Good Friday … For Labor and Job Statistics

The US economy added 162,000 jobs in March, the biggest net gain in over three full years. That’s good news right?  Well, that depends on who you ask.  Some say that it’s clearly good news, and that we’re finally moving in the right direction. But others say that the stats are superficial, and that they don’t address the underlying economic issues. I’m not sure what the real answer is, but one thing is for sure. The job market does seem to have a little bit more life. And sometimes, momentum can be a good thing.

Former Federal Reserve Chairman Alan Greenspan recently agreed in an interview with Businessweek and said “there’s a momentum building up” in the U.S. economy and the odds of it faltering have “fallen very significantly.”  The Obama administration agreed. White House economic adviser Lawrence Summers said that “job creation will accelerate.” And Christina Roemer, chair of the White House’s Council of Economic Advisers, said suggested that there’s a “gradual labor market healing.”  And so it sounds like there may be a subtle wave of optimism that seems to be lingering.

That is definitely the case at business schools, where although recruiting numbers may be slightly down [(i) I don’t know for sure and (ii) It’s not over yet], they won’t be down by much. And during recruiting season, the students seemed to be pretty confident about their chances. Some of the ones I know did well. Many will be working at banks, consulting firms, Fortune 500’s, and start-ups. Even at the law school, things seem to be trending upward. It’s harder to tell exactly how things will play out, since law schools tend to do the vast majority of recruiting in the fall. But the message I’ve heard from most firms and organizations is that things will at least be a little better. I look forward to reporting the real news this fall.

That said, I don’t think these stories are necessarily compelling.

1. First, the administration has the herculean task of managing the negative sentiment that came from the past two year and balancing that with a more optimistm to keep people motivated and working hard, all while delivering a message that’s both truthful and transparent.

2. And more importantly, it’s not necessarily compelling because (i) the world of MBAs and JDs headed to become consultants, bankers, lawyers, fund managers, and non-profit leaders doesn’t reflect the overall economy. In fact, it’s really only a small fraction of the economy.  The average person doesn’t attend a top 10 law or a premier business school nor do they hunt for six-figure jobs in their mid twenties, if ever.  So many times, that person may end up jumping through a lot more hoops to get to the “promise land” of finding employment.  (ii) And not only do these individuals represent a small percentage of the overall economy but they also have the advantage of undergoing a highly sophisticated recruiting process that starts well before interview season begins. A process where employers have coffee chats, luncheons, mixers, and receptions months before recruiting ever begins. And a process where hundreds of employers accept resumes, come to campus, and interview dozens of students on campus, all day. And sometimes multiple days.  So taking a step back and looking at everything from a 30,000-foot, big picture view, I see that it’s a privilege to have the process in place.

So with a 30,000-foot view in mind, here are the objective arguments about the labor force, from both sides.

1. One on hand, the hard numbers from BLS do suggest improvement. (i) In total, employers added 162,000 jobs in March, the biggest monthly gain in three years. That’s always a good starting point.  (ii) Manufacturing payrolls have also reportedly increased. (iii) This story is also true for heath care employers, who added ~27,000 full-time jobs and ~40,000 private-sector temp jobs. (iv) Surprising is that construction field held steady for the first time, after losing nearly ~865,000 last year.  (v) Further, sources also suggest that the investment banks are finally starting to breathe again, and that broadening their scopes of services has helped them to decrease risk and squeeze out more revenues. (vi) And finally the unemployment rate is still down to 9.7%.

2. On the other hand, context suggests that the grass may only look greener. (i) I suspect we’re all aware that the number of jobs and hence total payroll numbers continue to skydive in financial industry. Venture capital and entrepreneurship numbers also remain low. (ii) However, even the numbers that are improving, according to US News, may really be more related to a reduction in labor force than an improving economy.  (iii) But despite these more nuance calculations, even real growth number, according to some sources, are lower than expected. For example, forecasters expected ~200,000 new jobs in March, not 162,000.  And that’s in spite of the fact that BLS reported more census takers this year than usual. Not only does that potentially positively change the accuracy of the reporting of the numbers but it also increases the number of actual jobs created.  And coincidentally, these happen to be six-month temporary jobs, not full-time permanent jobs.  While adding temp jobs is a good way for businesses to pick up and a good way for folks to earn a bit of cash, it also may not be indicative of any real economic trend.

