by Doctor Science
Why can’t self-proclaimed capitalist, free-market businesspeople recognize the law of supply and demand? In particular, if you can’t find appropriately-skilled employees when you offer salary $S, Adam Smith says you should try offering $S+n. If that doesn’t work, you offer $S+2n. The cost of labor isn’t something the employer decides ahead of time, it’s determined by the free-market value of the labor needed to do the job.
But per links from Anne Laurie at Balloon Juice and her commenters, many employers seem to think that if they can’t find employees willing to do a job at a particular wage, it *must* be because there’s a lack of appropriately-skilled workers. (I’ve talked about this before, with regard to farm labor specifically.)
What are they teaching them in business school? And what are they teaching them in the pages of the Wall Street Journal and other sources of continuing business education?
Rembrandt, The Parable of the Workers in the Vineyard. 1637.
In the Hermitage.
From Anne Laurie:
At his blog, Professor Krugman highlights Adam Davidson’s NYTimes “Skills Don’t Pay the Bills”:
Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour…
Krugman adds:
… And this dovetails perfectly with one of the key arguments against the claim that much of our unemployment is “structural”, due to a mismatch between skills and labor demand. If that were true, you should see soaring wages for those workers who do have the right skills; in fact, with rare exceptions you don’t.
So what you really want to ask is why American businesses don’t feel that it’s worth their while to pay enough to attract the workers they say they need.
Although this attitude is most visible now that we’re in a recession (Depression), I noticed it years before the 2008 crash. I particularly remember being at a grocery store (not my usual, non-chain one) and being unable to find a butcher to cut up the meat I wanted to buy. The manager said, “We don’t have a butcher after 5 o’clock, there’s no-one who’s willing to do the work. I can’t find anyone even at $30 an hour!” He was so whiny and affronted I almost laughed at him, thinking “So you offer $35, right? ” I knew my usual store, 4 miles up the road, always had at least one butcher on the premises — but they offered things like benefits and long-term employment.
In the comments, J.D. Rhoades linked to a NY Times article about Costco:
Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”
Mr. Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”
…
Despite Costco’s impressive record, Mr. Sinegal’s salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.
“I’ve been very well rewarded,” said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings. “I just think that if you’re going to try to run an organization that’s very cost-conscious, then you can’t have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.”
I do not think it coincidental that Sinegal does not have an MBA — in my observation, it’s very rare for an MBA to think that a business should be for the benefit of anyone except investors and upper management.
For important comparison: Walmart and wages, by Bob Herbert. Bob Price of Texas GOP Vote says of the Hostess bankruptcy:
For the record, this writer has a life-long predisposition to believe the unions are usually in the wrong. But is that the case in this situation? Members of these unions have been taking wage and benefit cuts for years while executives have been granting themselves massive pay raises.
Meanwhile, in the Balloon Juice discussion of hiring practices more generally, commenter ericblair said:
@Nina:
So if it takes a year to sort out the paperwork, why can’t those companies invest that year into training someone domestically?
In my experience, a lot of companies are not handling hiring rationally. You’d think that, since companies can’t find qualified people to work for the offered wages, they’d raise wages to clear the job market, but they don’t. Seems to be part not understanding the actual problem and part an emotional asshole refusal to pay people more: “who the F do these grunts think they are?”
Even when you get to the higher paid end of the job market, there’s a real refusal to hire people who don’t have the exact skillset required to be fully operational at 9:00 am Day 1. If you’re trying to fill the slot, the only applicants a lot of managers will approve are ones doing the exact same job at another company. Then it takes months to fill the slot, if it’s even possible, while you could have taken someone perfectly capable of doing the job on board a lot faster and simply trained them up.
This is harder to explain, but it’s trickier to actually identify trainable people like that, and it’s also higher risk of hiring someone who actually can’t do the job and everybody involved getting a black eye. Much easier to demand perfection and whine about not getting it than dealing with risk.
I’m not completely sure I understand, but I guess he’s saying that not having someone to do the work is easier on the hiring manager than hiring someone who doesn’t work out.
It’s certainly true in my experience and observation that having the wrong person in a job, someone who can’t do the work or can’t get along with their colleagues, is a horrible time- and energy-sink for multiple people: manager, co-workers, whoever fixes the problems they mess up, HR department, manager’s manager — if worse comes to worst, *Legal* … I’m sure we’ve all seen how ugly these things can get.
But this is part of the cost of doing business, right? And has been since before there was such a thing as business. So why has it become an intractable problem *now*?
I guess he’s saying that not having someone to do
the work is easier on the hiring manager than hiring someone who doesn’t work out.
That could be. Another option is that he’s pointing to the faults of companies with low-trust cultures. In my job, I feel pretty good about taking risks that might not work out because I trust my boss and I know that he won’t hang me out to dry. But if I didn’t have that trust, I’d be much more cautious, and cautious staff aren’t necessarily best for the business as a whole.
There is a tendency in MBA culture to optimize things constantly seeking greater efficiency. Unfortunately, that campaign can erode trust, which might lead to a very efficient operation that is incapable of seizing big market opportunities or otherwise taking risks.
In related news, this has been making the rounds.
russell:
I think that graphic is counterproductive, because most people will share my reaction: who tries to rent a 2-BR apartment on a single minimum-wage job? No, a minimum-wage job should maybe get you a low-end one-BR, or a nicer shared place.
Since 2008, the attitide of hiring companies has been that the perfect person *would* eventually show up. The whining about getting skilled workers should lead to both more training ( both internally and at community colleges ) and higher wages. In the ’90s, anyone who could type could work in a dot-com. In the 2000’s anyone who could walk could work construction. The important thing for us a a nation is to start getting people trained, back to work and ORGANIZED.
For a worthwhile discussion of this issue look here.
You can read the first page, which gives a decent picture, easily, or register to read the whole thing.
The basic point is that offering decent wages and conditions has a good payoff, but that various organizational issues lead to the failure to recognize that.
“I’m not completely sure I understand, but I guess he’s saying that not having someone to do the work is easier on the hiring manager than hiring someone who doesn’t work out.”
One facet of this strange phenomenon is another symptom of the MBA culture. Many MBAs are professional ‘managers’ and they have little to idea how to do the actual work that their staff does every day.
I was a low status Director at a fairly major insurance company for several years. Half my team built analytical databases and the other half developed reports (front end stuff and value add metrics). In order to understand limitations and potentials of our assets (and partly just out of interest) I learned to write code in SQL and SAS (and Oracle). In fact, I became certified in SAS coding by SAS.
When I needed to hire someone I looked for coding skills, of course, in addition to analytical skills and creative thinking. Sometimes an applicant had proven analytical abilities and, say, a high level of SQL coding skills, but not experience with SAS. Even though the specific open position was more SAS based, I would push to hire that applicant because I knew that my team and I – given the high motivation, intelligence and goal orientation of the applicant – could train someone with such a background to become a functioning SAS coder in a few months time.
I would get all kinds of pushback on the hiring from my boss and from HR because the position required SAS skills. But neither HR nor my boss had any idea of what SAS or SQL are and how they might be related or why I valued creative analytical thinking and SQL coding ability over simply a SAS cert’ed applicant.
I fought and won at least a few of the battles and eventually ended up with a team that was known for being dedicated, efficient, proficient, creative problem solvers that delivered timely and accurate work. High profile internal customers asked for us when they had serious work that needed to be done right.
Other similar teams under other directors hired straight off matches to key words on resumes. Their teams under-performed and had reputations for not understanding the business nor analyzing deeply enough to provide good value (straight coders and not well rounded).
Based on my team’s achievements I asked for a raise (my salary was well below market). I was denied. Not in the budget. We don’t pay that much here. Five months later I was gone; landing at a company that pays me 30% more, let’s me work remotely most of the time and I report to a guy that has taught me and advanced my hard skills because he actually knows how to do the work; really knows it and is good at it.
But yeah, at the previous company, positions would remain open for months – maybe a year – and turn-over was fast; hired and gone in two years was typical.
Oddly, the previous company was not-for-profit and the new one is for profit (NYSE). They just value good employees.
I fail to see the value of an MBA. Yet they are ubiquitous.
who tries to rent a 2-BR apartment on a single minimum-wage job?
A single parent with a minimum wage job.
byomtov, that is a good link and I think it’s right on in describing the problem, how it happens and the solution.
That said, in every organization there are habitual slackers and others who just don’t have what it takes to be a valuable member of a team no matter how much training they are afforded. I am all for firing them.
My outlook is that I rather have a well paid, well appreciated lean staff that is competent, highly motivated and does the work that is usually done by many more hands – force multipliers.
There are those on the lower end of the bell curve that just don’t and can’t get it. That’s what Wallmart looks for. It’s a good match.
“A single parent with a minimum wage job.”
I think the idea that the worst paying job it’s legal to offer, (That’s what “minimum wage” is.) should be enough to raise a family is nuts. This is what is known as “sawing off the bottom rungs.”
Brett,
You may think the idea is nuts, but that is reality for a lot of people. According to BLS 3.8 million workers in 2011 were earning minimum wage. That is 5.2 percent of all hourly workers. Also according to the BLS, the minimum wage would need to be raised $3.00 dollars an hour to have the purchasing power it had in 1968.
Oh, and I should also point out that if we expand the category from minimum wage job to low wage job (defined as $10.00 per hour or less) we are talking about 25% of all private sector employees in the U.S. There aren’t many places that 10 bucks per hour is going make a two bedroom apt affordable.
“You may think the idea is nuts, but that is reality for a lot of people. According to BLS 3.8 million workers in 2011 were earning minimum wage.”
If that’s what you make then don’t decide to start a family. It’s that simple. If you choose to start a family on a minimum wage then you have made a bad choice that you will have to live with.
Personal responsibility.
Yes, because people have complete control over everything that happens in their lives. Either way, we should always be sure that life is sufficiently shitty for a sufficient number of people, just so a sufficient number of other people can feel morally superior – or something.
With that, what terrible thing would happen if the minimum wage were raised, say, three dollars an hour?
Look, when small children choose to be born to (a) minimum wage earning parent(s), and then suffer academically because they can’t sleep very well in a 1992 Chevy, that’s personal responsibility in action. They chose poorly and now they’re going to suffer for it. What more could justice possibly entail?
The reason people are trying to make a living on minimumwage jobs is because there are lots of those kiinds of jobs and not enough jobs that pay a living wage.
And why is that? Becuase of the trying to get something for nothing attitude that has become so common in the US. There are far too many “job creators” who are out to get maximum profti for minimum investment, who expect to get a reliable, responsible employee for less than a miinimum wage and expect the taxpayers via food stamps and other welfare to keep that employee alive. Walmart is the classic example of this.
And before any starts rationalizing tha poor old Walmart can afford to pay their employees more let me point out that Costco has the same sorts of jobs and pays a higher wage plus benefits.
This is why labor unions are needed. This is why the minimum wage needs to be raised.
This is one of those human decency issues.
It’s the same attitude behind anybody who wants to impose wage and price controls. You think prices are utterly arbitrary, you can just order that they be whatever you like, and nothing harmful will come of it. Demand that the price of gas be $1 a gallon, and we’ll all be able to afford road trips. Demand that unskilled labor be paid $10 an hour, and high school dropouts can afford to raise a family.
Only a strange thing happens: When you order that gas be sold at $1 a gallon, nobody sells gas. When you order that high school dropouts be paid $10 an hour to sweep a warehouse, high school dropouts stay unemployed.
It’s nothing but the worst sort of economic ignorance. It would be laughable if it weren’t so damaging.
Economic ignorance?
I’d say that arguing that the market for unskilled and low-skill workers operates in accordance with the principles of perfectly competitive markets is not exactly a display of economic sophistication.
I’m not ordering anything, or calling for anything to be ordered. I’m just bringing a point of fact into the conversation.
A lot of people work full time and don’t make enough to live on. That doesn’t result in utter widespread calamity because we have a variety of state programs that help them out. Absent those programs, we’d have utter widespread calamity.
My druthers would be that most folks who work full time would find their wages sufficient to live on. Who the hell wants to depend on government programs in order to get the basic, rudimentary essentials of life?
A lot of people work full time or more than full time, and don’t make enough money to live on. Full stop.
Maybe that is of no concern to you, in which case feel free to move on to the next thread. It’s of concern to a lot of other people.
If we’re going to discuss economic ignorance, perhaps we should bring up the fallacy of composition that Brett ignores.
First, it’s true that one business cannot by itself compete on price while paying the same quality worker a higher wage than another otherwise similar business. But if they all have to pay their workers $10 an hour, that particular problem goes away. Further, the additional purchasing power of all those workers increases demand for businesses in general.
It’s interesting that Brett compares people to gallons of gasoline. The other thing he seems to ignore is that, as Laura notes, Costco gets better results by paying their employees more and by providing them better benefits. Paying more for a gallon of gasoline doesn’t get your car to go any further. It’s just a gallon of gasoline, not a human being.
You’d think someone here were suggesting any and every type of price control, as though they were all fine and dandy, simply because someone would suggest raising the minimum wage. It’s a great way to avoid the question of what awful stuff would happen if we raised the minimum wage a few dollars.
Once upon a time, there were a lot of companies which took Blackhawk’s approach. They hired people who wanted to work and were trainable, and then trained them. That is where the vast majority of the IT staff in American business came from in the 1970s and early 1980s. Then training went out of fashion. An interesting question is: Why?
I think that what happened is that trust died out. Companies were willing to pay more to hire someone from another company than they were to train their own employees and then give them a raise. So we shifted from people spending a career with one company to a situation where switching jobs every two years was usual. For practical purposes, you had to change jobs that often or else resign yourself to lagging ever further behind market salary. Of course, if people are going to change jobs after two years, there isn’t much incentive to train them. After all, most of the benefit is going to go to their next company, and not to you.
That just moves the question back a step: Why did that trust go away? Why wouldn’t companies pay to train any more? My suspicion is that two things happened. First, pension plans became major players in the investment arena. Their managers’ ratings (and salaries) depended on getting the best possible returns . . . every quarter. So they demanded that the companies that they invested in maximize quarterly returns. Short-termism became de rigueur. And training is, in the short term, a cost.
