My two favourite HR people!

I was listening to Masters in Business and discovered Patty McCord. Patty is former HR head of Netflix. She doesn't speak HR she speaks innovation. Listen to the MiB episode with Patty Mccord here. It is worth it. THIS is what HR should be.

My suggestion:

1. Ask your HR manager if he/she knows what is your job like day-to-day. ( analyse financial statement, work on new toothpaste launch, etc.) it has to be specific.
2. Does he/she know who are your clients? 
3. How do you make money for the firm? How much?

And the next one is of course EvilHRLady.

Jobs/Employment and Growth

Why are incomes not picking up even when the unemployment rate is at its lowest and profits are rising?

The first phase of automation focussed on improving productivity. So skill requirement of workers goes up and hence their pay goes up.

In present phase of automation, the skill requirement of worker operating the equipment is going down and hence their pay is going down.

Thus, if you replace the spade with earth moving equipment, you need to pay the worker more for the higher skill requirement. But when you replace an expert barista with a coffee-maker machine then you need to pay less to the operator of that machine. 

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 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Free Trade - or no free Trade - either ways it ain't free!

Econgirl commented about the latest free-trade issue.  It is a must read - continue down to the comments too! Then David Henderson commented about it on his blog and the comments where @econgirl responded to his question. All must read in the overall dialogue about free trade.

There are a few things that need consideration:

1. The losers of free-trade - how adaptable they remain after they lose: In many cases, these people are lost - this is a political price we are paying. Thus, a $10 gain per-consumer v/s say a total job loss of 10,000 people (hypothetical primary loss) usually it remains concentrated (think Detroit) and second and third order economic losses. Now in monetary terms, the gain-loss may be whatever, but when a group of people loses their livelihood without any margin or buffer to create new opportunities for themselves, then it makes for a difficult choice.
2. The initial condition is responsible for the losers being as many as they currently are: If the trade was always free, the adjustment would have taken place a long time ago, giving the population enough margin to adjust. However, the governments by their initial protectionist intervention create a bigger adjustment problem in the future. When a competency develops in a country, the government rallies behind the firms with the very policies which later accumulate into a bigger problem. The adjustment to new potential trade-based threat can be innovation or it can be defeat. The auto-industry failed to innovate - something Tesla did, Ford and GM should have done years ago. But those are victims of their own success. At present, China is funding auto-tech companies to bring out a competitor to Tesla. 
3. Free trade - v/s Fair trade: Indeed some countries do "dump" products on to other markets. At the same time, some countries do use "non-tariff barriers" for the protection of domestic industry. When is the "fire-sale" not dumping and when "non-tariff barriers" are not protectionist can only be answered on a case-by-case basis. This ambiguity is used to target Free-trade unfairly. 
4. Economic V/s moral - politics enters through morality: Can we allow some trade partner using slave labour to create losses in our country? Economics says why not, morality says no. Blood diamonds are an example. That is where politics comes in. So while overall benefits of free trade may be high - the morality over why the government should not choose one set over other is a strong political motive against change of status quo. Of course people selectively forget that it was government intervention that helped the problem to get bigger.

So in an ideal case:

• Free Trade is the default. Government has no business interfering in that unless some moral issue arises. The scope of these issues are pretty narrow - slavery etc.
• Countries should progressively move all policy towards sector neutrality - including trade policy. Thus, a government would be right to have 50% markup over all goods/services entering the country/sold in the country without discrimination.
• Then let this state continue and let governments step away from the issue altogether. (more on this in another post).

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Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms". 

Importance of Jobs and certainty

The recent US job report had zero new additions. In that context, I would like to discuss a briefly about importance of jobs and certainty.

Time and again I have emphasized that it is the certainty rather than specific level of income that is important objective of stimulus. Any stimulus directed elsewhere is of little significance. Thus, tax breaks, cash-for-clunkers kind of programs have little meaning as tools of stimulus. Both, as the population is aware of their limits, create an incentive to save the gains rather than kick start the consumption engine.

Jobs, specifically long term permanent jobs, are indicators of certainty of income available to the population. 

It is also possible for the economy to add transient jobs in large numbers. In other words, there would be a high turnover. Such a situation will have high uncertainty and high job creation at the same time. Thus, I presume, the impact would be similar to tax-breaks or cash-for-clunkers type of program. 