In a recent post, Former Secretary of Labor said something similar. Rob Reich said “These are six-month temp jobs, and they tell us nothing about underlying trends in the labor market. It’s hard to gauge precisely how many were hired — probably between 100,000 and 140,000, although some estimates put the hiring as low as 48,000. Almost a million census workers will need to be hired over the next few months. Subtract these, and today’s job numbers are good but nothing to write home about.”

Conventional wisdom pinpoints that demand for such temporary employees increases during recessions and during recoveries, so employers can get the help they need, while also shining a spotlight on their budgets and reigning in expenditures. This may mean that we’re still somewhere in the middle.  Either way, there’s still a lot of uncertainty and unfortunately, nobody has the million dollar crystal ball to lead us into the future.

In light of that, I think I like some of the positive signs. After all, psychology plays a big part in market movements and perhaps a bigger one in its recoveries.  There are a lot of different ideas and competing opinions out there, a few are from experts, a good number from those who have agendas, a lot with a different perspectives than you or I have, and most of them with different levels and sources of research.

And in the end, how you frame the issues will affect [and possibly even change] your viewpoint.

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Sunday, April 4th, 2010 Labor Economics No Comments

The New Labor Stats and Lessons for Leaders

Today’s slumping economy is haunting millions of Americans. Veterans of the workforce fear being let go and never finding a job again. Middle age employees worry about supporting their families and maintaining their careers. And students in both business and law schools are trying to understand what’s going on and adapt in order to find stable jobs upon graduation.

With these thoughts at the front of everyone’s mind at the turn of the New Year, the Labor Department (DOL) just reported yesterday that 85,000 jobs were lost in December. This came as a pretty big surprise to economists who, after analyzing the net gain of 5,000 jobs in November, suspected that December would repeat the trend. And what’s worse is that reported numbers also show that more than 660,000 Americans dropped out of the labor force last month, meaning that the actual unemployment rate closer to ~10.5% instead of ~10.0%.

Although this change in calculation increases the unemployment rate to a near all-time high percentage, the bigger issue might be the fact that people are starting to drop out of the workforce, suggesting higher levels of pessimism than in 2009 and lower levels of hope than ever before. But if you think about it, this certainly makes a lot of sense. Many people have been closing in on a year out of work. And for the past twelve months, I’ve consistently heard so many people say that they have never seen things as bad as they are now.

Under this bright spotlight, America’s leaders now have to juggle crisis management, media and investor relations, new firm strategy, and most difficult of all, the daunting task of communicating the situation to its people. Inherent in this task is the fact that the people are vulnerable.  Many people will become upset, others will react with anger, and most everyone will be uncertain.  So while public leadership is something that has always hard, today it has become a near impossible challenge.

To be successful, the ability to communicate effectively will be critical. Modern leadership will less about the actual result than it is about gaining the trust of your workers and building a more unified organization.  To do that, leaders will have to relate more closely to the issues of the people and also be able to deliver a compelling message. In times past, executives have overlooked this ability in favor of analyzing financial impact and making decisions more quickly.  But that method of leadership will not work today. Instead leaders will have to be more connected with people and be more conscious of how people feel and how decisions will impact their economic situations. And so the best leaders will be those who not only analyze issues but those who also understand that what matters more is how you make others feel in the process.

To quickly clarify, actions always speak louder than words and leaders will also have to focus on results.  After all, this is the only way any organization can survive. But in times of panic and adversity, focusing on your message and how you communicate it is often the best first step.  So today, the leaders that emerge will be those who are good storytellers.  They have a good understanding of the overall situation, and they will craft a compelling story, deliver that story effectively to the people, and then inspire them with hope for the future.