Lest anyone miss the boat, business schools emphasized the philosophy of the short term. A lot of very useful skills get taught in an MBA program. Unfortunately, a lot of really bad management philosophy (including whatever is the management fad of the day) gets taught there as well. And it is really difficult to see that the two are utterly unlinked in reality.
One particularly damaging fad, as mentioned above, it the idea that “management is management”; that is, that a good manager doesn’t have to know much of anything about the actual work that his staff does. Which is nonsense. If you don’t understand what your people do, you can’t manage them doing it. (Maybe you get lucky, and they are all self-starters who can get the job done without any management by you. But in that case, you are unnecessary.)
One side effect is that, if you don’t know what your people do, you can’t judge who is doing a good job of doing the work. Which means that you cannot reward those who perform well. And so the incentive to perform goes away — and with it, to a large degree, the performance which would make your group, or your company, successful.
simply because someone would suggest raising the minimum wage.
Personally, I don’t want the minimum wage raised. I don’t even want a minimum wage at all.
What I want is for people’s work to be respected and rewarded. I want labor, as a factor of production, to be afforded the legal and social status and privilege that are regularly granted to capital.
Many many many people work their @sses off and cannot afford the basic, rudimentary elements of life without some kind of public assistance. And that, in what is and has been for decades the most robust economy on the face of the earth, possibly in history.
Seriously, screw the minimum wage, screw SNAP and food stamps, screw housing assistance, heating assistance, whatever governmental program you like.
Fncking pay people enough money for them to live on, and they will take care of themselves.
Isbister, way upthread, wants to hire skilled machinists and, after several years of loyal service, pay them $18 an hour. $18 an hour at full time is $36K a year. That’s not even median wage. For a skilled machine operator.
So screw Isbister. I hope he goes out of business. Maybe his employees will buy his tooling and run the place themselves.
KI think it was Montana that established the Walmart tax. The idea is to tax gthose busiesses atht have above x number of wmployees and pay them so litte that they are eligilbe for state welfare services. The tax then goes to the state to compensate for the defacto subsidy that the business is exrtrating from the state by their refusal to pay a living wage.
Another idea: boycott busniesses that don’t pay a living wage. I haven’t been in a Walmart in years.
if you don’t know what your people do, you can’t judge who is doing a good job of doing the work
Even if you do know what your people do, it is hard to judge who is going a good job.
If you try to use a metric, people game the metrics. Management is just a hard problem. It takes time, and it takes good people doing the managing. And how do you tell if the people doing the managing are any good?
wj: One particularly damaging fad, as mentioned above, it the idea that “management is management”; that is, that a good manager doesn’t have to know much of anything about the actual work that his staff does. Which is nonsense.
This is exactly the notion that almost destroyed IBM. The people who rose to the top had no idea of what the company actually produced. Oddly enough, it took an outsider (Louis Gerstner) to recover.
russell: What I want is for people’s work to be respected and rewarded. I want labor, as a factor of production, to be afforded the legal and social status and privilege that are regularly granted to capital.
So the question is: do you believe that most people want to do a good job, or are they all just freeloaders looking for a meal ticket? In my own experience, mostly the former. There are a few slackers, but they are way in the minority. Generalizations, though (including this one 🙂 are not much use; people are individuals and a manager has to treat them as such.
Duff Clarity: Management is just a hard problem. It takes time, and it takes good people doing the managing. And how do you tell if the people doing the managing are any good?
Amen. I am so glad my job is technical, not management. I have to “play manager” every so often, but not as my primary responsibility.
My advice: if you are lucky enough to find a good manager, stick close to that person!
“So they demanded that the companies that they invested in maximize quarterly returns. Short-termism became de rigueur. And training is, in the short term, a cost.”
Yes. There it is.
“One side effect is that, if you don’t know what your people do, you can’t judge who is doing a good job of doing the work. Which means that you cannot reward those who perform well. And so the incentive to perform goes away — and with it, to a large degree, the performance which would make your group, or your company, successful.”
spot on.
The lack of trust began when MBAers (and I was there when the trend commenced) started seeing the employees as resources; “human resources” instead of integral members of a corporate team. This jumped off in the late Reagan years, but really picked up steam during the reign of GB The 1st. This cancerous “thinking” even invaded the professional military (along with buzzword soaked powerpoint presentations) at about the same time.
“My druthers would be that most folks who work full time would find their wages sufficient to live on.”
Would be nice, but it’s not realistic. Some people really don’t have much to offer.
oh, just to add to my previous, another problem was that health care costs continued to increase, making pension plans less feasible and even older employees less desirable (from an actuary standpoint, healthcare costs increase significantly after 40 ). So companies found it more profitable to hire younger employees who are willing to work for lower lower wages and to de-incentivize employees to stay with the company past a certain age. In other words, we’ll hire you a couple years out of college for a low wage, we’ll carry you as long as you’re willing to work for that low wage. If you grow beyond it, adios – You’re going to cost too much in the long run.
The company hopes it will retain a few loyal long term employees in management that will keep the carousel of young cheap employees turning smoothly.
It’s not all short term thinking. Long term health care costs coupled with reasonable salary increases are essential ingredients in the formula.
I disagree with the outlook, but it is MBA thinking and those people are supposed to be highly educated, right?
Blackhawk:
I disagree with the outlook, but it is MBA thinking and those people are supposed to be highly educated, right?
Supposed by whom?
Or, marginally less snarkliy:
Trained =/= Educated
This is not new. William Cameron Forbes, as capitalist as they come, was Governor-General of the Philippines before World War I. In his 1929 book on the Islands, he had this to say:
To some of the employers of labor who complained that the Filipino would not work, it was suggested that they add “unless paid.”
Some people really don’t have much to offer.
First, I think this is generally crap. By far, most people (a) have something to offer, and (b) are interested in doing their best.
Second, I can’t imagine a sane world in which we organize our public institutions and policies around “some people”.
they demanded that the companies that they invested in maximize quarterly returns. Short-termism became de rigueur. And training is, in the short term, a cost
IMVHO this is an example of a larger issue.
What (it seems to me) has happened over the last, say, 50 years, is that we have changed our understanding of the nature and purpose of a productive enterprise, i.e., a business.
Formerly, a business was seen as an organization whose purpose was to provide some tangible good or service. In that model, employees are seen as valuable, because they actually are the folks who do or make the thing that generates revenue.
Further, in that view, compensating your employees is seen less as a cost, a necessary evil, and more as an investment in the enterprise itself. The people who do the work were seen as an asset, and their experience and expertise were seen as essentially a capital resource, part of the wealth and value that the enterprise as a whole comprised.
More recently (it seems to me) businesses have come to be seen as a device for returning cash money to capital investors. If the maximum cash return will come from laying off every person who works there and outsourcing their jobs to Mars, that is what will happen.
The fact that this strips the enterprise of the collective experience and expertise of the folks who *do the thing that the enterprise gets paid for* doesn’t seem to occur to anyone. Or, it does, but they don’t give a crap.
What the business actually does – what it produces, and the inherent quality or value of what it produces – is secondary, and the ongoing viability and robustness of the enterprise as a whole is not of particular interest.
If things start to go south, cash out and move on.
In that understanding of things, the less you have to invest in the workforce, the better.
People worry about the deficit, and about the growth of China India and Brazil, and about a million other things that are, IMVHO, not to the point.
If you’re worried about the long term health of the US economy, the dynamic described above should be what really keeps you up at night.
Outside of a handful of sectors – maybe just tech – we aren’t building businesses that have any kind of serious future. The idea of “investment” – building the inherent wealth and capability of the enterprise – is like a concept from another planet.
Funny how the alleged skills-openings mismatch does not apply to those in the executive suite. Suddenly, these people are worth every penny of their outrageous pay packages due to the “shortage” of highly skilled CEO’s.
If only the janitor who cleans your office could appoint the people who, in turn, cast serious (seriously) votes to determine an appropriate pay package for their appointer.
||Some people really don’t have much to offer.||
“First, I think this is generally crap. By far, most people (a) have something to offer, and (b) are interested in doing their best.”
Ok. Sure. However being a really great cashier or janitor or backhoe operator still just aren’t skills that demand a high salary *because lots of people can do those jobs and do them well and those people are looking for work*.
Incidentally, something not mentioned here yet is the effect of the US’ unusually high incarceration rate. Try getting a decent job after having been convicted of a crime (especially a felony). Even a DWI/DUI can get you removed from the short list of applicants to a job paying a good salary. How many of those stuck in low paying jobs have a criminal record? BTW, I don’t agree with policies that don’t give criminals a chance to build a better life, but they are prevalent.
Also, you might be ticked off at the Isbisters of the economy, but they face a real problem. If they raise the salary of their machinists, then they can’t compete in a *global* market. There’s always a machinist in some developing market that is willing to do the same job for considerably less and shipping costs are deacreasing.
So you think that the insistance by capital investors for maximum immediate increasing returns is the problem? I do too. However, what is the alternative? Ask capital to forego obvious returns now for some unquantifiable promised returns in the future? Ain’t gonna happen.
ral: if you are lucky enough to find a good manager, stick close to that person!
Absolutely.
To my mind, management has 3 parts: technical, administrative, and leaership.
The technical part involves knowing what your people do. At minimum (as noted) that means knowing enough about it that youcan write a performance review that has some relationship to reality. It goes up from there to someone who is the guru that everybody goes to when a technical problem is too hard for anybody else.
The administrative part is everything that involves interfaces to the rest of the company/world. From getting raises done on time to getting cooperation from other groups/departments to dealing with internal (or external) customers — if it involves getting stuff done beyond the group, it’s admin.
The leadership part involves figuring out what the people youare maanging should be doing, and convincing/inspiring them to do it.
A manger should be competent at all of these. If the manager is really at one, his staff will cut him some slack on the others. (I recall a boss who was the real technical guru for Systems Programming; as in IBM called him for advice. So we were OK with the fact that reviews and raises were routinely late, resulting in make-up checks to get our total pay caught up.) A manager who is good in two of those parts will get praised as a great manager. And if you find one who is really good at all three, people will follow her from company to company. (I’ve only ever had one of those in a career spanning half a century. One of my great regrets is that she decided to leave IT and go off and sell real estate. Go figure.)
Even if you do know what your people do, it is hard to judge who is going a good job.
Yes it is.
And that’s another argument for decent pay. First, there is the “efficiency wage” notion – that workers who are earning something above market wage are going to be motivated to do a good job rather than risk losing it. Second, it helps, IMO, to generate peer pressure from other workers. If the ethic is, “this is a good place to work and everyone should be conscientious abut it,” you get a different dynamic than if it’s, “Look busy. Here comes the boss.”
being a really great cashier or janitor or backhoe operator still just aren’t skills that demand a high salary *because lots of people can do those jobs
Cashier maybe. Although there are definitely good and bad cashiers.
Janitor, probably not, for any useful definition of janitor.
Backhoe operator, *most definitely* not. Seriously, WTF.
However, what is the alternative?
In my very humble opinion, the best alternative is employee ownership. For “best” here, please read “fits well into our legal and economic model, and has solid existing legal support and precedent”.
If we’re going to give all the money to the owners, then the easiest path to spreading the wealth is spreading ownership.
And no, I’m not including “I have a 401K” as meaningful ownership, because “ownership” in that context confers no meaningful access to governance.
Russell,
I think another thing that has hurt is the glorification of the CEO and the entrepreneur, and the general notion that successful business is driven by a handful of Galtian visionaries, while everyone else is just a grunt doing rote tasks.
I think that’s utterly wrong-headed.
My experience, admittedly mostly with high-level technical and professional workers, is that success really does come when the employees are involved in the business, their opinions and expertise are respected, and their advice listened to.
My feeling is that this extends to less-skilled workers as well. The clerk in the copier room knows how often the machine jams, and what problems are slowing down the workflow.
Oddly, this is sort of the free-market side of market vs. planning arguments. People close to the action, with a stake in the outcome, tend to make good decisions.
“People close to the action, with a stake in the outcome, tend to make good decisions.”
Agreed. Which is one reason why I also agree with: “In my very humble opinion, the best alternative is employee ownership.”
“Backhoe operator, *most definitely* not. Seriously, WTF.”
Huh? Seriously, not to nit pick, but even my decidely unmechanically inclined wife learned to operate a backhoe fairly well in about a week of just playing around with one. It’s not that tough to gain competency; not rocket science.
Ok. Sure. However being a really great cashier or janitor or backhoe operator still just aren’t skills that demand a high salary *because lots of people can do those jobs and do them well and those people are looking for work*.
But companies like Costco or Trader Joes (where I read recently *starting wages* are >40K/year) hire the same cashiers and evidently get a lot more value out of them (commitment, motivation, experience, etc.) more or less just by paying more.
Anyway, the *actual* value provided to a firm by a “low-wage” employee is kind of an unknown here, isn’t it? We know that e.g., Walmart, doesn’t pay very much, but that doesn’t necessarily mean they’re not getting very much. It just means they’re getting away with not paying very much. Period.
It seems to be you’re crediting an unreasonable amount of rationality to the low wage/low motivation/high turnover model of employment favored by so many managers. The truth is, the results of that strategy are not only socially reprehensible, they’re also highly questionable from a (long-term) business standpoint.
Also, you might be ticked off at the Isbisters of the economy, but they face a real problem. If they raise the salary of their machinists, then they can’t compete in a *global* market. There’s always a machinist in some developing market that is willing to do the same job for considerably less and shipping costs are deacreasing.
Again, you’re assuming Isbister is being rational. It’s just as likely that (a) marginal labor costs are not in fact that large a component of his bottom line, and (b) by offering more market-appropriate wages, he would be able to attract (and retain!) skilled machinists who would develop personal investment and experience with his business and customers, and allow him to stake out a generally high value position in the market (where he is not directly competing with low skill/low cost/low value Chinese shops).
Further regarding (a) in general, I’d just observe that there are a couple of studies floating around on the Walmart situation. The findings are that raising the wages and benefits of all their employees to decent levels would raise prices for consumers almost negligibly – IIRC, on the order of maybe a few dozen dollars a year for the average customer.
