May 8, 2010

"The Strategic Imperative Not to Hire Anybody."

"[CEOs have] decided that we've touched bottom, or they wouldn't be talking to me... They're starting to think about growing their businesses again.... But boy, I don't see employment coming back, not for years. My clients were amazed by how much productivity they could squeeze out of their people in the downturn. They're not going to start hiring again — well, maybe temps or contract workers, but not regular, full-time employees... In fact, the CEOs are mad at their middle managers for not having eliminated more jobs earlier."


Kirby Olson said...

I read this fine little book yesterday called The New Deal Comes to Brown County (Doubleday, 1936), by a man named Benjamin Wallace Douglass.

Brown County is in Indiana. Douglass owned a peach and apple canning factory which dovetailed with his orchards. In 1929 when the economy tanked, he went right on employing workers, and canning fruits.

But in 1933 the National Recovery Act went into force, and it meant lots of incomprehensible paperwork. So he fired everybody and only let his close relatives work at the plant, because he didn't want to do all the paperwork. He said he couldn't understand all the regulations, and he kept getting visits from bizarre areas of government.

I suspect that the not hiring is part of that -- with all the Byzantine rules that accompany stealthcare and the other new ideas the Democrats are cooking up, people prefer to focus on getting something done aside from filling out endless government forms.

The fewer people you have on staff, the less red tape.

I wrote more about this charming little book on my blog this morning. No one had checked the book out since 1941, and I thought I would read it through. It's amusing as heck -- first serialized in the Saturday Evening Post in the 1930s.

The Drill SGT said...

The fewer people you have on staff, the less red tape.

The industries that typically lead a recovery are hospitality and retail. These are going to be hugely depressed by Obamacare. They both use large numbers of p/t staff and are the labor entry point for the unskilled and/or young.

Obamacare mandates that all firms with 50+ employees or FTE's (calculated at 30h/week) must offer health insurance. These sectors traditionally did not offer healthcare to most of their staffs (regardless of what anti-walmart unionists argue).

This is a large burden that is going to force both these sectors to shed staff and go to a more capital intensive model (e.g. buying more prepped or pre-cooked foods in fast food places)

rhhardin said...

Capital is on strike until Obama goes away so demonization ends and there's some message that the government will stay out of the way.

Moira Breen said...

Smart companies have picked up on this aspect of fiercening capitalism.

"Fiercening". What a great word. Unfortunately, if the Economy fiercens up to maximum efficiency without figuring out what to do with all those excess workers, we might get the side effect of a lot unemployed, hungry and angry people fiercening up, too. What we need to do is fiercen up redundant /inefficient-worker removal programs. (With cool fiercened acronyms, like LOSER. Accepting suggestions for that backronym. Husband just came up with "Low-efficiency and Obsolescent Systematic Employee Removal".)

What happened to technological development and increased efficiency providing for our needs so fiercendly, that we all got to sit around in sky-cities devoting ourselves to art, porn, or philosophy, as the spirit moved us? Didn't Pelosi promise us that HCR would finally bring about these theoretical boons of enhanced productivity?

wv: porpse. Dead dolphin.

HT said...

I like Bill Gardner's comment, in the comments section.

Scott said...

It seems so obvious that government at every level creates barriers impairing a business's ability to hire and retain employees. Leftists fail to address this because, when you get right down to it, they don't care about people having jobs. They just care about the right people being in power, and maintaining a political environment that sustains their power.

HT said...

Guys, are we reading the same article?

"The trend dovetails nastily with changes underway for a long time, but up until recently not so unpleasantly evident. Our manufacturing sector sheds jobs not so much because those devils overseas are grabbing them, but rather because of technology-driven productivity gains. As Shoshana Zuboff pointed out a couple decades ago, the representative factory worker of the future will be a woman standing in an air-conditioned glass booth, monitoring gauges, whilst all about have fled, or been job-eliminated."

SteveR said...

More than a few years ago, it was explained to me that often when a company lays off workers, its stock price will rise. They are likely to cut expenses more than productivity.

With the additional expenses/taxes coming into play, I expect "doing more with less" will be the norm. So will "more people living off the productivity of fewer people".