In the days to come President Obama (and CEOs of many companies) will embark on this ambiguous task. Though fiscal strategy and economic theory will be of critical importance in solving the issues, I hope that he reflects back to when he first became president and that he chooses talk more about his hope to rebuild the economy and create jobs than he does pure strategy.

And in the end, how he frames these issues will determine his success.

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Saturday, January 9th, 2010 Labor Economics, Leadership 3 Comments

Reflecting On The Economic Challenges Of 2009

2009 was an interesting year. I left my consulting job in the spring after finally deciding to return to business school and law school. And what timing! The financial crisis had just struck and the fear of recession left all of the business world scrambling. At the same Barack Obama had just made political and legal history with his historic presidential election. I was pretty excited at the chance to study these economic and political events, especially since I’d be enrolling in a JD-MBA program. But it became hard to remain so excited as I watched layoffs, bankruptcies, and unemployment begin to take over.

Ever since the past summer, I’ve tried to keep up with the news, chat with my classmates, and solicit perspectives from industry professionals trying figure out exactly what’s going on. To be honest, I’m still not 100% certain, maybe not even 50% certain of everything that’s happening, as I’m by no means an expert on economic or labor issues. But I suspect that one’s viewpoint is pretty correlated to their experiences in the labor market, and sometimes it can be hard to see outside of that perspective.

For example, I had a discussion with a classmate from the investment banking industry (economics defines this as skilled labor) during the first week of class. We were discussing how recruiting was supposed to be down 40% – 50% this year, and his perspective was that everyone should really embrace the situation. That hard times create new opportunities, give new learning experiences, and spawn new ideas and companies.

In a second conversation, I talked with a family member who works in a position that earns an hourly wage (economics defines this as unskilled labor) and his employer had cut back his hours. Because of his situation, he empathized a lot more with those who were unemployed, and he suspects that the recovery will be a longer and a more difficult process, and that speeding it up requires a more of a collaborative effort to help people to find jobs. I think both perspectives are pretty valid.

But whether or not you agree with either perspective, the common denominator is that we are in pretty tough times now and that recovery will depend both on a collaborative effort and a willingness to consider new opportunities to solve the problem. Until now, MBAs have been contributing to the recovery mostly by forecasting unemployment rates, analyzing spending patterns, and predicting the market turnaround. And JDs have been looking at similar issues, but focusing on finding ways to use their technical skills with the law and policy skills to create change.

My opinion–for what it’s worth–is that given certain structural problems in the modern economy, many of these financial and legal tactics, while useful, may ultimately prove to do nothing more than to cover the wound, rather than address the bigger cultural issues that in recent history have influenced our levels of consumption, debt, and greed.

If business and law schools want to continue to play a role in the recovery, they should reflect on how these issues fit into the country’s top priorities. Over the last few decades, MBAs have flocked to the finance industry and law school graduates to corporate law (a field that works directly with the finance industry) both lured by six-figure salaries that are 3x (and more) the average wage. In return, these smart graduates have worked in roles that emphasize getting things done over learning, charge excessive rates for services, and structure deals to maximize profit. And because there was so much profit, other industries looked up to the industry and soon followed suit.

This mentality eventually made its way into the mortgage industry, and needless to say, as soon as its companies began to offer credit, Americans began to borrow. A lot. They applied for new lines of credit, bought new homes and cars, and got big screen TVs and went on vacations. Unfortunately, this era of growth was in some respects artificial. In the end, people overextended themselves financially, and eventually found themselves in too deep once the economy slowed.

In November, the media and administration became optimistic again and claimed that we were rebounding from the crisis and that jobs would be back in no time. I’m not so sure I agree. From my perspective, it seems as though there are far too many people out of work now, and the average length of unemployment is closing in on a year in some locations, a number will stay on the rise given the decreasing number of jobs.

One thing I’ve learned in the past two years watching much of this unfold is that one of the most important resource a company has in the long-term is still its people. And that resource needs to be prioritized right alongside profitability. This is true especially in challenging times because even when profits and the stock market are down, the stock of a company’s employees can be up. People can collaborate to come up with new ideas, they help a company adjust, adapt and change with the markets, they learn and implement new technology and promote innovation, and they can work together to accomplish more than their individual capabilities.