I also remember reading something about a study on the staffing at retail shops (e.g., the Gap in the mall). The finding was that, almost universally, higher staffing levels and higher wages resulted in large increases in sales and profits, enough to make up for the increase in labor costs a couple times over. So why don’t they hire more/pay more? I don’t know. But for whatever reason, I think it’s really obvious at this point that the MBAs in charge of corporate America are not making particularly optimal decisions in a lot of cases.
So you think that the insistance by capital investors for maximum immediate increasing returns is the problem? I do too. However, what is the alternative? Ask capital to forego obvious returns now for some unquantifiable promised returns in the future? Ain’t gonna happen.
I think that unionization is a big part of the answer. As well as raising the minimum wage, and other bits of regulation here and there (e.g., perhaps we could come up with some sensible regulations to reduce abuses like Walmart’s strategy of using a lot of 39 hour/week “part time” employees to avoid regulations on benefits, etc.).
Another big part of the answer (complementary to the above) has to be in working to change social norms. It needs to (again) be frowned upon by the rest of society when a firm/CEO tries pursue obviously exploitative practices for the sake of a short term gain. Not something where everyone just shrugs and says “whatcha gonna do, they’re just trying to make a profit, right?”
Profit at any cost should not be the bottom line for us as a society.
even my decidely unmechanically inclined wife learned to operate a backhoe fairly well in about a week of just playing around with one.
Playing around doing what?
Digging in the middle of a city street?
Digging around gas | water | sewer lines?
Digging an accurate trench that doesn’t FUBAR everything around it?
You are correct, j-random individual can probably learn which lever makes the big bucket go up and down with a week’s worth of screwing around.
Operating a backhoe, on a job site, in a real world situation, is more complicated than that.
Doing almost anything, in real life, when other people’s property and livelihoods are involved, is pretty much always more complicated than folks who have not actually done it think it is.
I’m sure your wife is a lovely person but I DO NOT WANT her operating a backhoe on my property after messing around with one out behind the horse barn for a few days. No offense intended.
“I’m sure your wife is a lovely person but I DO NOT WANT her operating a backhoe on my property……”
LOL. No. You really don’t.
“No offense intended”
None taken.
I guess my point is that most anyone could go to heavy equipment school and come out in a few months and work a backhoe in a professional setting, gas pipes and all.
Not everyone has the aptitude/characteristics to successfully perform the job descriptions of those in the corporate world making six figures, For that matter, not every soldier – not even good soldiers – have what it takes to be officers. You get the point, I’m sure.
@Duff Clarity: If you try to use a metric, people game the metrics. Management is just a hard problem. It takes time, and it takes good people doing the managing. And how do you tell if the people doing the managing are any good?
What works surprisingly well is what Hewlett and Packard called “Management by Walking Around”. Instead of sticking in their office reading reports about what’s going on in the business (or department, etc.), managers go out and observe things first hand, especially the people who report to them. Watching and interacting with actual workers not only gives managers a good idea of what is going on in their area of responsibility, it also helps to keep their knowledge and skills about the details of the business sharp so they can make informed judgments.
A number of years ago I was working as an independent “consultant”, but more accurately I was a contract computer programmer. My client was a local engineering firm that had been acquired by a large corporation. After a few months, the manager told me I ought to raise my rates. The low rate I was charging made it difficult for him to hire any more contractors, because corporate central was using my rate to determine the local cost of programmers, and no one else wanted to work for that money.
Perhaps some employers think they ought to be able to hire more employees at the lowest rate anyone is willing to work for. Or there’s a disconnect because the interviewers want someone good enough to work with and the boss wants to pay the minimum amount, so the interviewers keep saying there’s no one qualified.
“Ok. Sure. However being a really great cashier or janitor or backhoe operator still just aren’t skills that demand a high salary *because lots of people can do those jobs and do them well and those people are looking for work*.”
I don’t thinkm the discussion is about high wages for relatively unskilled jobs. It’s about a living wage for those jobs so that working people are not dependent upon welfare for their swurvival and so that employer are not, in effect, subsidized by the taxpayers.
It’s the decent thing to do. BTW it is also good mangement. Costco has a 6 percent turnover in staff annually and Walmart has a 1percnet turnover. Costco spends about ten percdent of sales on labor and over head while Walmart spends seventeen percnt. Costco makes more money per employee than Walmart, too.
But there is an advantage to all off us in payhing good wages to low-skill people. There was a time when an uskilled personn could get a very good paying union job in a variety of situations: Teamsters, Longshoremen, car assembly, and yes, even janitors recieved enough income to thrive. And they spent their income. TYhey bought houses, cars, put their kids thorugh college, went on vacations, spet lavishily at Chritmas–and al that money that flowed inot their pockets flowed out again to support other busiinesses which cfreated jobs for other people. Money flows from the bottom up, not from the top down. “Overpaying” unskilled people has a positve outward ripple effect.
Unnderpahying them drags everybody but the 2 perecnters down.
I meant Walmart has a 21 percent turnover! I don’t know what happened to the 2.
@russell: Cashier maybe. Although there are definitely good and bad cashiers.
I would say that cashier is definitely a skilled job where the best people are substantially more efficient than the worst. I have even formalized this into a saying that at the supermarket you shouldn’t get into the line that’s shortest but into the one that has the fastest cashier. I’m guessing that anyone who goes to the same market often enough to know the cashiers will have about the same story.
Perhaps some employers think they ought to be able to hire more employees at the lowest rate anyone is willing to work for.
Definitely. To put it in more conventional economic terms, I’d say there is a sort of implicit cartel-ization going on with the demand side of the labor market.
By which I do not mean that the likes of Isbister and the Waltons are actually conspiring, setting wages at Bilderberg meetings or something.
But I that the management class as a whole (or at least a very large segment of it), through various social mechanisms (like whatever it is they’re teaching them in MBA school) has assimilated the idea that they’re supposed to be able to just dictate wages to the grubby masses somehow, and/or that whatever the smallest wage they can get a few people to grudgingly accept for a couple months (until they get fed up or find something better) is the “market wage”. And that is therefore the optimal wage for their firm to pay in general, and the one they should stubbornly stick to no matter what.
Hence: implicit cartel. And certainly incompatible with anything like a free labor market existing at present.
Not everyone has the aptitude/characteristics to successfully perform the job descriptions of those in the corporate world making six figures,
Could you elaborate on what kinds of aptitude/characteristics it takes to make six figures? Because I know lots of people who make six figures, and many who don’t, and their salary doesn’t necessarily correlate with the characteristics one usually thinks of as being valuable (intelligence, integrity, work ethic, etc.)
http://reclaimdemocracy.org/costco_employee_benefits_walmart/
I think the D’ Bank guy’s comment is interesting in light of everything above.
“Because I know lots of people who make six figures, and many who don’t, and their salary doesn’t necessarily correlate with the characteristics one usually thinks of as being valuable (intelligence, integrity, work ethic, etc.)”
Ah, I see the problem. Your thinking is off base in a naive and endearing sort of way. You have focussed on the wrong values.
The skills that count are leadership (the ability to motivate others to successfully achieve objectives) and political skills (the ability to obtain buy-in from others, to obtain consent to leverage the assets of others, to generally build bridges, the ability to know when to make a move and who’s career to protect and who’s is expendable, knowing how to protect and further the organization, the ability to make the right decision at the right time, etc, etc).
Not everyone has the aptitude/characteristics to successfully perform the job descriptions of those in the corporate world making six figures
Understood. And personally, I don’t have a big problem with good managers making six figure salaries.
It’s about a living wage for those jobs so that working people are not dependent upon welfare for their swurvival and so that employer are not, in effect, subsidized by the taxpayers.
Correct.
US GDP is about $15T, or about $100K per person in the workforce.
US personal median wage is about $26K.
Working people are creating a lot of value, and they’re not getting a lot of it back.
A better comparison would be CostCo with Sam’s Club. WalMart is more labor intensive than CostCo.
@jack lecou: To put it in more conventional economic terms, I’d say there is a sort of implicit cartel-ization going on with the demand side of the labor market.
I think the elephant in the room is that many pay decisions are based on social factors rather than market forces. Pay scales wind up being tied to position in the company hierarchy rather than some kind of objective measure of the value different employees provide to the company. It’s expected that managers will be paid more than the people they’re managing, that educated white collar workers will be paid more than less educated blue collar workers, etc. When employees are paid market values that differ from social perceptions, some people get very upset. This is why people are so vehement about well paid blue collar workers and “overpaid” athletes and entertainers. Their pay clashes with ideas of what somebody with their social status should be paid, and the perception wins over the market.
I think this is a huge part of why management doesn’t want to offer higher wages to attract employees to jobs they’re having a hard time filling. They’re basing their pay decisions on the employees’ place within the company, not the market. Responding to the market would challenge their social assumptions, either about where those people belong the company hierarchy or about the entire concept of basing pay on employees’ place in it. They’d rather go without hiring than challenge to their social assumptions.
From US News:
http://money.usnews.com/money/careers/articles/2011/10/05/despite-high-unemployment-millions-of-job-openings
“Earlier surveys have revealed similar trends. In May, ManPower released its sixth-annual talent shortage survey. In it, 52 percent of U.S. employers said they were having difficulty filling mission-critical positions within their companies, up from 14 percent in 2010, an all-time high for the survey. When asked why they were having trouble filling positions, two of the most popular answers employers gave were “lack of ‘hard’ job skills or technical skills” (47 percent) and “lack of experience” (35 percent). “The expectations for various positions are rising as companies are trying to get people to do more with less or do more with the same,” says Jonas Prising, president of the Americas at ManPower.”
And
“On ManPower’s list of the 10 hardest jobs to fill in the United States were some highly technical jobs like engineers and machinists, as well as some that may seem surprising, like administrative assistants and sales representatives. Prising says those jobs have changed dramatically in recent years. For instance, strong typing skills used to be the critical skill for administrative assistants, but these days, the position often requires information technology skills such as coordinating webinars or using publishing platforms like Microsoft PowerPoint.”
Indeed it sounds like a lack of willingness to invest in training on the part of hiring companies.
That said, why aren’t highschools teaching skills like powerpoint (holding my nose as I type) and webinars and presentation skills generally?
Why don’t public schools offer some sort of machinist program for those not seeking a college degree (or maybe even for those that are)?
Why are companies not providing (free?) machinist internships for highschool students with an interest with some promise of a good job upon graduation?
It seems like everyone is passing the buck and then complaining/making excuses. Doesn’t make sense.
The skills that count are leadership (the ability to motivate others to successfully achieve objectives) and political skills (the ability to obtain buy-in from others, to obtain consent to leverage the assets of others, to generally build bridges, the ability to know when to make a move and who’s career to protect and who’s is expendable, knowing how to protect and further the organization, the ability to make the right decision at the right time, etc, etc).
Some managers actually have these skills but many, many don’t. As Roger Moore stated, the hierarchy is often more important than the value people actually offer to the company.
There are many companies where worker morale is horrible (in other words, workers are motivated only by their inability to get better jobs in a bad economy) but managers are rewarded nevertheless.
Like russell, I don’t have a problem with managers (or anyone else) making six figures. I do have a bit of a problem with six figures over 500,000, and seven figures, and eight figures, when there are people in the company making minimum wage. I don’t think anyone is worth that much more than anyone else in any enterprise.
Because I know lots of people who make six figures, and many who don’t, and their salary doesn’t necessarily correlate with the characteristics one usually thinks of as being valuable (intelligence, integrity, work ethic, etc.)
Well, if I were cynical, I’d say there probably are some other characteristics that those differences do correlate with. For example, the characteristic of being born into a family/social class where going to the “right” schools and then getting funneled into a lucrative career somewhere is both a viable option and socially expected…
“Some managers actually have these skills but many, many don’t. As Roger Moore stated, the hierarchy is often more important than the value people actually offer to the company.”
I hadn’t considered “The Hierarchy”. Now that Roger Moore has brought it up, I think he is right about it playing a role. I don’t think it is THE reason for what we are discussing, but an important contributor nonetheless.
The skills that count are leadership (the ability to motivate others to successfully achieve objectives) and political skills (the ability to obtain buy-in from others, to obtain consent to leverage the assets of others, to generally build bridges, the ability to know when to make a move and who’s career to protect and who’s is expendable, knowing how to protect and further the organization, the ability to make the right decision at the right time, etc, etc).
Alas, no. The skills that count for rising up the management chain and getting paid those six figure salaries are . . . the political skill to keep your boss feeling good. Mostly about himself. In short, brown-nosing.
Whether you can get buy-in, motivate your staaff, and all that other stuff? “Nice to have” certainly. But in any large company, it’s definitely second tier. At most, it’s important for a first-level manager, and maybe for second-level; but that stuff won’t get him anywhere higher, no matter how good he is at it.
There are middle and upper managers who have both kinds of skills. But their ability to lead is incidental to their career progress — and someone with slightly better schmoozing skills, even if minimal ability to lead and motivate, will edge them out for promotion when openings occur.
Yes, there are companies which are exceptions. But even they are usually only incomplete exceptions, in addition to being rare.
“…the political skill to keep your boss feeling good. Mostly about himself. In short, brown-nosing. ”
Alas, sad but true. I implied that in my skill set.
“…but that stuff won’t get him anywhere higher, no matter how good he is at it.”
I know. It’s why I personally hit a ceiling. I rather have a strak team that I can be proud of – and that each member is proud to be a member of – and that gets things done than kiss ass up all day long. A lot of the asses are very unappealling any how.
Just to go a little meta, it seems that the people I would (somewhat loosely) characterize as free-market absolutists (which might only include Brett) have a rather deterministic way of looking at the situation under discussion. It goes something like, “If someone has managed to be paid what they are being paid, it is what they should be paid, otherwise they wouldn’t have been paid that much.” It’s just what the all-knowing, perfectly optimizing market has determined (at least to the extend that it could, given the unnatural constraint of the existing minimum wage). What other consideration is there, after all?
Not only is it folly to suggest any sort of regulatory intervention, it’s silly to suggest that people, at least the ones with any sort of power, might not be making the best decisions for various reasons. (The ones at the bottom make bad decisions all the time, which is why they’re there, of course.)