Michael Hasenstab said...

Increasing volume in residential construction and car manufacturing usually indicate when a recession has ended.

Not happening. The cars that are being sold are being sold only because of free financing and discount pricing.

New home construction remains at the level it was at during WW2.

Hiring may slooooowly increase on other sectors. But what business owner wants to hire while potential tax increases of unknown size loom, and while the debt structure of the US has swept the banks clean of money that business can borrow to finance expansion?

Xmas said...

From the point of view of my company and myself, we are seeing a big spin up in infrastructure improvements going on in big companies. They're spending on upgrading their equipment and business software to increase the productivity of their current employees. I've heard the same from a much bigger consulting company.

That means that large companies are really looking to leap out ahead of any competitors that are in bad shape. So I expect that you'll see companies that are in bad shape now fall further behind.

What does that mean? You'll see another jump in unemployment, but at the same time...the unemployed now are no longer just the dead wood. You've got skillful people with free time on their hands and nothing to lose from trying something new.

Moira Breen said...

HT: Guys, are we reading the same article?

Yeah, I noticed that, too. The job-destroying propensity of government regulation and interference is a problem, but it ain't the one being discussed in the article.

c3 said...

Our friends, neighbors and loved ones who can't get jobs are the larger good. The supposedly self-regulating market mechanisms clearly aren't working for them. We need a nationwide crusade on their behalf, both governmental and private,

Companies do not exist to employ people.

(And more for less has always been the business motto. Individually we want to be a part of the "more" not the "less". But that's our problem not the company's.)

The Drill SGT said...

Michael said...Not happening. ....New home construction remains at the level it was at during WW2.

And as it comes back you continue to see more and more "pre-manufactured houses. All those frames pre-cut and pre-assembled at the factory to custom plans, then trucked to the location. Assembled by lower skilled folks. Same with stairs. Nobody builds stairs, you pre-order custom built risers from the factory.

edutcher said...

Looks like the Zero gets another one of those Euro lifestyle changes he wants. Permanent unemployment of 10%, rather that 3. This is the "good news" of unemployment up .2%; we've added some jobs, but we're still losing more than we're adding. Happy days are here again!

The tendency to use temps and contractors has been a hallmark at the place where I used to work, but the idea of working the FTEs like slaves and holding over their heads the slogan, "Be glad you've got a job", may only last so long. It may have a breaking point the Haavahd School of Business types never considered. They are, after all, the ones who gave us this mess.

I presume the Demos figure all the people out of work will go on welfare and vote Democrat for the rest of their lives, but they haven't considered the ability to pay for it. The commies are the ones rioting in Greece, but I'll bet there'll be a lot more "diversity" when it starts here.

TosaGuy said...

"HT: Guys, are we reading the same article?"

Increased cost of workers due to government (and other factors) pushes business to replace workers with technology where it feasibly can.

Look at your mechanization at the local McDonalds. It introduced a cash cow with its coffee drinks created with a push of a button. The machine advances the bottom line without incorporating a single new employee. The machine creates a product 3/4 as good as a fancy coffee house at 1/2 the price....all without the snootiness.

You want lots of new jobs, then remove all employment regulation except basic safety concerns.

Kev said...

In fact, the CEOs are mad at their middle managers for not having eliminated more jobs earlier."

The CEO's should have eliminated more middle managers, who--like most government bureaucrats--are, by and large, useless. Then they'd have more money to hire people who actually do and make things.

It seems so obvious that government at every level creates barriers impairing a business's ability to hire and retain employees.

One of the main elements of a true recovery will include dramatically shrinking the size of government (thus laying off more useless "middle management" as stated above). Outlawing public-sector unions would go a long way toward saving money as well, since people would be paid for 1) doing something and 2) being productive at is, as opposed to the current setup, which seems to value longevity alone over everything else.

EDH said...
This comment has been removed by the author.
Expat(ish) said...

@Kirby "The New Deal Comes to Brown County" - not at my library and used copies on are $100 and up. Worldcat says there is a copy at Duke but because of hoodlums and liability the public can't use the library anymore. Sounds like a great book, too bad.

