The New Joblessness(nytimes.com)
nytimes.com
The New Joblessness
http://www.nytimes.com/2009/07/26/magazine/26FOB-WWLN-t.html?_r=1&ref=magazine
6 comments
My hunch sides with yours as well, but I think they're discounting the HUGE segment of undocumented day laborers. When I left the U.S. a little over a month ago, we had hispanic day laborers loitering outside grocery stores in midday in northern virginia. Normally you wouldn't see them after 9AM or so.
The "undocumented" workers are undocumented only in government reports, but their impact and contributions are felt throughout.
The "undocumented" workers are undocumented only in government reports, but their impact and contributions are felt throughout.
In France they got a law to help restaurants. Effect of the law? No additional employment - and - productivity decreased. Why? Most restaurant used the additional money to hire officially people working unofficially before that...
For those who want to know, they changed the sales tax on restaurant meals from 19.6% to something much lower like 5.5%.
"Out of work" may be a misleading stat here. I don't know what realistic overtime hours for construction workers are like, so it may be a bit of a stretch to say 6 workers * 60 hours/each -> 5 workers * 38 hours/each would fit the same 'one out of six' but still shrink work done by nearly 50%.
Now is an incredibly cheap time to construct. 3 CVSs are being built in my area.
I'm assuming some of those still employed switched to other lines of work.
I have to wonder how much of this is a chicken and the egg thing. Ever since the beginning of this crisis the media has been hammering the same meme: "This is as bad as the great depression"
So now we're almost a year later and everyone stands around shocked at the fact that jobs are being lost even faster than in a normal recession. But job loss, at it's heart, is mostly just companies gauging how many employees they'll need for the future and making adjustments. So if every news agency is telling these companies we're at the start of a great depression what else would you expect them to do but to cut jobs at an even higher rate?
How many tech companies have we seen in the last year who cut jobs before they even noticed a revenue drop? Jason Calacanis says he had enough money to keep Mahalo running without revenue through 2011 yet he cut jobs and moved his operations overseas. How is that not panic?
So now we're almost a year later and everyone stands around shocked at the fact that jobs are being lost even faster than in a normal recession. But job loss, at it's heart, is mostly just companies gauging how many employees they'll need for the future and making adjustments. So if every news agency is telling these companies we're at the start of a great depression what else would you expect them to do but to cut jobs at an even higher rate?
How many tech companies have we seen in the last year who cut jobs before they even noticed a revenue drop? Jason Calacanis says he had enough money to keep Mahalo running without revenue through 2011 yet he cut jobs and moved his operations overseas. How is that not panic?
We didn't panic as much as we realized the revenue and fund raising opportunity had changed radically. Given that we cut our spending by 25-35% by moving from inhouse editors to community-based editing with a virtual currency. The truth is we were on our way to this model already as it is the most efficient in term of cost and motivation. In other words, the folks in the virtual economy get more done for less and they are enjoying themselves.
This user is on track to make $3,000 "Mahalo Dollars" over the next year (which translates to 75% that amount in USD).
http://bit.ly/kXQTp
We'll break even in the next year I think, and by making the cuts/getting more efficient we extended our runway by a year.
If the market wasn't so fracked up I would have spent more and raised more money.... however, I felt there was a significant chance that raising money would be very difficult for a year or three. It turns out I'm probably wrong and we'll be able to raise more money if we want/need to (we've started getting a lot of calls recently in fact... I guess VCs are looking to place bets again, which is a good thing).
all the best,
Jason
This user is on track to make $3,000 "Mahalo Dollars" over the next year (which translates to 75% that amount in USD).
http://bit.ly/kXQTp
We'll break even in the next year I think, and by making the cuts/getting more efficient we extended our runway by a year.
If the market wasn't so fracked up I would have spent more and raised more money.... however, I felt there was a significant chance that raising money would be very difficult for a year or three. It turns out I'm probably wrong and we'll be able to raise more money if we want/need to (we've started getting a lot of calls recently in fact... I guess VCs are looking to place bets again, which is a good thing).
all the best,
Jason
How is that not panic?
If you think revenues are about to decline it is rational to reduce work force before that happens. The point of a for-profit company is to maximize profits (publicly traded companies are legally required to do this and can be sued by shareholders if they don't, privately held companies have a littl emore freedom, but most are still out to maximize profits.) In order to do this you need a work force sufficient for your current and anticipated future needs.
If your anticipated future needs fall over the long haul, you not only can but should slice down to precisely what you need for the orders you currently have. This does not apply so much to short term dips because the cost of hiring and training new employees is high, but if you believe that you are in for a long term decline then it is not panic, but rational to cut as soon as you have that beleif.
If you think revenues are about to decline it is rational to reduce work force before that happens. The point of a for-profit company is to maximize profits (publicly traded companies are legally required to do this and can be sued by shareholders if they don't, privately held companies have a littl emore freedom, but most are still out to maximize profits.) In order to do this you need a work force sufficient for your current and anticipated future needs.