Excellent discussion, folks. I think the hierarchy stuff is crucial, as is the fact that one of the rewards of a hierarchical organization, for many humans, is the opportunity for petty tyranny and dominance displays. And the wider the power (and money) gap between the upper and lower levels of an organziation, the more opportunities there are.
This is why Anne Laurie titled her post “They Don’t Want Workers, They Want Serfs”. It’s an open question whether humans, in general, are more motivated by money or by social dominance, once basic needs are out of the way. And there’s a pretty good argument to be made that the point of money itself is mostly social dominance.
From this angle, the biggest difference between a 1950s CEO, who made 20 times what the workers did, to a present-day CEO making 200-500 times a workers’ salary, is that the latter has more power, more ability to get other people to do things for him. (and it’s almost always a him.)
hm… but I wonder … didn’t the 50s CEO have a lot of non-monetary power and social standing? If a hierarchy is very stable (rigid), then even small differences (in power or $) can be leveraged for social dominance. The more fluid the social/organizational structure, the larger the gap has to be to get a given level of dominance.
Is this clear, or do I need to make a stand-alone post?
Relevant quote just popped up on tumblr:
Blackhawk – “That said, why aren’t highschools teaching skills like powerpoint (holding my nose as I type) and webinars and presentation skills generally?”
First — because they are too busy trying to teach to the achievement tests so that they don’t lose their funding.
Second — because too much time goes into teaching the interface for the presentation software compared to teaching them to organize information and focus on what is most important and useful for their audience. In order for them to understand what is important they need to understand the subject on which they are presenting.
Finding someone who can teach students both the underlying subject and the communication skills is hard. Those people are rare. But any idiot can use PPt and it’s hard to test critical thinking on a standardized test, so we know which one is going to drive the hiring process and the evaluation.
“hm… but I wonder … didn’t the 50s CEO have a lot of non-monetary power and social standing? If a hierarchy is very stable (rigid), then even small differences (in power or $) can be leveraged for social dominance. The more fluid the social/organizational structure, the larger the gap has to be to get a given level of dominance.”
I don’t know. What I saw happen over my life time is a shift toward greater selfishness and greed and away from honor, courage, comittment and sense of responsibility in leadership.
This shift got rolling during the Reagan era. Freedom and free markets were all the rage. The Gipper was our coach. The “Evil Empire” fell and capitalism was proven to be the true path. Everyone wanted to get an MBA and become a real life Gordon Gekko.
At the same time another cultural current operating was a weird cynical backlash from the 60s, Vietnam and Watergate wherein people came to distrust all organizations and yet also gave up on “tune in, turn on, drop out” – they’d been there and already had the tie dye t-shirt. Thus hedonism became the goal.
A final current was the rise of the self-esteem culture. All these pampered kids growing up they deserved the best of everything simply because they were, each and every one, a wonderful special person. These kids all expected something for nothing. They don’t want to sweat, but they believe deeply they deserve lots of money.
At bottom, this perfect storm made for plenty of un-loyal employees and CEOs; all seeking nothing more than self promotion, agrandizement and material enrichment.
The more I think about it, the labor situation is less about economics (as noted by others, the economics don’t fully make sense) and more about cultural values, which, at present, suck.
didn’t the 50s CEO have a lot of non-monetary power and social standing?
But part of their social standing was involved in the perception (accurate or not) that they actually cared about what their companies did. And about making that company as success. Whereas the perception today is that the CEO only cares about how big a pay package he gets. (Which may also be the reason that people like Buffett or Jobs are highly regarded. They clearly care about what they are doing, not just about how much money they can make out of it.)
It’s an open question whether humans, in general, are more motivated by money or by social dominance, once basic needs are out of the way.
Actually, once basic needs are taken care of I think a lot of people are motivated more by a sense of accomplishment — the feeling that they have actually done something worthwhile. Of course, if you aren’t doing anything of real value, you have to go with money as a motivator. 😉
“If someone has managed to be paid what they are being paid, it is what they should be paid, otherwise they wouldn’t have been paid that much.”
I think that’s nonsense. In fact, my opinion is that management in most corporations are systematically over-compensated, due to the fact that management determines compensation. This wouldn’t be a real problem in a fully competitive free market, but we don’t have anything like one of those anymore. “Too big to fail”, remember? No such thing in a free market.
But requiring that high school dropouts also be over-compensated, if they’re hired in the first place, is hardly a rational response to this problem. They just won’t be hired. You’ll end up buying Roombas instead of hiring janitors.
Rather, we should restore a free market, so that management has to be satisfied with reasonable compensation, due to the threat of their firms going under if they bleed the company too much.
Starting with the end of “Too big to die.”
What works surprisingly well is what Hewlett and Packard called “Management by Walking Around”. Instead of sticking in their office reading reports about what’s going on in the business (or department, etc.), managers go out and observe things first hand, especially the people who report to them.
It has been said that Prussia’s rise had a lot to do with the fact that any public employee/official could at any time suddenly find his majesty coming into his office to personally check the books (and his majesty knew how to read a balance sheet all too well).
Second — because too much time goes into teaching the interface for the presentation software compared to teaching them to organize information and focus on what is most important and useful for their audience. In order for them to understand what is important they need to understand the subject on which they are presenting.
As my professor used to joke: Do you have powerpoint or do you have something to say?
I think that’s nonsense. In fact, my opinion is that management in most corporations are systematically over-compensated, due to the fact that management determines compensation. This wouldn’t be a real problem in a fully competitive free market, but we don’t have anything like one of those anymore. “Too big to fail”, remember? No such thing in a free market.
I agree about compensation, but I don’t think TBTF is the problem. Rather, our corporate governance structures and rules simply make it too easy for management to entrench itself, protected by boards it names and pays handsomely for not stirring up trouble.
If you want market discipline on management, and I certainly do, start by giving shareholders more power to determine pay and to nominate candidates to oppose management’s slate for the board.
@Hartmut:
My father worked for HP back in the days where you might well meet Bill or Dave practicing management by walking around. AFAIK, they worked hard to keep doing it even as the company got big enough that it was more of management by jetting around. I think it’s a style that works a lot better with a company that promotes from within and regularly moves people from line work into management, i.e. not MBA culture.
Blackhawk:
That said, why aren’t highschools teaching skills like powerpoint (holding my nose as I type) and webinars and presentation skills generally?
Sprog the Younger was taught Powerpoint in *elementary school* — which is about the right level for it, after all. But in general “meta” skills like presentation are taught haphazardly at the high school level, just enough for a particular subject class.
“Rather, our corporate governance structures and rules simply make it too easy for management to entrench itself, protected by boards it names and pays handsomely for not stirring up trouble.”
It’s not enough to explain the mechanics of how management leaches off of the companies they run, you also have to explain why companies burdened with such management don’t go under in the face of competition from other companies not so burdened. Otherwise the degree to which the leeching could take place would be limited by the need for corporate survival, the degree of parasitism would be limited by the death of the host.
Why, for instance, didn’t better managed Ford drive badly managed GM out of business? Why didn’t investment banks which made horrible decisions go under?
Because of “Too big to fail.”, that’s why. Because really big companies have enough political clout to get the government to over-ride the normal outcome of market forces.
The wild growth in income inequality isn’t a result of the free market, it’s a result of it being displaced by crony capitalism.
Brett,
First, you are failing to distinguish between a company and its managers.
Second, you are failing to notice that a great many compnaies with overpaid executives have not been the beneficiaries of government bailouts. The problem is not restricted to financial firms and car companies, and it didn’t just arise in the past few years. It’s been around a long time.
And I don’t, in fact, have to explain why these companies don’t fail. You do. You’re the one with the marvelous theories about how the “free market” solves all problems. I’m afraid you are doing what others who share your ideology tend to do, which is to scramble around for a way to blame the deficiencies of “the market” on government, no matter how far-fetched the reasoning needed to do so.
I’m glad to know Brett thinks someone is overpaid, at least.
But, yeah, TBTF can’t explain anything but a small sliver of why some companies don’t manage to drive others out of business (if that sort of absolute metric is appropriate), even if you limit it to overpaid management on the part of the government-bailed-out, not-driven-out-of-business companies. Compensation, in and of itself, particularly if considering only “management” (which I take to mean upper or maybe executive management), is a small piece of the overall financial picture for a large corporation.
Was there a big difference in “management” pay between Ford and GM? (Maybe there was. I honestly don’t remember.)
Oh, and you can’t replace janitors with Roombas. Even if that were some sort of hypothetical, representative case, jobs where machines can replace humans have already gone to machines for the most part. Raising minimum wage to ten bucks an hour isn’t going to change that dynamic significantly. Maybe if we were talking twenty buck an hour, the needle would move a bit.
” Even if that were some sort of hypothetical, representative case, jobs where machines can replace humans have already gone to machines for the most part. ”
That’s a line that’s moving every day, Hairshirt.
Only a strange thing happens: When you order that gas be sold at $1 a gallon, nobody sells gas. When you order that high school dropouts be paid $10 an hour to sweep a warehouse, high school dropouts stay unemployed.
It’s nothing but the worst sort of economic ignorance. It would be laughable if it weren’t so damaging.
Speaking about ignorance, Brett, maybe you should read the links involved in the story – http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-the-bills.html?_r=0
” The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.
In a recent study, the Boston Consulting Group noted that, outside a few small cities that rely on the oil industry, there weren’t many places where manufacturing wages were going up and employers still couldn’t find enough workers. “Trying to hire high-skilled workers at rock-bottom rates,” the Boston Group study asserted, “is not a skills gap.” The study’s conclusion, however, was scarier. Many skilled workers have simply chosen to apply their skills elsewhere rather than work for less, and few young people choose to invest in training for jobs that pay fast-food wages. As a result, the United States may soon have a hard time competing in the global economy. The average age of a highly skilled factory worker in the U.S. is now 56. “That’s average,” says Hal Sirkin, the lead author of the study. “That means there’s a lot who are in their 60s. They’re going to retire soon.” And there are not enough trainees in the pipeline, he said, to replace them. ”
That’s a line that’s moving every day, Hairshirt.
Yeah. I wouldn’t deny that. What I mean is that raising the minimum wage a bit isn’t going to significantly change the dynamic, even if the dynamic isn’t otherwise static.
KI think it was Montana that established the Walmart tax. The idea is to tax gthose busiesses atht have above x number of wmployees and pay them so litte that they are eligilbe for state welfare services. The tax then goes to the state to compensate for the defacto subsidy that the business is exrtrating from the state by their refusal to pay a living wage.
Better still, tax them, say, 150% or 200% of the gap. They may find it a bit harder to evade that tax with loopholes and creative accounting about “profits”.
But requiring that high school dropouts also be over-compensated
I think “requiring” gets into straw man territory.
It’s also unclear to me how “enough money to live on without public assistance” qualifies as “over compensated”.
The difference between the U-4 and the U-3 in the unemployment numbers is the number of people who have basically given up on finding employment. As of October 2012, that is about 7.5M people.
You tell me how much value seven and a half million people can create. Even seven and a half million janitors.
I guess my point is that most anyone could go to heavy equipment school and come out in a few months and work a backhoe in a professional setting, gas pipes and all.
Uh-huh. And have you done it?
I’m a librarian. I’ve had members of my own family say “You need a degree for that? I thought you just put books on shelves.”
As a rule of thumb, assume that everything people get paid money for is more complicated and requires more skills than it first appears.
Brett asked: “Why, for instance, didn’t better managed Ford drive badly managed GM out of business? Why didn’t investment banks which made horrible decisions go under?”
Ford CEO Alan Mulally explains that driving GM and Chrysler out of business was not in Ford’s corporate self-interest.
“If GM and Chrysler would’ve gone into free-fall they could’ve taken the entire supply base into free-fall also, and taken the U.S. from a recession into a depression,” Mulally says in the accompanying video, taped Friday at Ford’s world headquarters in Dearborn, MI. “That’s why we testified on behalf of our competitors even though we clearly did not need precious taxpayer money.”
Excerpted from this link:
http://finance.yahoo.com/blogs/daily-ticker/bailouts-gm-chrysler-were-good-ford-too-alan-113859133.html
I don’t know whether Mulally is overpaid or not, but he’s paid better than Brett or me for some reason or other, the latter two of whom shoot their mouths off gratis on the intertwats.
Some investment banks went under through just-in-time orderly bankruptcy or having their assets taken over by other institutions.
Lehman Brothers. Bear Stearns.
Glass Steagel might have prevented some of the damage, but we had those Chinese walls, right?
If we had arrested all of those wise guys who looked us in the eyes via CNBC, etc and soothed our worries with the words “Chinese walls”, we’d be a better civilization.
If we let all of the large investment banks go under without intervention and the world’s money markets had not cleared (they were frozen in place for too many hours as it was) for weeks, which was very much in the cards at the time, we would have had one final thread in late 2007-2008 on OBWI dedicated to which of all of us sh*t our pants worse, with Brett taking up the cudgel for some libertarian cannibalism to make ends meet while he printed Brett-scrip on his all-in-one printer.
There’s a pretty good article in the most recent New Yorker which discusses some of the history of taxation in the U.S., including the founding of the Federal Reserve and the Income Tax after the events of 1906-07 following the San Francisco earthquake, as financial institutions failed and markets cratered across the country and in London.
The U.S. Treasury was nearly brought down.
I suppose we should have let it go, just called it quits, so my grandparents could have been eaten then in the ensuing violence and I wouldn’t have been born to listen to curmudgeons tell us we should merely let everything fail with a wave of the hand.
In closing, I’d like a raise for once again spending my valuable time listening to the usual suspects, including the sell-side analyst in Doc’s post who criticized Costco for their enlightened labor-pay policies, tell us that folks who don’t make much money make too MUCH money.
May there be a rice cooker in that guy’s immediate future.
Preferably up his wazoo.
russell:
In my very humble opinion, the best alternative is employee ownership.
Why, russell, it’s almost as though you’re suggesting that the means of production must belong to the worker.
Makes sense to me.