Productivity is a narrow measure, and you can drop a lot of important but not critical ancillary activities and make as much product as before. But you don't have an engineering library or you don't do quite as much field testing, etc.

It catches up with you after a while. Ask the guys at Nortel.


The Drill SGT said...

edutcher said...
This is the "good news" of unemployment up .2%; we've added some jobs, but we're still losing more than we're adding. Happy days are here again!

I agree with all your points except this one.

We gained jobs last month, HOWEVER, of the 260,000 jobs gained, something like 50k were Census temps, so now you are down to 210k of real jobs. Now the economy has to generate 150-200k jobs a month just to stay even with population growth. So we're pretty much at long term steady state. Not a huge happy face when you consider that there is a pent up demand for jobs built into those millions who are discouraged and "no longer actively seeking employment." or working p/t, but want more work" That U6 number is around 17.5%. Unless and until the economy starts churing out lots of 6% quarters, unemployment is going to be double what it was previously for years and years.

stagnation in a word....

The Dem's need to take their boots off the necks of the capitalists before private sector jobs are going to increase much.

EDH said...

HT’s comment, if I read it correctly, rightfully questions whether the trends behind this “imperative” can be ascribed to public policy.

But take note, this article is focused on large companies that are well into their first product life cycle, if not been through a few already.

Indeed, technological change and shorter product lifecycles are likely to be the main drivers in lowering permanent employment by larger, legacy organizations, such as these, over time.

Nevertheless, where the disincentive and punitive effects of public policy are most likely to manifest themselves is in the smaller upstream industries, emerging technologies, and the goods and services citizens provide to one another outside of the large corporate delivery systems typified by the article.

These firms have always been the last hope of capturing, domestically, the opportunities for employment that should be afforded in an economy as a consequence of such productivity increases.

The scariest part, prospectively, is the degree to which the dominance of the corporatist model described in the article “dovetails” with the emerging statist model.

Bruce Hayden said...

So far, true believers on the right. It will be interesting how our resident leftists respond.

Being one of those true believers on the right, I am reminded a bit of a discussion yesterday (I believe) on about economic illiteracy. It appears that those on the left appear to be more economically illiterate. But more importantly, and what I don't think was covered there, is that those in Congress on the left are likely to be substantially more economically illiterate than those in Congress on the right. Why? Partly, because they tend to be professional politicians instead of business people who are spending a term or two in Congress. Or, if I may stereotype a bit more, many of the rest of the Democrats came up through the labor/union side, or didn't have to work for their wealth (ok, John Kerry had to work to marry that well twice). In other words, few have small business backgrounds, where they have had to make a payroll. And so, they follow equally clueless academics who also have never had to make a payroll.

This Administration seems especially clueless when it comes to how the economy, at the grass roots level, actually operates. They are surprised, and still in severe denial, about how their almost billion dollar "stimulus" plan seems to have raised unemployment, instead of reducing it.

They have done pretty much the wrong thing economically whenever given the choice since taking full power early last year. They have facilitated giving government employees raises, while everyone else is getting laid off. Indeed, government employment is pretty much the only sector that has increased employment. After squandering all that "stimulus" and much of the TARP money on their political supporters. As a result of all that, plus other out of control spending, instead of cutting, or at least leaving alone, tax rates, they are constantly seriously talking about raising taxes, and doing so mostly on those who would normally be investing in new jobs. And, make no mistake, allowing the Bush tax cuts to expire will be a major tax hike on the productive sector. But they want to add even more taxes to small and medium sized business owners. Throw in ObamaCare, rises in the minimum wage, increased regulation of the financial sector and by the EPA, and the environment for creating jobs is getting bleaker and bleaker by the month.

rhhardin said...

How many millions of ditch diggers were thrown out of work by heavy power equipment!

rhhardin said...

The country that lost the most jobs in the 90s was China.

save_the_rustbelt said...

Last survey cam across my desk, 55 - 65% of workers want to change jobs after the recession ends.

Pay back is a bitch.

save_the_rustbelt said...

I'm surprised anyone at Harvard had time to write this.

I thought they were all busy teaching MBAs how to loot the economy.

edutcher said...

Sarge, I have no problem with what you said.

gbarto said...

"Companies do not exist to employ people."