If your anticipated future needs fall over the long haul, you not only can but should slice down to precisely what you need for the orders you currently have. This does not apply so much to short term dips because the cost of hiring and training new employees is high, but if you believe that you are in for a long term decline then it is not panic, but rational to cut as soon as you have that beleif.
I don't mean to take away from your main point, because I agree with you, but...
> But job loss, at it's heart, is mostly just companies gauging how many employees they'll need for the future and making adjustments.
Sometimes, it's also because people can't afford to have said employees. I used to work at a pizza shop, and when the state raised the minimum wage $2/hr over the course of a year... we had to get rid of people, and drop other people's hours, and raise prices. We simply couldn't afford to give the majority of our employees a pay raise.
Sometimes, there's just no money in the bank.
> But job loss, at it's heart, is mostly just companies gauging how many employees they'll need for the future and making adjustments.
Sometimes, it's also because people can't afford to have said employees. I used to work at a pizza shop, and when the state raised the minimum wage $2/hr over the course of a year... we had to get rid of people, and drop other people's hours, and raise prices. We simply couldn't afford to give the majority of our employees a pay raise.
Sometimes, there's just no money in the bank.
In Britain, the minimum wage is £3.53 when you're under 18, £4.77 when you're 18-21 and £5.73 when you're 22 or over.
When I was still at school, I worked part-time in a big chain store. A lot of the time, when someone turned 18, they were suddenly "not needed as often" and had their hours cut and were first in line when the shop was laying off. I got laid off about two weeks after my eighteenth birthday and the shop suddenly hired a bunch of new 16-17 year old kids...
Still, they went bust about two months after that!
When I was still at school, I worked part-time in a big chain store. A lot of the time, when someone turned 18, they were suddenly "not needed as often" and had their hours cut and were first in line when the shop was laying off. I got laid off about two weeks after my eighteenth birthday and the shop suddenly hired a bunch of new 16-17 year old kids...
Still, they went bust about two months after that!
I wonder if radically different worker efficiencies would account for this.
That is to say, if worker X1 is 10% as efficient as normal, and gets laid off, it contributes one whole unit to the unemployed but one tenth of a unit to productivity loss.
That is to say, if worker X1 is 10% as efficient as normal, and gets laid off, it contributes one whole unit to the unemployed but one tenth of a unit to productivity loss.
For radically different worked efficiencies to account for a different unemployment numbers, something about the distribution of worker efficiencies has to have changed since the last recession. But workers have always had different levels of productivity and efficiency, and in hard times the less efficient are more likely to be out of work.
As work becomes more skilled, the differences between the average and best workers tend to increase, but the amount by which work has become more skilled and technical between the last two recessions, and say the 2d and 3d last recessions, does not seem to be revolutionary. The mathematical relationship the article notes did not have to be gradually adjusted as the workforce became more technical over the last 60 years; rather, it held until it suddenly broke now (if you believe the article).
An alternate explanation, would be that 1) economists and their mouthpieces don't know as much as they pretend, and 2) there is a high liklihood that this is the start of a big depression, not a "really really bad recession", and most businessmen are correctly assessing that liklihood, and rather than expanding their businesses to meet a fantasy future bigger market, they are waiting for the market to shrink to match their business.
Another, less dire reason for these numbers might be a general shift towards more home-based and freelancer type employment; such employment may be undercounted in the economists' numbers.
As work becomes more skilled, the differences between the average and best workers tend to increase, but the amount by which work has become more skilled and technical between the last two recessions, and say the 2d and 3d last recessions, does not seem to be revolutionary. The mathematical relationship the article notes did not have to be gradually adjusted as the workforce became more technical over the last 60 years; rather, it held until it suddenly broke now (if you believe the article).
An alternate explanation, would be that 1) economists and their mouthpieces don't know as much as they pretend, and 2) there is a high liklihood that this is the start of a big depression, not a "really really bad recession", and most businessmen are correctly assessing that liklihood, and rather than expanding their businesses to meet a fantasy future bigger market, they are waiting for the market to shrink to match their business.
Another, less dire reason for these numbers might be a general shift towards more home-based and freelancer type employment; such employment may be undercounted in the economists' numbers.
It seems likely that there are multiple effects here. Perhaps work has become skilled enough to produce large enough differences in productivity that it necessitates an adjustment to the model. This might help explain why the recent recessions were considered fairly jobless relative to those that came before. It might also help in explaining the increasing compensation gap that we see.
It may also be the case that businesses are delevering in the same way that households must. This would be a rational reaction to the dangers of debt financing that have been placed in stark relief by the crisis. Businesses that are reducing their dependency on debt by switching to internal financing will have less capital available for expansion.