As a rule of thumb, assume that everything people get paid money for is more complicated and requires more skills than it first appears.
Or that maybe anybody can do the job, but a skilled operator can do it enough faster and more efficiently than an amateur that it’s worth paying a premium. If a skilled backhoe operator can get the work done in half the time of a novice, they’re a bargain at twice the wages since the more efficient expert saves you the cost of a backhoe. That effect is magnified in fields where you simply can’t apply more equipment to a problem and have to get results by making the best use of what you can use. Even a small gain in efficiency may be worth a lot if it involves the use of extremely valuable resources.
there’s a lot who are in their 60s. They’re going to retire soon.” And there are not enough trainees in the pipeline, he said, to replace them.
And that’s true beyond manufacturing. Pretty much every large company in the United States that is more than 20 years old has one thing in common. They are critically dependent on a bunch of mainframe computer systems. For which, there are minimal staff under 45 (the mid-1980s being when everybody stopped training anyone new). Most of them are in their 60s.
Of course, the companies could just out-source support to India. And lots of them have tried exactly that. Unfortunately, while there are some really bright mainframe computer folks in India, they have one major lack: they don’t have a couple of decades of experience, nor immediate access to the folks who do have that experience.
As a result, a lot of those jobs which were out-sourced have now been in-sourced again. Of course, to keep the people who know those systems from retiring, you have to pay them serious amounts of money. Because while any one company only needs a moderate number, industry as a whole needs a lot more than are available.
Saying “skills shortage” is not going to fly when the systems that the company needs available 24/7 start crashing. Ah well, I guess they’ll just have to hire “temporary” consultants, and a big premium compared to regular salaries, to keep things running. (And isn’t it nice that IT jobs don’t have physical requirements that would make it hard to keep working past 70?)
that is about 7.5M people
and in real life, it’s about 750K.
mind the decimals. or, no math after 10 PM.
derp.
But management is a skillset in and of itself. Lawyers (my profession) are notoriously bad managers. You can be really good at trying a case, but really crappy at running a law firm. My father-in-law, who is an engineer, tells me engineers are similar. His department at Boeing improved dramatically when they brought in an ex-military guy to do the managing.
“These guys are professional managers,” he said.
My own experience with forklifts tells me that there is a huge gap between being just able to handle this type of machinery without Klausian side effects and being good enough to professionally work as a forklift driver (admittedly I am a hopeless case). And these things are a good deal more expensive than most people think, so imo it makes only sense to invest in professional handlers. Not only will they outdo singlehandedly* several amateurs but also not wreck the things within hours.
*also literally, the right hand should never even touch the steering wheel. That’s the first lesson once you are allowed into the driver’s seat. 😉
The wild growth in income inequality isn’t a result of the free market, it’s a result of it being displaced by crony capitalism.
Agree. You read Jamie Galbraith’s The Predator State didn’t you?
Are you coming full circle or just circling?
the right hand should never even touch the steering wheel. That’s the first lesson once you are allowed into the driver’s seat.
I’m curious. Why not?
Dr Science, I am of the opinion that it should be recognized that not all high school students are destined for college and that. even if college is being considered, there should be viable alternatives.
This is not to say that these students/young people are less valuable or some how deficient. Rather that they can best express their value (and hopefully gain personal satisfaction) in other ways.
I would really like to high schools a) teach skills that lead to gainful employment b) emphasize ‘a’ and incorporate the traditional cirriculum into achieving ‘a’.
In other words, rather than have some students sit in a class rote learning the quadratic equation, teach them machine work and, when a juncture is reached wherein successful completion of a machinist task depends on algebra, then and only then introduce the algebra.
I think this approach – for many students – would increase engagement during school years and lead to better post graduation employment outcomes.
For students in the machinist track, reading ‘Catcher in the Rye’ might not be required because, frankly, it isn’t all that important to these students.
I know this idea is unpopular among proponents of schools creating well rounded graduates, but there are only so many resources and only so much time before the hard realities of life overtake childhood.
Just my VHO.
But requiring that high school dropouts also be over-compensated, if they’re hired in the first place, is hardly a rational response to this problem. They just won’t be hired.
That’s begging the question.
Where’s you’re evidence that, for example, raising a given Walmart employee’s (a HS dropout, even) wages to $15/hour or $25/hour would actually make him or her “over-compensated”? You’re assuming they’re somehow already compensated at an appropriate level (i.e., their wages bear at least some kind of rough relationship to their actual value to the enterprise).
But that’s a huge and almost certainly faulty assumption. There’s a lot of evidence (in this thread and elsewhere) that wages are set according to criteria far removed from value or economi and that firms like Walmart are managing to get away with extracting a lot more value out of their employees than they’re actually paying out in wages. Which is to say: a lot of workers (incl. HS dropouts) are hugely and systematically under-compensated.
Remedying that (through, e.g., legislation and unionization) obviously just means trying to bring wages up to something maybe approaching fairly-compensated. Over-compensated doesn’t really seem like a huge danger right now.
Also, I am looking at criminal justice system stat.s.
Each year about 750,000 convicts are released back into society.
Each year, about 1,500,000 people are convicted of DUI/DWI. A similar number are convicted of misdemeanor drug charges (no prison time, but a conviction on the record).
I am in no way seeking to diminish the seriousness of drunk driving.
However, it should be noted that certainly a felony conviction and in many cases a DUI/DWI conviction or even a misdemeanor drug conviction WILL cause you to fail to be hired *even though you possess all of the requisite skills/experience*.
So *each year* our criminal justice system is creating almost 4,000,000 citizens that have compromised (at best) employment prospects.
This is a profound statistic and I don’t think it should be overlooked.
My personal opinion is that employers should not discriminate against an otherwise qualified applicant just because he/she got a DUI a couple years ago. Or had a legal trouble over a personal use amount of illegal drugs, but most employers disagree.
My high school, which had a student body of only about 500 and which I attended from 1983-87, offered vocational education for students who were not college-bound; some number of days per week (I believe it was three), they left school to attend class at Auburn Career Center, where they could study auto body, offset printing, cosmetology, etc.
Do schools not do that any more?
Just a plug for the well-rounded education approach. Not that there’s anything wrong with vocational training, but education is bigger than that, and people benefit by it. A lot of people don’t know what their interests are, or potential is, by the time they’re in high school, and having enough basic education to find that out is important. Once people try working a quadratic equation or reading Catcher in the Rye, they can make a decision that going further with those things is not for them. I would suggest that everyone would benefit by 1) being educated in a way that prepares them for further education, and 2) learning a skill.
We’ll never get over the stigma of labor if we draw lines between those who are too smart to work, and those who aren’t smart enough to go to school. In fact, some smart, educated people enjoy skilled manual labor and are good at it.
If we, as a country, are so wealthy, then it stands to reason that even our cashiers would be well paid. But, strangely, they aren’t and are paid the same or less than cashiers in less wealthy western countries.
Brett, in your ideal world, management would be starved to redistribute wealth up to the shareholders. I want less money to go to shareholders and more money to go to low-level employees, keeping pace with our growing economy, which libertarians keep telling us is the greatest, wealthiest in the world.
One other plug for the well-rounded education approach — albeit from the other side. Long, long ago when I was in high school (i.e the early 1960s), we had 3 tracks: Honors, Regular, and General. (This, mind you, in a school where over 98% of the graduating class was in college or junior college. So “General” was not exactly a track for future blue collar workers.)
Due to a scheduling conflict, I ended up in one of the General classes. And I have to say that that General Business class was the one which I have found the most useful in my life overall. Certainly otherwise I would have had no clue about things like the various kinds of insurance policies, or how basic accounting works.
Sure, the math and science stuff was important in college. And I wouldn’t have missed it for the world. But I don’t really need to know, day to day, how a botany or zoology key works, or that adding two acids together gives one which is buffered, and therefore less strong than you might expect.
So yes, a more well-rounded education. But not just more intellectual stuff for the trade school students. Get some more practical stuff for the college-bound as well. They (and, perhaps more to the point, their parents) may not appreciate it then. But a couple decades down the road, they will be far better for it.
wj:
In fact, one consequence of the 2008 crash was that NJ passed a law requiring one semester of Financial Literacy for high school graduation. Interest rates, how to balance a checkbook, how to compare credit card offers, budgeting: really vital life skills for everyone. To make room, they dumped the requirement for International Relations, which hadn’t worked out very well.
Get some more practical stuff for the college-bound as well.
To continue the OT trail for a moment…
My suggestion would be for every kid to have to write a business plan. For anything, at all. Make something up.
It’s a really interesting combination of skills. Planning, problem solving, analysis, some number juggling, persuasive writing.
I have a friend who (among a number of hats) has a private practice as an artist development consultant. So, if you’re a musician and you don’t know how to go about actually making a living at it, you talk to Peter and he helps you out.
Among the first things he does is have them work up a business plan. At that point, lots of lights go on.
It’s a really, really good way to focus your thoughts and intentions, and applies well to a really wide variety of situations.
Probably commenting during the course of ‘one of those days’ is not a good idea, so apologies in advance for intended and unintended snarks.
1. How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?
2. True Fact–if you pay your employees more than you take in in revenue, you go out of business.
3. We all pay, I assume, the least we can for the best product or service we desire. Can we all agree that this enlightened self interest creates market effects back up the supply chain that militate against a product or service provider unilaterally increasing costs?
4 Personal Note–on 9/1/12, I merged my little operation into a national lawfirm. A good deal for me and everyone stayed on with at least their current benefit program and, actually, everyone is somewhat better off, particularly in the long term. I did this primarily because, after trying three major cases back to back last spring, I realized I just don’t have the energy to do this at age 58. As it happens, I’m the only one in my old shop who has the skill set and ability to try a major case. Fact, not opinion. Getting older meant my business model, and thus my and my employees’ future livelihood was not sustainable. Because my business continues to grow, and because I could barely service my existing case load, the merger was necessary. Now, I have several peers who can shoulder some of my load, and a much deeper support bench. Fortunately, I fell in with a really, really great group of people.
5. A side effect of the merger is that I no longer worry about payroll or rent or insurance or any other damn thing except quality of service and getting in new clients. Today, is one of those days where ‘quality of service’ hit a snag. First, two out of three clericals called in sick. Side note: non-professional employees get sick at least once a month. Guaranteed, ninety percent of the time, regardless of pay scale. Second, today, and before noon, highly compensated professionals have dropped the ball on three separate cases in a serious way that, but for good luck, could have materially impaired longstanding client relations. Point of story: employees add value and they also screw up. Someone has to be around to fix the screw-ups. Pay scale follows competence, and competence varies. So does showing up for work.
@wj:
When I was in school, every student was required to take both shop (wood and metal) and home economics (sewing and cooking). I think they were all worthwhile classes, even though I already knew plenty about them. And I have certainly used the skills I picked up in typing more often than almost any other class I took in Junior High. Those aren’t really vocational classes, but they do provide valuable real-world life skills.
@russell:
I was very interested by something like that told by the other side. Alain Briot, a professional photographer, told the story about how he was struggling with overwork. He was selling more prints than he could easily produce, which sounds like a nice problem to have except that it was keeping him from going out into the field to make new work. He hired a business consultant to look at his operation, who wound up telling him to keep raising prices until his workload went down to a manageable level. Following the advice not only gave him time to photograph again, it also made his business a lot more profitable. It seems obvious, but to somebody who has spend his life training as an artist rather than a businessman I guess it wasn’t. Maybe if Academie des Beaux Arts had a basic business class as part of its required curriculum he wouldn’t have needed a consultant to tell him the solution to too much work was increased prices.
McKinney, I suspect that professional employees get sick just as often. It’s just that we routinely can, and do, work from home if we are too sick to come into the office. In fact, unless we are totally non-functional, we tend to work thru whatever it is. Non-professional employees are less likely to have that option.
P.S. I don’t know if I quite meet your criteria, being only a part-owner. But I definitely take part in hiring (and, when necessary, termination) decisions, and spend a significant amount of time getting customers (i.e. making sales calls). Not to mention the discussions of how much, and what kind of, work we can take on, and whether we can afford to hire the next person we need to add to the staff. It’s a delicate problem, balancing what we want to do with what we can afford to pay (including equity) — and finding the right people who are willing to work on those terms. If we can’t find them, we definitely grow slower.
I think you just don’t tend to notice your professional peers absense as much. Professionals are often out of the office anyway with clients or for attorneys court, whereas you rely on your support personnel daily for lots of things.
In offices I worked in I would almost never notice a peer’s absense, but would definitely notice that my secretary, paralegal, or receptionist was gone. I needed them in order to do my work.
“My suggestion would be for every kid to have to write a business plan. For anything, at all. Make something up.
It’s a really interesting combination of skills. Planning, problem solving, analysis, some number juggling, persuasive writing.”
Agreed. It’s a marvelous idea. Make it a semester long project. And then, not just write up the plan, but present it as well to a panel of mock financiers.
“How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?”
In a loose model using a lot of contractors and subcontractors, I have that experience. The bigest lesson I have learned is that you get what you pay for. Although, there is a flip side where you can hire the “top notch” expert and pay top notch $s for him/her, but really not receive much, if any, marginal benefit for your more than marginal expense increase (e.g. is a $750/hour lawyer really going to deliver twice the results of a $325/hour lawyer?. But there’s a good chance that the $325/hour lawyer is going to deliver substantially better results than a $75/hour lawyer)
It’s like there’s a definite point of diminishing returns to the “get what you pay for” concept. Knowing where that point lies is key.
I forgot to add that unless you are making a substantial return, running a business is not worth the stress. The daily decision making – sometimes make it or break type decisions – takes it toll.
I don’t think the avg worker bee truly appreciates what it takes. They assume it’s much easier than it is. Thus they can be overly critical of the large salaries that business owners pay themselves.
McKinney:
1. I for one don’t, but I’m not sure why you think this is relevant.
Certainly I think any relevant insights from someone who *has* walked in those shoes would be welcomed to the discussion. However, in general I don’t see why we should continue to give the likes of Isbister the benefit of the doubt when we have good reason to, well, doubt them. There’s plenty of reason to believe that lots of people who operate businesses are doing so somewhat stupidly and shortsightedly, or, alternatively, have various business goals they don’t cover in textbooks (like maintaining power over others and enforcing class structures).