Unfortunately, the majority of Americans aren’t afforded the training or education to fine tune their management or critical thinking skills, so they end up in lower paying jobs, can’t save their money, remain in deep debt, and can’t positively impact the economy, while only a minority of Americans at the top thrive. Not only is this socially troubling but many also argue that in the long run it may also economically less productive.

This is certainly the view of the Obama administration, which is why the president wants to focus more on education and training and make decisions based on longer-term public investment. In his view, the economy does best when all Americans have the chance to increase in skill and contribute to the market. Many people agree with him ideologically but many also object because of the costs and the up front time investment.

Obama is also working with companies to adjust compensation plans to make them more fair and to reduce layoffs in the workforce, both of which are controversial with economists. Maybe his strategy stems from the idealism or aversion to risk that comes along with being trained as a lawyer. Or perhaps it’s easier for him to think that broadly since he’s not feeling the pressure of a collapsing industry on his shoulders. Perhaps it’s also because his shareholders are comprised of the broader population, and not financial investors, so his policy incentives are different. Who knows? But the interesting part to me is that both the policy (JD) and economic (MBA) perspectives seem critical in analyzing economic recovery.

And so both MBAs and JDs can play a major role in helping save the economy. As MBAs continue to look for profitable deals, invest in companies, and architect executive pay plans, they are also called to leverage profits to create jobs, use investments to steer innovation, and think more broadly about human capital and not just executives. Similarly, lawyers also have dual obligations. And instead of simply relying on facts and mitigation of risk to make decisions, lawyers must think more critically about the issues. They need to weigh the economic issues with the resulting social issues, think about how those issues affect a broader range of people, anticipate a wider range of possible outcomes, and then balance risk with those outcomes to come up with new policy plans.

Easier said than done? Perhaps. Brokering a balance between profit and social value, when there are diverse points of view and competing agendas is rarely easy. To lead America down that path requires leaders who are not afraid of change and who deeply believe that social values are just as important as economic value. I suspect that given our economy, more people will be open to change and aware of social values than ever before.

Personally, the recession has certainly forced me to reflect on change. Having old colleagues, friends, and family members directly affected by the market has made me more empathetic to those still in the workforce, especially those who don’t have education as a buffer.

Society should also take time to do some reflecting. And perhaps in 2010, society will decide that instead of focusing so much on pricing strategies and stock market gains, it will also start to focus on creating opportunities for education, promoting generosity in the midst of competition, and maximizing human potential, and not just profits. And in the end, perhaps these will pave the way for recovery to a more stable economy.

Business schools and law schools should welcome the opportunity to be at the forefront of this change.

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Labor Day And The Economy

Maybe it’s because I’ve been insulated from the outside world ever since I’ve started law school, but I’m quite surprised that I haven’t been hearing more about the labor and employment issues in the middles of the biggest economic recession in recent history. In light of the fact that it’s Labor Day tomorrow, I thought I’d share my thoughts on US labor and the economy.

The latest employment figures came out September 4th, and the numbers are staggering. According to surveys, job losses continue to reach record levels — from 9.5% in July to ~9.7% now. Concurrently, merit increases have been frozen. In most industries, 4.0% pay increases have long been the standard … until now. Over the past year or so, wage growth has been closer to 0.5% and in some industries has flatlined at 0%. I saw these changes happening firsthand in my last consulting role, where more than half of my Fortune clients froze their merit increase pools, and nobody received salary bumps.

The unfortunate thing is that this number only represents those who still have jobs, and it doesn’t factor in that companies are decreasing worker’s hours, not paying bonuses, reducing 401ks, and demanding that employees go on furloughs (requiring workers to take unpaid vacations or to take one day off per week). I suspect about 20% of companies are employing these furloughs now, and at least to 50% of government companies. When I worked at the Attorney General’s Office this summer, the vast majority of people there were on the Friday Furlough plan. The US Post Office has requested that some employees take indefinite furloughs and they are offering incentive plans for people to retire as many as 10+ years early.

