brin, Larry Page, and Eric Schmidt had become a duopoly of Brin and Page, the founders. The genesis of their relationship is rooted in the need for someone who knew how to run a big company – Schmidt. Around 2000 when Google was  preparing to go public it was growing at an immense rate. The size of the company had surpassed the experience level of 20 somethings. The founders would concentrate on a start up atmosphere of constant disruption. Disruption is where money is made.

At some point, every successful company grows out of it’s novelty state. The disruption becomes the norm. Competitors look for weakness and stagnant ideas. Being a perpetual start up is the dream of people like Brin and Page. But how do you do it?

Intelligent continual employee turnover.

The enterprise must become a train with no known destination, just stops letting people get on and get off. When the enterprise becomes “the destination” then protection ensues. People can be very good at their jobs, but if they are doing the same thing for more than three years then you have to wonder why? Why isn’t the job evolving? Why isn’t it automated? Why is it needed?

Many large companies, including Google, want to be smaller. Being nimble is key. But wanting a start up mentality and structurally building it in to the culture is not the same. There are a lot of tough conversations to be had. For instance, Netflix has a running practice of “adequate performance gets a generous severance package” and they apply a keeper test which is pretty simple: which people would you fight to keep, at any cost, if they told you they were leaving in two months? This is supplemented by honest conversations about the employee’s commitment and ability to deliver. No surprises.

The NY Times in their weekly section called The Corner Office interviewed Jeremy Allaire, chairman and chief executive of Brightcove. He talked about his conversations with his work force. He said he asks them “What are you trying to do? Where are you trying to head?” This survey reinforces the need to be ever improving.

When the culture of the company is to evolve the job, to morph it, to leave it, or to destroy it (automate) then, as an employee, you know when it’s time for a change. Just ask Google.

Value Creator – CEOs

Chief Executive Magazine and chiefexecutive.net are running the third annual list of CEOs that are value creators and value destroyers . The standard measurement of a CEO doing well is the stock price, but there are influences on a stock price that may or may not happen. For instance Apple’s stock price barely budged when news broke that the iPhone was going to be offered on the Verizon network. The stock didn’t move because it was already priced in – investors expected it.

The measurement Chief Executive Magazine uses is:

Economic Margin (EM) is calculated as (operating cash flow – capital charge)/invested capital. Companies with positive EM (greater than 0 percent) are creating wealth; those with negative EM are destroying it.

Here’s a portion of the list :

Top 10

Overall Ranking ’09 Rank Change from ’09 Rank MVIC 3 Yr. EM EM Change Management Quality Score Company CEO CEO Last Name
1     A A A A Priceline.com Jeffery H. Boyd Boyd
2 23 21 A A A A AFLAC Daniel P. Amos Amos
3 2 -1 A A A A Federated Investors J. Christopher Donahue Donahue
4 35 31 A A A A Apple Steven P. Jobs Jobs
5 4 -1 A A B A Amazon.com Jeffrey P. Bezos Bezos
6     A A B A Colgate-Palmolive Ian M. Cook Cook
7 7   A B A A Ecolab Douglas M. Baker, Jr. Baker
8     A A A A DeVry Daniel Hamburger Hamburger
9 40 31 A A B A Fastenal Willard D. Oberton Oberton
10 6 -4 A A C A C.H. Robinson Worldwide John P. Wiehoff Wiehoff

Scared of Ideas or Open to Change?

He hears the alarm clock, hits snooze, and lays there for ten minutes somewhere between sleep and awake. “In the Hall of the Mountain King” by Edvard Grieg plays:

He does what I think is one of the hardest things in the world to do, he puts the first foot on the floor in the morning. He goes to the bathroom, runs the shower, and peers into the mirror. Everyday its the same. Same time, same song, same struggle. Everyday.

Routines are good for many aspects of our lives. We need to focus on what is different in our environment and routines keep us safe to do so. But the comfort of a routine can be disabling as well. For instance, there’s a field of study called Terror Management Theory and it describes what people do to repress an awareness of mortality. Here’s an excerpt from HarvardBusinessReview.com called Employees See Death When You Change Their Routines which enumerates three means for warding off these thoughts:

Studies show that we create three existential buffers to protect us from this knowledge: Consistency allows us to see the world as orderly, predictable, familiar, and safe. Standards of justice allow us to establish and enforce a code of what’s good and fair. Culture imbues us with the sense that we have contributed to, and are participating in, a larger and enduring system of beliefs.

As a manager it’s important to know which of your employees are lulled into this perceived safe zone and will need some coaxing when change is on the horizon. They’ll want to hold onto the way things are – they’re good at them, they understand what’s expected, and they are familiar – but it’s counterproductive. You’ll need to invest in re-establishing these buffers for them…

Unless they are risk takers. Many entrepreneurs don’t like routines. They want constant change with a little bit of chaos mixed in. Companies like Google seek them out because they tend to be disruptors and a disruption can be a money maker. Just last week the NY Times ran an article about how Google gave 10% raises across the board. Google’s growth has brought with it the bureaucracy of a big company. Some entrepreneurs are fleeing the company. The reason is because they can’t affect change quick enough. Their supply of patience is sapped.

Both types of worker, the comfort in routine and the risk taker, must answer this question posed by Bob Brennan of Iron Mountain to this employees:

What do you recommend we do?

You can get a real sense for who’s invested in moving the company forward, and who’s watching the company go by, with that very simple question.

Q. Why?

A. People lay out problems all the time. If they’ve thought through what should be done from here, then you’ve got somebody who’s in the game, who wants to move, and you can unlock that potential. Bystander apathy or the power of observation, in and of itself, is not very valuable. There are amazingly eloquent diagnosticians throughout the business world. They can break down a problem and say, “Here’s your problem.” But it’s prescriptions that matter. So how do we move from here, and what specifically do you recommend?

Working Thoughts 11/29/07
It’s Not a Recession but it Sure Feels like It

Working Thoughts 11/29/08
There Are Jobs for Low Level Employees?