And the experience of a small business owner is not even really part of the discussion for large firms, where those responsibilities are heavily divided up and delegated, and occur within a pretty rigid framework. (I’d say one of the key characteristics of the problems under discussion is the fact that it’s very difficult, in general, to align the personal concerns and incentives of mid level managers with the notional priorities of the organization itself. Large firms are basically chock full of sub-units and individuals acting at cross purposes to one another, ham-handedly implementing under- or over-specified directives from above, etc.)
2. Seriously? One of the primary topics of this thread has been the mountains of evidence that (1) American workers in the aggregate (particularly “low-skill” ones) are systematically *under-compensated* (they are receiving a smaller and smaller portion of the value they provide to their employers/economy), and (2) many firms may in fact be, for whatever reason, leaving money on the table by crippling their operations with poorly motivated employees (and too few of them at that). This is all the exact opposite of the risk that wages will exceed revenue.
3. I’m not even sure what this means.
In the hope that it’s relevant to you, I’d observe that exactly what “the least you can pay” actually is in any given situation depends on the relative bargaining positions of the parties. And it’s certainly true that America’s corporate employers have arrogated to themselves quite a bit of power over employment conditions. However, since this arrangement appears to be generating a lot of unfairness, misery, and economic disfunction, it seems to me that it’s a compelling argument for why we as a society might want to work to rebalance that balance of power a little.
Hey McK, good to hear from you on this issue.
1. How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?
My personal experience here is management at a very minor level, and making recommendations for how my employer’s money should be spent on some capital investments (i.e., software).
I’ve also done some work pitching the feds for R&D money, again at a fairly minor level (~$500K research grant proposals). Won some, too.
In no case has my own personal money been on the table. My @ss, maybe, but not my money.
All of that said, I am not a stranger to the pressures that small owner/operators live with.
3. We all pay, I assume, the least we can for the best product or service we desire. Can we all agree that this enlightened self interest creates market effects back up the supply chain that militate against a product or service provider unilaterally increasing costs?
Actually, I fairly often pay more than the lowest available price for goods or services of a given type and quality.
Sometimes I do so because I simply think what’s on offer is actually worth more than what’s being asked. More commonly, I do so because I prefer to patronize folks whose business models I like better than the alternative.
It’s actually not uncommon for people to do this, in my experience.
I don’t think the avg worker bee truly appreciates what it takes. They assume it’s much easier than it is. Thus they can be overly critical of the large salaries that business owners pay themselves.
I don’t think many people are concerned with what business owners pay themselves. Maybe C-level management in large corporations, who generally aren’t owners in the traditional sense. Yes, they get stock options, but lots of people own stock in almost any given publicly traded company.
For me personally, the idea of owning my own business seems like something of a living hell. If I were a one-man show or damned close to it, maybe I would consider it. In any case, the point is that I don’t think it’s easy to run your own business, even though I’ve never done it, and I generally don’t even think about what business owners pay themselves as it concerns income disparities.
“For me personally, the idea of owning my own business seems like something of a living hell.”
More often than not, your idea is how it ends up.
I do see top level exec.s and members of the board as quasi-owners because of the amount of stock/stock options they own, the amount offered as incentive and because they make the *daily* decisions that directly impact stock value – as opposed to the typical share holder who is just along for the ride. We could call them de facto owners.
However, I also do recognize that their role is not exactly similar to a single individual that owns and hands-on operates a business.
In no case has my own personal money been on the table. My @ss, maybe, but not my money.
But that’s fairly typical of even “business owners” and many entrepreneurs: the money comes from outside investors, bank loans using capital bought with the loans as collateral, etc.
Of course, I’m not sure how much “job creators”, as they fancy themselves, understand what life is like for the people they dismiss as “worker bees”, who have enormous debts in the form of mortgages and other expenses, which could all come crashing down if they lose their job.
I’ve noticed that most business owners simply don’t understand the concepts of writing a resume, applying for jobs, having an interview, etc., or have at least not done so in decades. As a consequence, they’re completely out of touch with the experiences of normal people and in many cases have little sympathy for their position, if not regard them with outright hostility, since every dollar of their salaries is an expense that the business owner would rather not pay.
HSH,
“even though I’ve never done it”
Everyone runs their own business. It is called “Family, Inc.” There is little difference between running a house hold and running a business, especially with kids.
You have to pay bills, hire help or coordinate consultants/contractors, coordinate and pay for childcare, ensure you are not spending more than you are earning, invest in the future (children), invest in retirement and healthcare, comply with regulations and taxes, choose your business partner (spouse), Ensure preventative checks and services are performed on equipment (cars, heaters, fireplaces, water heaters), maintain capital investments, etc. And failure means bankruptcy or worse.
And you have to ensure you are providing a service to your customer (employer/s) that ensures you keep getting paid.
There is no magic here. The primary difference is that you don’t always get to deduct your expenses from “Family, Inc.” But the process is the same.
“Everyone runs their own business. It is called “Family, Inc.”
I understand what you are saying, having raised a family myself. However, there is an important difference between Family,inc and really running a business.
With family, inc the primary source of income comes from (usually) a 9-5 gig. The CEO of family, inc has a well defined role at the 9 -5 gig and, as long as he/she performs satisfactorily in that role, the money keeps coming in (or at least it used to before the economy went to hell).
The owner of a real company has to live by his/her wits and guts constantly. There’s no leaving work at the office. Social life becomes all about maintaining and establishing new connections. Business problems come up in the middle of the night. The role is multi-faceted AND the owner probably has to manage family, inc as well.
with 1/2 of marriages ending in divorce and personal bankruptcy on the rise, it seems that a lot of people aren’t good managers, even of family, inc.
The thing that strikes me in all of this is that the market model for matching worker to job has failed.
There are thousands and thousands of jobs that are going unfilled. That means thousands and thousands of businesses have demand they could meet, and revenue they could generate, that they are leaving on the table.
The median personal wage income in the US is just above $26K. In many if not most areas of the US, that’s not enough money to live on without some kind of public assistance. It sure as hell is not enough if you have any dependents.
And “median” means that *half the people in the country make less than that*.
Market dynamics offer a simple solution: pay people more.
But we won’t do that, so the jobs go unfilled, and the economy suffers, and both the people who aren’t working and the people who are end up on some kind of dole so they can freaking eat.
And everybody b*tches because their hard earned dollars are going to pay for public assistance, but they don’t recognize that they’re *just making up for the wages they don’t pay up front*. Either as an employer, or as a consumer buying stuff at a big box that pays crap wages and sources everything from overseas.
US GDP per worker is almost four times median income. I don’t know how that compares to any other country. What does occur to me is that there is headroom to *freaking pay people more* without bankrupting every small business in the country.
We don’t do it, because we’re in love with idea of “free markets”, and getting things as cheaply as we can on an out-of-pocket basis.
Out of pocket costs are not the only damned costs.
A guy like Isbister wants to pay a skilled machine operator $10/hour to start.
Does he take a similarly low-ball approach to the machines? Does he tool up from the cheapest thing he can find on ebay in any given week? Does he scout garage sales for CNC routers?
Does he set up his shop in some crappy barn on the side of some god-forsaken hill, and run an extension cord from a nearby utility pole?
My guess is that he makes investments in his capital goods. He just doesn’t seem to see the sense of investing in human capital – in the human beings who can actually make something he can sell come out the other end of the damned machine.
So he won’t fill the slots, and he’ll leave revenue on the table, and his tax bill will go up so that the folks he refuses to hire for $20/hour don’t starve to death.
And eventually, he will be able to stop b*tching about his tax bill, because he will become poor enough to have little or no tax liability, and perhaps will find himself on the receiving end of uncle’s largesse.
It’s just stupid. Stupid, stupid, stupid.
I’m not trying to pick on Isbister in particular, he’s just today’s bog standard dude b*tching about how tough it is to make a small business work.
And he’s right, it is tough. Times are tough, and they’re tough on a hell of a lot of people.
Low-balling his hires is not going to solve his problem.
Blackhawk,
I don’t think that the vast majority of families operate on a 9-5 gig for employment. Most of us work in “at-will” states which means you can be fired for any reason or no reason, but not an illegal reason. And you can be fired because your boss sucks at being a “businessman.”
I can’t think of anyone who is not working thier own contacts, whether in the company they are in, or outside. We are all selling our wares.
We all live by our guts and wits. No one leaves thier “business” at the office. They leave their employers “business” at the office, just as every business leaves their customers business at the office.
You may think your hourly employees are not concerned about “Family, Inc.” 24/7, but you are wrong.
I love the “middle of the night” thing. I know you are a parent. Doesn’t that comment embarrass you? Have you never had a household emergency in the middle of the night?
And more businesses fail than marriages.
“Doesn’t that comment embarrass you? ”
No. Why shoud it?
“Have you never had a household emergency in the middle of the night?”
Yes. Of course I have.
My point was that business owners (not to over-glorify them) have to respond to business matters as well as family matters 24/7. The 9-5 worker, unless overly ambitious or overly obsessive, only has family to worry about during off hours. Though I recognize that the times are a changin’ and, given the current employment climate, Joe/Jane 9-5 has plenty to worry about on both fronts as well. I suppose that is why this recent election was all about “fixing” the economy. The 9-5 worker does not want that extra worry (and i don’t blame them).
“The thing that strikes me in all of this is that the market model for matching worker to job has failed.”
yes.
I am wondering about another angle.
Is it possible that the employers with open positions and potential employees with the desired skill sets are simply in different geographic locations and *that* is the problem?
Totally made up silly hypothetical: A machine shop in Wyoming can’t find skilled machinists. Only expert horse riding cowboys apply. Somewhere in Detroit several dozen unemployed skilled machinists are wondering why no one is hiring.
I know businesses have made moves based on tax incentives offered by states.
With family, inc the primary source of income comes from (usually) a 9-5 gig.
What jrudkis said, on all counts.
I know damned few people whose jobs are 9-5, who leave the job on their desk when they go home, and/or who aren’t called on to jump in for any of a variety of emergencies.
In my industry, it’s normal to have cycles in any year, lasting weeks to months, where 60 or 70 hour weeks are the norm. And no, I don’t get extra $$$$ or more than trivial comp time for it.
The “Leave it to Beaver” days of one income households where dad’s home for dinner by 6:00 are over and done.
The whole thought process whereby owners have all the risk, and ‘worker bees’ wander in, cash their paychecks, and live lives happily untroubled by the health or success of the enterprise as a whole, is divorced from reality.
The 9-5 worker doesn’t exist (except in government).
When I had a problem at my company (as part owner and vice president) I called everyone I needed in. I may have had to pay them (depending on status) but I got the people I needed to help. When we had a problem in the production area, I did not call the admins, but I sure did call in the useful people. They could refuse, but we are in an at-will state, and I would certainly have weighed that against them if it would be costly to the company, and I could replace them.
So, I honestly don’t know what you are talking about. Sure, the people who could not be helpful were not involved, but those who could be helpful came in or risked thier jobs…just like every business out there risks customers by not responding to need or requirements.
Do you disagree?
Everyone is a contractor. We are all working our skills. Some may have more job protections, but it is still sales of work.
Re:byomtov on the question of handling forklifts.
The left hand is for the steering wheel (by now there are also joystick-driven ones), the right hand for the controls. A driver taking his hands from either while in motion (and putting both hands on the wheel means leaving the controls unattended) violates basic safety rules. Particularly when going backwards (almost half of the time) the driver cannot see either wheel or controls and has to handle them blindly. If you move a hand away under these circumstances, the risk is far too high that you cannot move it back in time in a critical situation (or worse: that you grab the wrong one).
The accident statistics for forklifts and related vehicles are pretty shocking and in a high percentage of cases the driver underestimated his machine or overestimated his own abilities. Violation of basic safety precautions ranks high too. And at least over here the trend is worsening because there are too many formally qualified drivers that lack the practical training and experience and get hired at low wages over actual pros. I myself did the course (and acquired the driving licence) because I had applied for a job that required it as additional qualification*. I think in hindsight that it was a good thing that I did not get the job because it would have been very likely that it would have ended in a fatal accident. I have the licence but I would lie, if I claimed that I could safely handle a forklift under actual work conditions.
*They were looking for someone with a PhD in chemistry for a hazardous waste storage facility in an old underground salt mine. I assume that all movement underground would have been done by forklift and hauler. Definitely nothing for amateurs
First of all, as to McKinney’s first question, I have had an ownership stake in an enterprise, and I have been in charge of setting salaries. When the going has been good, people were compensated above market. When tough times came, the principals took the hit. Not to brag – my business isn’t a huge profit-maker, and nobody makes a lot of money. But everyone makes a living wage (well over minimum wage). My experience (as a principal) is not with a high-stress business, and I have no problem with people who have stressful businesses being well-compensated. But that’s not the issue. The issue is with the range of compensation. People on top perhaps deserve a lot of money if they’re highly skilled and stressed, but people on the bottom deserve a living wage. And their stress should be recognized too.
jack lecou, and jrudkis, you’re both right on.
As to family as economic enterprise, it is. People who hire otehr people to take care of children or the elderly, or who hire housekeepers or others, have to decide whether to pay a living wage, bonuses, vacation pay, sick pay, etc. It’s the same question a business owner faces: I might have to give up something in order that my employee has a decent quality of life.
Obviously, an enterprise has to bring in revenue, McKinney. That’s not the issue. The issue is how equitably the money is distributed.
(The whole “call in sick” aspect of things is worth an entire post. People call in sick for a variety of reasons: 1) they are sick, 2) they have to take personal time for a family matter or something else, 3) they need to do some errands that aren’t possible after work hours, 4) a million other things. Highly compensated people can manage some of these issues by hiring other people to do stuff for them, or by taking a flexible attitude towards office hours, putting an emphasis on “getting things done”. Minimum wage people cannot afford to hire other people, and often are denied work flexibility. Not to mention the fact that minimum wage workers don’t necessarily feel an investment in the enterprise, since they are treated as fungible commodities.)