With all this in mind, I’m pretty surprised that I’m not hearing more about the economy or about the state of employment, especially this weekend. One explanation is the fact that “visible compensation” levels of the business class have not dramatically fallen. What I mean by “visible compensation” is the compensation numbers that make the Wall Street Journal or the news—CEO salaries, severance payments, number of stock options, and “expected” bonus levels.

But take caution in what you hear. From extensive experience studying the topic, I argue that these numbers are not representative of the American story. For the business class, what people don’t know is that cash compensation is usually a smaller fraction of a total pay package. Executives are usually highly reliant on “actual” bonuses and the appreciation value of stock options (not the delivery of options) as part of their paycheck. In fact, these often account for 50%-90% of their compensation packages. And despite Goldman’s recent record-breaking bonus payout this past summer, most firms are not handing out cash. Also, despite the thousands of stock options that executives are still receiving as part of their compensation arrangements, many of them are completely worthless. This is because option value for executives is based on the appreciation of the company, and in this economy companies are not appreciating. So despite popular perception and media frenzy about CEO pay, executives are also taking a huge cut in pay. That said, at least they can keep their heads above water with their 6-figure salaries even when everything else has gone awry.

For me, the real story is the middle class and the poor. The unemployment rate for these folks is a staggering 10%-16%, with African Americans and Hispanic Americans at the high end of the range. This is 2x to 3x higher than that of executives. The only outlier here is in the finance industry where everyone’s jobs and compensation are at risk.

Aside from job loss, the middle class’ portfolios are also declining. 401k plans have been dipping for the past year, health care plans are becoming more expensive, and the stock they do have is not performing well. But more important than that is the residential real estate bust, since homes are the primary assets of those in the middle class. Having spent a large amount of my life in two of the biggest real estate markets, California and Arizona, I’ve seen this first hand. In Arizona, the average decrease in home value is 35%-40%, the highest in the US. When I drive down the street of Arizona, I continuously notice homes for sale at 50% last year’s value and homes that have been foreclosed by the bank. On many streets, it’s half the homes. And California is no different. Home depreciation is hovering around the same range, even in nice neighborhoods like Berkeley, Santa Monica, and San Jose.

If so many Americans are losing their jobs, not getting increases in wages, loosing value in their homes, and subsequently in panic mode, what is going to incent people to spend money? I don’t know the answer, so I’ll leave that question to the economists working on it. What I do know is that that there needs to be a more focus on restoring the labor force in the middle class and because there hasn’t been most business are not safe. The one exception seems to be universities, especially top tier universities, where demand remains high, especially today as students hope to become more competitive for theses “odd” economic times. This is especially true for JD and MBA programs.

As I’ve mentioned in a couple of posts, I’m definitely fortunate to be headed back to school now. While here, I plan to take labor and employment classes at the law school as well as human capital and labor economics classes at the business school. I hope to be involved in these issues at the policy level one day down the line.

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Sunday, September 6th, 2009 Labor Economics 8 Comments

New Employment Stats and How Some MBAs, JDs, and Others Are Fairing

As everyone probably knows, the newest economic reports tell us that the official unemployment rate dropped from 9.5% to 9.4%. There seem to be two ways people are thinking about these numbers. Some people are happy to see the improvement and are growing optimistic about the future, especially those people with the MBA or JD qualifier. But there are an equal number of people who don’t feel that way and predict that things will continue to get worse. Which way of thinking is correct?

To be honest, I don’t know. I’m not an expert on labor issues, but I suspect that one’s perspective has a lot to do with what industry you work in, what school you went to, how long you’ve been at your current employer and your employment status. After chatting with lots of students, career centers, and professionals about career opportunities as a soon-to-be graduate student, my perspective is that the situation is still worse than it may seem.