True enough. But society does not exist to provide workers and consumers for companies either. And it sure as hell doesn't exist to pay the bill when companies screw up. Should government be trying to turn companies into "job factories"? No. But neither should it provide Wall Street and auto bailouts, nor subsidies for higher ed so companies can select "talent" trained on the taxpayers' dime nor the web of regulations that cement big business' position and freeze out upstarts.

I don't want the government to make a better, cushier job for me. But neither do I want to hear about how for the good of the economy we should be using tax and regulatory policy, never mind taxpayer dollars, so that people with this mindset can keep their enterprises afloat. The justification for a lot of policy toward companies is that they provide jobs and that's important. If they're not providing jobs, or not providing as many, why should our society give a damn what happens to them when they don't give a damn what happens to us?

This guy has it exactly right:

[T]he idea of working the FTEs like slaves and holding over their heads the slogan, "Be glad you've got a job", may only last so long. It may have a breaking point the Haavahd School of Business types never considered. They are, after all, the ones who gave us this mess.

ronski1234 said...

Finally someone has admitted what's really going on out there. I'm unemployed, I'm looking at the listings every day. There's jobs out there, only with an increasingly large percentage of 'em you can't make any real money (and have no security). They're temp/contract with no benefits, or parttime. The parttime bit is so the companies don't have to pay benefits-- same deal.

This is why the positive spin on employment stats now is so much BS. They're treating 'jobs', any 'jobs', equally. The underemployed (would like to work fulltime, but can't find it) rate is the highest in 17 years. And the high percentage of jobs through temp agencies (I think it was 48,000 last month) is being spun positive, as 'a traditional indicator of future hiring'. This is pure fantasy if the trend instead is to use temps continuously.

If you take a fulltime, 40-hour position with benefits and replace it with a no-benefit temp job, is that the same to the employment market? Or if you take it and replace it with two 20-hour no-benefit positions, can you now claim there's been a 100% increase in jobs? That's the sort of logic being bandied about by the current cheerleaders.

Paul Zrimsek said...

No doubt we'd be hearing a lot more of this sort of thing out of Harvard if there were any way of saying "Jobs are the larger good" without thereby saying "European-style welfare states suck".

Craig said...

These companies cannot continue to "grow" their business by simply refraining from hiring. At some point -- if they want to grow and not just maintain profitability -- they will have to invest in technology.

That technology requires people to design it and build it. It's the same capitalistic process that's gone on for centuries.

Our problem is not that companies will refuse to hire; it's that they may well not invest in new capital goods to make production more efficient. Why invest if the results may be taken from you?

Given the Obama administration's apparent antipathy to success, it's a real danger.

John said...

Douglass's book "New Deal comes to Brown County" seems to have been scanned by Google Books. Nothing of it is available. I presume due to copyright issues.

This is a perfect illustration of how our copyright law is broken. We can't buy the book because nobody will offer it.

We can't read it online, because someone owns the copyright.

I would happily pay something to be able to access these orphan works.

I just get mad that I can't.

John Henry

Methadras said...

There is no distinction anymore between direct hires and contract hires.

Kev said...

those in Congress on the left are likely to be substantially more economically illiterate than those in Congress on the right. Why? Partly, because they tend to be professional politicians instead of business people who are spending a term or two in Congress.

Personally, I would like to see all members of Congress be business people who are spending a term or two in there. The unproductive class is horribly overrepresented in there at the moment, and that's as good of an explanation for the current mess we're in as anything else.

Kirby Olson said...

I'm pretty sure you can get The New Deal Comes to Brown County through any public library using the Interlibrary Loan program. It might take about a ten days, but for sure you could get a copy. It's worth it. A very charming and brisk read (it's only 87 pages long, but in between chapters there are two-page blank spaces, so it's really only about 80 pages long, with nice big print.

My WorldCat connection is down for the weekend, but I think if I found a copy at Hartwick College Library there are probably at least a 100 copies.

I hope other people read it. The funniest thing is how the author's dismay with FDR is almost exactly parallel to my own dismay with BO.

It's like history is repeating itself EXACTLY.

ronski1234 said...

Some more truth about those wonderful census jobs:

census job total is absurd