A guy like Isbister wants to pay a skilled machine operator $10/hour to start.
Does he take a similarly low-ball approach to the machines? Does he tool up from the cheapest thing he can find on ebay in any given week? Does he scout garage sales for CNC routers?
Again, I refer to my experience from the forklift driving course. The instructor (who was also a chartered surveyor and ran a specialist company dealing with forklifts and similar machinery) had quite a few first-hand horror stories to tell. Use of run-down equipment often including forging the mandatory paperwork to cover it up seems to be rampant. Add to that the above mentioned cheapskating in hiring and one would expect the statistics to look even worse. In some areas (where foreign temporary workers get employed on a shaky legal basis) many non-fatal accidents probably never get reported in the first place. Yes, there is a gray market in used forklifts that should not be operated anymore at all. As I said far above, even a small forklift is a significant investment and companies want to recover at least parts of that by selling the written-off ones down the line.
How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?
I have personally had management responsibility, and been a part-owner, in more than one situation where failure was going to cost me personally a lot of money, one way or another, and where I had very nice upside as well. That didn’t encompass all the tasks you list – in particular I don’t do sales – but did include dealing with payroll and personnel decisions, among other activities.
Next question?
Blackhawk: The 9-5 worker, unless overly ambitious or overly obsessive, only has family to worry about during off hours.
Except that, if he is making the median wage, a) he probably is working a second job, and b) if he is not, he is worrying about where he can find a second job to get himself up to where he can provide some minimal standard of living for his family. Not to mention worrying about what he will do if the business that he works for cuts staff (i.e. him).
I suppose you can consider that “only worrying about his family,” but it comes down to worrying about the business he works for. Even though he doesn’t own it. Even though he therefore has minimal control over how well the business does. At least the owner has some control over his own fate; the employee, not so much.
Hartmut,
My decades old experience (1990-1993) in Germany is that you have way more controls over workers than in America. Even a driver’s license is way more difficult, and expensive.
Recently, my company could buy a small forklift and operate it for $5,000 ish/annum, with no regulation or training.
I have personally driven a car behind that forklift (forklift “in reverse” which was faster) on the highway at 2 am (as the ‘safety vehicle’) getting a small forklift to our work site when we needed it. Which we did because our prior forklift faied.
My point being that super efficient fork lift operators are not always necessary: I like the guy who drives it backward on the highway at 2am.
But the efficient guy probably would not have required my participation at all, because the first one would not have broke.
At least the owner has some control over his own fate; the employee, not so much.
I think I disagree with this. The employee has the same control. He is selling his work to this boss Just as the boss is selling the company skills), but could sell elsewhere. He could move, learn a new skill, or start a competitive business.
That we are all businesses does not mean that we have less control. It means we have more control.
jrudkis, driving the forklift on the road is not the problem, not even regulation-wise. What you need over here to do that is a standard driving licence and a licence plate for the vehicle. If the thing does not exceed certain criteria not even the standard weight limit for cars applies (it is treated essentially like farming equipment). The tricky part are quick maneuvers in confinded spaces. On the road the main danger are too narrow turns at too high a speed with no load. These things simply don’t pass the moose test 😉
Hartmut, our forklift was not road legal. I followed in the car at 2 am because it had no lights.
Its purpose was very technical, involving very high pressure, and experimental systems. But it worked, no tickets, and a fun story to tell about my time in a tech-start up.
McKinney, I’m sorry you had a bad day. To answer your question, after 18 years as a consultant (and president of a small consulting company, yes, with a payroll and all) I am back to being an employee. As with the reasons you cite, it’s something of a relief.
I heartily agree with russell. Writing a business plan is a great exercise and incorporating it in a high school curriculum is a fine idea.
russell: Actually, I fairly often pay more than the lowest available price for goods or services of a given type and quality.
I’d much rather have good quality than the lowest possible price. Of course, paying more doesn’t guarantee good quality, but searching for the lowest price usually includes sacrificing quality.
Russell, I also agree with you about investing in people. It does seem like the pendulum has swung far away from that. I’m hoping it has reached its maximum and is starting to return. But this is nothing new. See “a Christmas Carol” (a seasonal reference) or Oscar Wilde’s definition of a cynic.
sapient: When tough times came, the principals took the hit. Not to brag…
Yeah, I’ve been there too. It’s very unpleasant.
And, Blackhawk, yes, if expenses exceed income, ruin! (another Dickens reference)
Much of my opinion on these matters was captured by Bertolt Brecht in “A Worker Reads History”
Who built the seven gates of Thebes?
The books are filled with names of kings.
Was it the kings who hauled the craggy blocks of stone?
And Babylon, so many times destroyed.
Who built the city up each time? In which of Lima’s houses,
That city glittering with gold, lived those who built it?
In the evening when the Chinese wall was finished
Where did the masons go? Imperial Rome
Is full of arcs of triumph. Who reared them up? Over whom
Did the Caesars triumph? Byzantium lives in song.
Were all her dwellings palaces? And even in Atlantis of the legend
The night the seas rushed in,
The drowning men still bellowed for their slaves.
Young Alexander conquered India.
He alone?
Caesar beat the Gauls.
Was there not even a cook in his army?
Phillip of Spain wept as his fleet
was sunk and destroyed. Were there no other tears?
Frederick the Great triumphed in the Seven Years War.
Who triumphed with him?
Each page a victory
At whose expense the victory ball?
Every ten years a great man,
Who paid the piper?
So many particulars.
So many questions.
And then there is of course the Supply&Demand Song (Song von der Ware)
http://www.youtube.com/watch?v=4DgJZADHsyg
(Brecht, Eisler)
I’d much rather have good quality than the lowest possible price.
Just to clarify:
I will frequently pay more for *the exact same good*. Not more for better quality, more for the same quality.
I’ll do so if and when doing so supports or encourages things (or, sometimes, people) I value more than getting the cheapest price.
Out of pocket costs *are not the only costs*. Where and how you spend your money makes a difference.
“So many questions.”
That’ll be enough of that! Now pick up that craggy block of stone and stand there while I decide where it goes.
Don’t you understand the pressures and responsibilities that Caesar, Alexander, Philip of Spain, and Frederick the Great had to put up with?
You try being born with the last name “Great” and see if you can live up to it! You’ll see!
If I have the leadership abilities and discipline to stand in line at 3:00 am on Thanksgiving morning to get the cheapest possible price on a three-pack of T-shirts, then by God the rest of you can do without proper fire precautions in your gol-darned shirt factories.
And wipe that look off of yer face!
You want questions? I’ve got some for you:
“Courage! What makes a king out of a slave? Courage! What makes the flag on the mast to wave? Courage! What makes the elephant charge his tusk in the misty mist, or the dusky dusk? What makes the muskrat guard his musk? Courage! What makes the sphinx the seventh wonder? Courage! What makes the dawn come up like thunder? Courage! What makes the Hottentot so hot? What puts the “ape” in apricot? What have they got that I ain’t got?
DOROTHY, SCARECROW, TIN WOODSMAN
Courage!”
In response to the notion that the poor old owner or manager should get gazillions of dollars because they take all the risks and resposnisbily…
I have quite a bit of empathy for the SMALL business owner who has to take a lot of risk and respsonsiblity and who probably cannot afford to pay employees much or provide benefits.
But that
s not the subject of this thread, is it? We’ve been talking about Walmart and Costco and businesses of that size. My perception is once businesses achieve a certain size tha thte CEOs take none of the risks or responsibilities and, when they fuckup a la Carly Fiornino or a la Twinkie, they take the money and run.
Meanwhile the Walmart employee who “only” has a famikly to manage spends his/her life in a constant struggle to make it from one check to the next, focused on survival while every ordinary event (like Christmas, a new school year, a toothache) is a crisis. That person takes all of the risks and all of the responsibility.
Business problems come up in the middle of the night.
Keep your sex life out of it, Blackhawk.
*rimshot*
“Keep your sex life out of it, Blackhawk.”
yeah yeah yeah….that’s what the IRS told me too.
“We’ve been talking about Walmart and Costco and businesses of that size. My perception is once businesses achieve a certain size tha thte CEOs take none of the risks or responsibilities and, when they fuckup a la Carly Fiornino or a la Twinkie, they take the money and run.”
Well, we’ve been talking about machine shops too.
Any how, I agree with your point. It’s part of the cultural change – since the 80s – we discussed as well up thread.
Well, we’ve been talking about machine shops too.
But we haven’t been talking about how much the owner or CEO makes at the machine shop. We’ve been talking about how little they were willing to pay machinists, despite not having enough of them. Those are two separate, though not completely unrelated, topics.
They may come together when we note that a CEO at company X makes 300 times what the average staffer makes, but that’s also primarily about larger corporations.
Well, we’ve been talking about machine shops too.
… machine shops that try to find employees by paying them the same wages as fast food workers.
The power dynamic radically shifts when your business relies on skilled labor vs. unskilled labor. As you say, there is a certain “mindset” of a small business owner whose motivations go beyond simple “return on investment.” Part of that mindset seems to revolve around a desire for control and dominance, and that’s pretty much incompatible with a business that relies on a highly skilled labor force.
Mr. Isbister would probably feel more at ease, given his temperament, if he sold the assets of his machining business and instead invested in a McDonald’s franchise.
Everyone runs their own business. It is called “Family, Inc.”
In that case, I might be good at running a circus.
“They may come together when we note that a CEO at company X makes 300 times what the average staffer makes, but that’s also primarily about larger corporations.”
Are we just worried about the “fairness” of that situation – ’cause you know, life isn’t fair – or are we arguing that if the CEO “only” made 150 times what the avg staffer makes, the company could hire an additional 150 staffers and still have the same balance sheet as before?
I’ll wager that the machine shop owner isn’t making 300, or even 150, times what the machinist makes. It probably closer to 10 times and, IMO, that seems fair.
I don’t have anything to add, but this is an excellent symposium on this subject (see also this article about whether college educations are necessary).
Are we just worried about the “fairness” of that situation – ’cause you know, life isn’t fair
Well, it’s not “fair” for the CEO to only make 150X the workers’ salaries when the “market clearing” rate is 300X. But the CEOs may just have to learn to deal with life’s unfairness.
JustMe: there is a certain “mindset” of a small business owner whose motivations go beyond simple “return on investment.” Part of that mindset seems to revolve around a desire for control and dominance, and that’s pretty much incompatible with a business that relies on a highly skilled labor force.
You seem to have rather different experience with small business owners than I do. Sure, that is true of some of them. But most of those who empoly skilled labor are very aware of how hard it is to find good people. And how critical they are to growing the business; or even just to maintaining it.
As a result, they are generally willing to pay what they can afford (i.e. not the least they can get away with) to hire and retain them. Even when it means that they themselves are not making vastly more than their staff. More, but more in the 5-10 times range, not the vastly more 100+ times range that CEOs of big companies get. (And as Blackhawk notes, without the golden parachutes if they mess up.)
Are we just worried about the “fairness” of that situation – ’cause you know, life isn’t fair – or are we arguing that if the CEO “only” made 150 times what the avg staffer makes, the company could hire an additional 150 staffers and still have the same balance sheet as before?
Life isn’t fair. I remember adults saying that to me when I was a kid when I complained that they weren’t treating me fairly. Maybe I was wrong about whether or not the treatment was fair, but I do recall thinking, “Does that mean you have to be unfair? Can’t you still try to make life as fair as possible?”
I note that because we’re not talking about earthquakes or tornadoes, which have no agency. We’re talking about what human beings do and how it affects other human beings, something people can organize themselves together in an effort to improve – a situation over which they might have some degree of control.
That aside, it’s not just about fairness or offsetting the pay of additional workers. It’s about crappy long-term business models and overall economic health.
Are we just worried about the “fairness” of that situation
Personally, no, not really.
We have a guy who wants to hire skilled machinists. He wants to pay them $10/hour.
Who the hell is going to invest in training themselves to operate sophisticated machine equipment in the hopes of scoring a $10/hour job?
So, the job goes unfilled. Everybody loses.
“Who the hell is going to invest in training themselves to operate sophisticated machine equipment in the hopes of scoring a $10/hour job?”
No one.
This points to the sinister (conspiratory?) aspect of the situation. The employers’ position is, “Hey, you want a job or not? You have to accept that this is an employers’ market and take what we offer”
The skilled employee pushes back and say,”Hell no! I ain’t working for peanuts. I’m worth more”
At some point, something has to give. It looks like right now employers and skilled prospective employees are still in the entrenched negotiating stage. This in itself is a drag on the economy, but I think employers have an edge in that they are not yet losing enough contracts to be forced to compromise.
It’s about crappy long-term business models and overall economic health.
But crappy business models can endure for a long time. Especially if everybody has the same crappy model, which they learned in MBA school. Like, for example, maximizing short-term returns by cutting everything possible, including pay for quality staff and training to keep that staff excellent at their jobs. Sound familiar?
But crappy business models can endure for a long time.
Yeah, that’s a real problem. I’m not sure these abusive are actually unsustainable business models. It seems like they occupy some kind of stable local equilibrium on the landscape of economic institutions. It’s just that, if you zoom out, you realize it’s a really crappy one – especially from a bigger social perspective.
It’s hard to get out of that trap and try to jump over to some other, fairer more productive stable point. Unions and regulations, are part of the answer. The NYT piece in the OP also mentions trying to (re)build a new social contract. But the very idea of a social contract between employers and employees means recognizing that functional businesses and economies depend on relationships that are a lot deeper and more fragile than just simple exchanges of cash for goods and services at the lowest possible price.
Seems like that recognition is anathema to a lot of people though, or at least to the simple models of the world they’ve built up to justify their actions and beliefs.
I think the model is sustainable . . . as long as it isn’t challenged. But that’s exactly what imports allow: other models, from other management traditions, which out-compete that bad models. The more imports are available, the sooner the bad business models get hit.
One of the things that we have seen in the last decade or so is that, in addition to trade in goods businesses also face trade in services. In the short run, this has been good for Western businesses, which happen to have more experienced workers in (for example) IT. But as those experience workers retire, we are discovering that, Oops, we haven’t been training anyone to replace them!