The rising cost of benefits may have also started to effect the demand for full time workers and pushed businesses over into hiring temps and part timers.
It may also be the case that businesses are delevering in the same way that households must. This would be a rational reaction to the dangers of debt financing that have been placed in stark relief by the crisis. Businesses that are reducing their dependency on debt by switching to internal financing will have less capital available for expansion.
The rising cost of benefits may have also started to effect the demand for full time workers and pushed businesses over into hiring temps and part timers.
It occurs to me that it also might be due to efficiencies in different industries, and the industries that are being hit in this particular recession are different than the previous. and so on.
Given the failure of risk models in this situation, it's not surprising that unemployment models are not that accurate either.
It’s hard to give a definitive explanation for this trend, but among the reasons are a decline in innovation in the aftermath of the tech boom, leading to fewer new businesses...
Was this just a decline in tech innovation? I wonder how much tech companies contribute to overall workforce numbers (in addition to IT departments of non-tech companies, I suppose). Also, was there really a decline in innovation, or just a decline in eagerness to start a business based on such innovation?
Was this just a decline in tech innovation? I wonder how much tech companies contribute to overall workforce numbers (in addition to IT departments of non-tech companies, I suppose). Also, was there really a decline in innovation, or just a decline in eagerness to start a business based on such innovation?
I wouldn't exactly phrase it as a "decline in innovation" but post-tech boom innovation has gotten harder for numerous reasons. Off the top of my head, I can think of three culprits dragging this down in the tech industry specifically:
First, the general malaise people feel about tech IPOs after the ultra-hyped tech bubble burst. This is a real shame because this wasn't necessarily something perpetrated by the tech industry itself; it just saw dollar signs and got played by Wall Street.
Second is the decline of venture capitalists, who lost virtually all of their sex appeal with the dot-com bubble. They're now seen as "vulture capitalists", devious characters that tempt young entrepreneurs to sign away control of their start-ups for the small chance of seeing their dreams come to fruition. Is that reputation deserved? I don't know, but I've heard enough horror stories to be extremely apprehensive about taking the VC route.
Third is Sarbanes Oxley, which has made it extremely costly for small operations to go public. SOX is fine for larger organizations, it just needs some tweaks and and certain exemptions for smaller organizations.
Due to these factors it seems like the tech industry is taking smaller risks. Entrepreneurs are building companies to "flip" to Microsoft or Google rather than building the next Google or Microsoft. Sure, we're creating new businesses, but they never evolve past the 'start-up' phase; they merely get absorbed into a larger entities. You create significantly fewer jobs integrating start-ups into big organizations than you would by taking the growth route by building a medium and then large-sized business.
So with the cost of growth and failure higher now than it was in the 1990s, is it any surprise we're not bolder, and witnessing a so-called decline in innovation?
First, the general malaise people feel about tech IPOs after the ultra-hyped tech bubble burst. This is a real shame because this wasn't necessarily something perpetrated by the tech industry itself; it just saw dollar signs and got played by Wall Street.
Second is the decline of venture capitalists, who lost virtually all of their sex appeal with the dot-com bubble. They're now seen as "vulture capitalists", devious characters that tempt young entrepreneurs to sign away control of their start-ups for the small chance of seeing their dreams come to fruition. Is that reputation deserved? I don't know, but I've heard enough horror stories to be extremely apprehensive about taking the VC route.
Third is Sarbanes Oxley, which has made it extremely costly for small operations to go public. SOX is fine for larger organizations, it just needs some tweaks and and certain exemptions for smaller organizations.
Due to these factors it seems like the tech industry is taking smaller risks. Entrepreneurs are building companies to "flip" to Microsoft or Google rather than building the next Google or Microsoft. Sure, we're creating new businesses, but they never evolve past the 'start-up' phase; they merely get absorbed into a larger entities. You create significantly fewer jobs integrating start-ups into big organizations than you would by taking the growth route by building a medium and then large-sized business.
So with the cost of growth and failure higher now than it was in the 1990s, is it any surprise we're not bolder, and witnessing a so-called decline in innovation?
The pressure for another stimulus (and greater deficits) would be intense
I guess the newspapers would want some of that money? Only recently on telly here in the UK they were saying that only 20% of the stimulus had been spent, so there is time to either spend that 80% on something else or more efficiently, or just wait for it to be spend first before asking for another stimulus.
This is after all the tax payers money and I think most tax payers would rather have that money back and decide themselves what to spend it on.
I guess the newspapers would want some of that money? Only recently on telly here in the UK they were saying that only 20% of the stimulus had been spent, so there is time to either spend that 80% on something else or more efficiently, or just wait for it to be spend first before asking for another stimulus.
This is after all the tax payers money and I think most tax payers would rather have that money back and decide themselves what to spend it on.
That's insane! More than 80% of construction workers are still employed? We were only building ~25% too much?
I would expect the construction sector to shrink by something more like 50%.