First, the unemployment stats are not all inclusive. If you think about it for a minute, the unemployment stats don’t include those:

1) forced to work PT due to economic circumstances, but prefer FT work
2) with reduced FT hours. In some places FT is 32 hrs (20% reduction)
3) with expired unemployment benefits who are not current looking for work (i.e. maybe taking CFA exam, studying for Grad Tests, working in free internship, etc)
4) who’ve found new jobs that pay less or are not career jobs
5) headed back to school to avoid the economy (MBAs and JDs)
6) recently graduated in May 2008/9 that want to enter the workforce but haven’t found jobs yet (students, including MBAs & JDs)

If all these people are included, I suspect the “unemployment” numbers would raise dramatically, maybe to 2x what they are now.

Second, I’ve talked to a lot of MBAs since April, and there were a lot more than I would have expected that were still looking for jobs, even at the best ranked schools. I was completely shocked. The number of interns without jobs was as of this past spring was also staggering, because firms are taking full time hires before making intern offers. While the employment of interns may not seem as critical as graduates, not getting an internship will make one’s job search much harder the next year and for some may preclude certain job opportunities.

Third, in the legal field, a really large number of law firms have also curbed hiring. Many firms have decided to completely drop 1L summer hiring (1st year interns). I met an incredibly smart 1L from Stanford who I worked with at the Attorney General’s Office this summer, and she said that for the first time, many Stanford JDs didn’t get to summer at a corporate firm this year. She said it was the first time they struggled. I also lived with graduating JDs from Boston University this past year, and they have colleagues with really good grades still scrambling to finalize their plans. Many graduates were looking into non-paying internships in order to get work experience until they can find a paying job. What’s worse is that those jobs are not even guarantees, as the graduates now have to compete against 20 others for that non-paying job. As I said, the situation is a bit worse than it seems.

For me personally, I am not as worried about the economy just yet, because I’m headed to school for a few years. Hopefully I’ll be able to hide away from the worst of the recession. I also admit that I’m fortunate to be headed to a program with a track record of sending students to premier employers and a program where students take classes and can do research during the first summer, so there is less pressure to find a certain “type” of summer job.

But aside from my own situation, I have a lot of friends and family members who are affected, including JDs and MBAs. For that reason, I like to keep up with what’s happening and recently found a few stats that I found interesting:

1) More than 100k people have already used up their unemployment benefits (I have a former MBA co-worker and a JD friend that will have to worry about this soon)
2) These benefits range from 46 weeks in Utah to 79 weeks in Alabama, depending on the unemployment percentages in each state. This means that many residents have been unemployed and collecting benefits for well over a year now
3) By the end of Aug., an estimated 650k people will run out of unemployment benefits
4) By the end of 2009, the number is estimated to be 1.5 million. This number will include lots of MBAs from the financial services and other industries

Given those statistics, I’ve been doing a lot of reading and research about the economy. I recently found an article by late economist Arthur Okun (thanks to Robert Reich’s article for the reference), who once said that “a rule of thumb that every two percent drop in economic growth generates a one percent rise in unemployment.“ Robert said, that this is the first time that the rule no longer holds true. He said that it’s not even close this time.

Overall, I’m guessing that by the time I graduate in 2012, I will be living in a pretty different economy than I am today. I’m interested to see how that economy will look and thankful that I’ll have 3 years to observe, study, and prepare for what’s going to happen. What’s great about my JD-MBA program is that it will allow me to get a cross-functional, well-rounded perspective on everything that’s happening, as I’ll be able to interact with lawyers, politicians, judges, business people, recruiters, consultants, HR experts, academics, government officials, and students from a plethora of career backgrounds.

I’m definitely fortunate to be headed back to school during this defining period in our economy. Everyone who is applying this upcoming year should do the best they can to get in. Looking at the current economic environment and the unemployment trends, it’s probably going to be another tough year for applicants.

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Monday, August 10th, 2009 Careers, Labor Economics 1 Comment

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Jeremy C Wilson is a JD-MBA alumni using his site to share information on education, the social enterprise revolution, entrepreneurship, and doing things differently. Feel free to send along questions or comments as you read.


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The contents of this blog are mine personally and do not reflect the views or position of Kellogg, Northwestern Law, the JD-MBA program, or any firm that I work for. I only offer my own perspective on all issues.
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