So out-sourcing becomes more viable, but not because the experience is available elsewhere. Rather just because, when expertise and experience is not available anywhere, cheaper becomes the best short-term choice. Unless you have the wisdom to start training up your own expertise, even if it is somewhat more expensive in the short run.
I just had a sad, yet synchronistic experience.
I have been working on a project for the past year+. The funding is coming from a different department. It’s all related to a fed. mandate that will impact that may impact that department’s operations. In the course of the project I have come to know and appreciate a woman who has been acting as a liason form that dept. We’ve been meeting (professionaly!) once or twice a week. She’s always been helpful, knowledgeable and pleasant. Admittedly I don’t know how effective she is in her regular job description, but it’s hard to imagine her being other than satisfactory.
This is a white collar position.
This morning she told me that after 14 years with the company, she just received notice that her position has been eliminated, effective next week and that there is a hiring freeze (so no opprtunity to find another position). All of the sudden, with the holidays upon us, she is out of a job. Happy holidays!
So, an hour later, I am meeting with my boss and I tell him what happened to K. The compnay’s stock has been performing well. What’s going on?
So he tells me that, while the company is in very good shape, it has been noticed that our admin costs to revenue ratio is above industry standard. Even though our profit margins and revenue growth are also above industry standard, the admin costs are seen as problematic. Positions will be eliminated and hiring will cease until admin costs are brought in line with competitors.
I seems that someone(s) way up there are managing by simple metrics. I wonder if they considered that the admin (staff) that is costing is also why we are excelling.
You seem to have rather different experience with small business owners than I do.
I’m just playing off Blackhawk’s assertion that being a business owner isn’t really “worth it” for most people. Clearly there are psychic benefits to leaving those jobs unfilled rather than offering to pay more.
There are also psychic costs to difficult work. Why make $10/hr with no benefits at a machine shop when I can make $10/hr WITH benefits at Starbucks or Trader Joe’s? Same pay, but more benefits, less danger, and less proximity to a control-freak CEO.
Looks like working stiffs require certainty too.
This ‘we must adjust to the standard/average, if we are on the one side of it but not, if we are on the other’ attitude is a classic trigger for a death spiral because the adjustment move shifts the average as well.
An example from over here: The public transport system in the city where I live has lower ticket fees than the average of all the big cities in the country. This got used as an excuse for a fat fee hike in order to get the prices to at least that average (and maybe a bit more). But that lifted the average price for the country as a whole giving those cities that now were below the new value the excuse to hike their prices too. What do you think was the reaction of the local public transport company in the next round of price talks?
This is especially telling because those local companies did by their very nature not compete with each other (I cannot just take a bus in city B if I find the tickets in city A too expensive because I am in A not B).
Btw, the very different prices in different cities usually had quite solid reasons behind them and were not just arbitrary, so blindly comparing prices was silly in the first place.
One thing to note in the whole dynamic here is that the small manufacturing businesses who’re paying their people $10 an hour to start are having to pay those prices because Big Box Store Corporation is treating the small business exactly the same way that the small business ends up treating its workers. “Give me x thousand widgets at my lowball price or I’ll buy from China and screw that Made in the USA sign.”
Everything south of the Big Store gets squeezed for profit margin and when the price point has to come lower because the people they are selling to are the very people that they are lowballing on the other end, well, just squeeze harder.
It’s not just the Big Retailers either. Just ask anyone who drinks an AB InBev global brand beer like Bud or Becks.
Vampire capitalism.
Death spiral.
Blackhawk: At some point, something has to give. It looks like right now employers and skilled prospective employees are still in the entrenched negotiating stage.
Does this remind you of anything?
when you can fire someone and hire someone else cheaper, why pay a living wage. pay what you can get by with. the American way for a long time now. gutting the social contract has its’ own consequences. the value of having workers compete against each other for what few jobs there are is how we got into the downward spiral.
hiring illegals or undercutting higher wages allows for cheaper lower wages. the business may boom and the owners/somebody makes more money, but not the worker. stress for the “expendable” human. throwaway people in a throwaway society.
watching business hire illegals to undercut existing wages is the end all and be all of business for a long time. to watch business hire cheaper “cogs” and then offshore jobs, well. that kind of says what matters most.
money over people. and i always thought it was people who bought the things business made. silly me.
Folks, machinists are probably a bad example to use here, being a skilled trade which is genuinely in short supply, and from my experience having oodles of negotiating leverage as a result. I’m a tooling engineer with 30 years experience, and I wish I got paid like a machinist.
If you want your kids to be well off, and able to quit their job any time they want to take a long vacation, confident they can get another job when it’s over, encourage them to become machinists.
Salary.com puts the national average salary for a CNC operator at $36k.
$18 an hour, $3K a month.
Not bad, but unless you live in a tent and have no kids, no long vacations, either.
One of our CNC operators was the highest paid person (salary) in the company at $90k. More than the CEO, more than the attorney. But he was an artist (and was not getting any equity). And he absolutely could write his own ticket. We either treated him well or he walked.
But we didn’t find others that could compete with his ability/attitude, and they got less, but still hit about $70k.
Our shop was making one-off high pressure vessels and machine parts for presses we were designing, so each piece required individual programming, rather than setting a standard program to churn out identical items. Your typical operator would not have the skills to do that efficiently.
I think a lot of skilled labor like machinists or pipe fitters have to deal with boom/bust demand cycles though. I know people who were building power plants near Boston during the Big Dig and their big problems was that they couldn’t get skilled tradespeople for love or money; the Dig sucked up everyone. During that time, skilled tradepeople could charge a lot of money, but when the boom ends…
This might matter more for folks whose skills are primarily useful for large capital intensive projects.
“If you want your kids to be well off, and able to quit their job any time they want to take a long vacation, confident they can get another job when it’s over, encourage them
to become machinistswork to promote public policies that do not act to redistribute wealth upward.”bobbyp,
You overlook the wingnut welfare complex. What you REALLY mean is:
The Grovers and Dineshs of the world, not to mention the Coulters and Limbaughs, do pretty damn well for themselves, don’t they?
–TP
Yes.
They man the bullsh*t machines.
You overlook the wingnut welfare complex.
Possibly, but doesn’t welfare destroy incentive? 🙂
Russell, I said “machinist”, not “CNC operator”. I guess you don’t know the difference, but trust me, it’s about as big as the difference between a butcher and a surgeon. (They both cut meat…)
I’m a pretty firm believer in the notion that you really can’t know how hard other jobs are until you try them. My university has an attached pre-school, junior high school and high school, and both my daughters went to the pre-school, and my oldest is at the junior high school, and all the teachers (especially at the pre-school) make me look like a piker. (I have a theory that society would be much better if pre-school teachers were paid like university profs and vice versa)
With that thought in mind, Brett, I’d really appreciate your thoughts on what is the difference between a machinist and a CNC operator. I have only done the minimal shop classes and some wood working, so any explanation should be pitched at an absolute beginner for all this.
LJ, a CNC operator is essentially just a production line worker, who tends a CNC milling center, instead of a riveter or whatever. They’re generally employed doing repetitive machining tasks, or at best dealing with a limited range of tools and jobs. It’s not an unskilled trade, but the work requirements are somewhat limited.
A machinist is a skilled tradesman capable of taking a drawing of a part, determining how to make it, and carrying through the process on manual or CNC tools. They are mostly employed making one off parts, such as fabricating urgently needed repair parts for machines, or new tooling for the production line. Often working to micron or tighter tolerances.
They’ll be familiar enough with metallurgy to do heat treating, understand the function of the tools enough to get the maximum accuracy out of them, and often do some of the design work themselves.
Here’s an example of a job posting for a machinist.
Actual machinists are in very short supply right now, and have been for some time.
I should note that, while I can find my way around a tool room, handle a milling machine, late or grinder, and have done some CNC programing, I wouldn’t begin to qualify as a machinist. Just as our machinist couldn’t design the tools I design; We both have extensive job related knowledge the other lacks.
The difference is, HE gets overtime, darn it!
Thanks Brett, that’s helpful. I read the job posting, and I’m pretty amazed that the person starts at $25 to $27 an hour, it sounds like an incredibly demanding job. Assuming 22 work days a month, that’s $4,400 to $4,752 a month at that wage.
I was curious what the equivalent for Japan would be, and I found this page, which suggests (at the current exchange rate) $1,440 to $3,150 a month, though my dictionary says that the kanji I think is machinist can also be mechanic, so I’m not sure if this is correct.
Anyway, thanks for the info, I appreciate it.
LJ, an (auto) mechanic can do pretty well also these days. In case anyone hasn’t heard, a new car typically has dozens of computer chips in it, and the first thing an auto mechanic gets to do is run disgnostics on all those little computers and the software that links them all together. The physical work on mechanical parts is still part of the job, but computers have infiltrated their workplace even more than they have impacted most of us.
How much more? A friend of a friend was at Thanksgiving dinner. She has an IT degress, and is working (for Tesla, as I recall) as a systems architect on the network of computer systems in their new car. Something approaching 100 different systems, all of whichg have to not only function correctly, but talk to lots of other systems. And eventually, some “auto mechanic” will have to know how to diagnose those systems when something goes wrong.
Yes, you can still be a relatively low-skill guy and make so-so money as an auto mechanic. But mostly, if you are good, the only limit on you is how many different car manufacturers’ systems you are familiar with. (The SAE hasn’t, yet, done for auto computer systems what they did for auto mechanical parts a century ago.) Good auto mechanics — even harder to find than they used to be.
Yes, that’s the tragedy of the decline in high school shop classes and vo-tech; The jobs those represented a path to are actually very well paid, better paid than a lot of the work a college degree qualifies you for. (Especially some of the degrees people foolishly go into debt for.)
The skilled trades have been under-promoted as a career choice in K-12, much to our nation’s detriment, and to the disadvantage of a lot of people who’d have enjoyed good pay for doing interesting work. You might end up a little greasy, but you can afford the soap…
Sorry, didn’t mean to diss mechanics, just wasn’t absolutely sure if the salary figures were comparable to machinist.
Russell, I said “machinist”, not “CNC operator”. I guess you don’t know the difference…
Sure, but the point was that the guy who does work related to that of a machinist, who you describe as being less skilled and less knowledgeable than a machinist, was the highest salaried guy at the company. So how does the fact that the guy is less than a machinist lessen the point?
That aside, there are a few particulars that you seem to have missed, given that they seem to speak directly to your later points about what makes a machinist different from a CNC operator:
And machinists are and excellent example for this post, which was about companies not offering wages sufficient to attract people with the requisite skills to fill open positions. They’re offering machinists $10/hr – machinists! – the very people you say are so worthy of good pay because they are highly skilled and hard to find.
That’s exactly where the “WTF?” comes from here. It’s ridiculous, no?
HSH,
I was comingling CNC operator and machinist. You can be either or both. Some machinists cannot operate a CNC,(though they are getting far less useful today), and many CNC operators have no idea how to use manual tooling. I think we are referring to a machinist level knowledge of CNC operation.
Where I was discussing our highest paid guy, he is definitely a machinist level CNC guy, able to make things with manual tools as well as CNCs, program the system, and keep the tools from crashing into the piece. A CNC operator would most likely take someone else’s programming, set the material in the machine (which is a precision skill, and we are talking about metal pieces that often weighed hundreds of pounds), and run the system. But he did not do the artist part, which is making the program work efficiently with the tools at hand. He mostly just watches in case there is an error. For example, I would sometimes take the midnight shift to baby sit the machine as it was cranking away on a block of steel. I was not even an operator, but I could hit the big red button if a tool crashed the part, or it ran out of fluid.
This kept us from burning out the machinist so he could work his magic the following day, and we could keep the machine running as close to 24-7 as possible. But watching the machine was probably worth about $10/hour (but I was salary, so it was free).
I guess you don’t know the difference, but trust me, it’s about as big as the difference between a butcher and a surgeon.
You are correct, I am not that knowledgable about the differences between different job responsibilities and roles in a manufacturing shop. I appreciate the explanation in your 7:52.
What I note is that the job description you cite pays about $25.00 / hour. That’s about $50K a year excluding OT.
It’s great that there’s solid demand for skilled manufacturing folks, but IMO $50K, while a good and solid wage, doesn’t really rise to the “take a long vacation” level.
I’m glad to hear from jrudkis that skilled guys in his shop are making closer to $100K. That seems right on, to me.
Also, I agree *100 percent* with this:
The skilled trades have been under-promoted as a career choice in K-12, much to our nation’s detriment, and to the disadvantage of a lot of people who’d have enjoyed good pay for doing interesting work.
Absolutely.
And, IMO, the fact that vocational or technical training is seen (when it’s even available in the first place) as the place to send the “dumb” kids – the kids who “can’t make it” academically – is part of the problem.
Trade work and manufacturing work can be extremely interesting and challenging work. It creates a lot of value, and can be very demanding in terms of the skill level it requires.
It deserves respect and solid compensation.
My two cents.
We always offer a penny for your thoughts, Russell, and you consistently give double the effort and value.
You’re under-compensated.
I’m recommending you for a raise.
Don’t tell the others.
We don’t want them organizing.
I’d just like to add that I misread Brett’s comment, which was in response to russell and not jrudkis. I missed the “I” part of “I said”, so I thought Brett was telling jrudkis what russell said, which totally screws up whatever point I might have thought I had.
“What I note is that the job description you cite pays about $25.00 / hour. That’s about $50K a year excluding OT.”
Please keep in mind that is starting pay. In Alabama. Pretty darn good for a high school graduate, in a job where the apprentices get paid while learning their trade, instead of having to spend 4-5 years paying enormous sums for their educations.
What struck me in the job ad Brett linked to is this:
Base Pay:$25.90 – $27.19 /Hour
Not $27.20, mind you, because that would be a penny per hour too much, apparently.
I guess the Invisible Hand really values labor with machinist-like precision in The Free Market. An extra 40 cents a week would be out of tolerance, as it were. An extra $20 per year would be more than the job is worth. On the flip side, $25.89/hr is evidently too low to attract sufficiently qualified applicants, so $25.90 it is!
–TP
That’s what happens when people use calculators, and don’t bother rounding. 😉