The real point of improvement of the economy will be when permanent job addition bottoms out and starts rising. At such point the consumption engine will restart sustainably. This process will happen eventually if economy is left to its own devices. The objective of stimulus is to hasten the process.

A debt-ridden economy take a little longer to reach the bottom after permanent job addition has bottomed. The time lag is explained by the debt repayment that takes place subsequent to job addition. A debt restructuring program can hasten this process. HAMP and other programs can be classified in this family.

Now intelligent readers will note that unless BOTH things happen we won't see noticeable recovery in the economy. I hope the political intelligence catches on this reality.

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My book "Subverting Capitalism & Democracy" is available on Amazon and Kindle.

Jobs, Skills and development

Noni Mausa, in her blog Tunnel Under Snow: The trace elements of a nation, highlighted a comment she made on a spectacular discussion at Angry Bear about Sir James Goldsmith's views about jobs, skills and development. The original post makes a great reading and the comments, more so by Noni, simply elevate it to a must read discussion.

The arguments are often made against trade related job realignment. Make no mistake, trade does lead to realignment of jobs. Low value add jobs move from higher income countries to lower income countries. Except, of course, those jobs that cannot be moved like Janitors, hair dressers, restaurant operations etc. However, the idea of development means that the rest of the economy must be able to pay higher for these services even though the skills may not be dramatically high value adding. To pay higher and higher for same services we have two options.

First, we can improve productivity of jobs that cannot be moved. That is why floor cleaners at airport use a electric cart with mops rather than do it the old fashioned way like the floor cleaners in poor countries do. Essentially, as income increases, economies tend to throw capital at essential-labour problems to make them cheaper. Capital, naturally, is cheaper in high income countries. This worked fine in times when capital mobility was a constraint. However, the advent of GATT, WTO and later developments have made capital mobility almost frictionless. Thus this difference has been effectively negated and the only differentiation is now in wages.

Second, we can add more value that high-income people will appreciate and hence pay for. Thus, fashion consciousness in high income hair salons is higher than that in low income ones. Low income countries have tailors, while high income ones have clothes designers who have a reputed brand to talk about. The communication revolution has effectively negated this trend as well again reducing the differentiation to wages.

What this means is countries will have the jobs profile similar to the skill profile of the population. In other words, we are looking at a wage-skill rebalancing across the world. Thus we need to look at the skill profile of the economy and match the job profile with it. The skill profile can be managed through immigration i.e. by allowing those with relevant skills to come into the country. So US will do well to export financiers and import engineers. In that sense, the direction of the discussion is correct.

In other words, for arguments sake, a country of doctors will need to import engineers or entice customers to come over for treatment. Enticing customers seems ridiculous but hospitals in India are already offering low cost health care services to wealthy foreigners who fly in get their dental, cardiac treatments done and fly back after recovery. It is called medical tourism.

I have discussed the importance of matching job profile and skill profile within economies in my book "Subverting Capitalism and Democracy".

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My book "Subverting Capitalism & Democracy" is available on Amazon 

The crisis of middle-class America

FT, more often than not, does a better job of reporting than many other newspapers. Here is FT talking about middle class America - FT.com / Reportage - The crisis of middle-class America. The examples are well chosen. People with income twice the national median, working four jobs (between two adults) are not able to reliably meet their obligations. Some are stretched by healthcare expenses others while others are fighting through job losses. One can only imagine what happens at lower-than-median incomes.

Welcome to the new normal

One of the harsh realities economists talk about is the "new normal". It includes a lifestyle with smaller cost footprint. It means scaling back on purchases. It means no new clothes, no new cars, no computers and cameras. The middle class is not saving, it is simply adjusting to new levels and risks associated with their income. At least a third of American households are in this situation. So we can only imagine what it will do for a consumption-led GDP. The future does not look bright. 

The question of jobs

The government needs to look at the profile of population and profile of jobs available for the population. I mentioned in an earlier post that every economy has an ideal job profile based on education and skill levels of the population. America is losing those jobs that its people are qualified to do. They are losing these jobs thanks to uncompetitive currency, higher wages and benefits and possibly inflexible workforce (in education). This will cause further pain in the coming years.

Declining Wage profile

Just as economy has a job profile, similarly every job profile has an associated income profile based on global wages adjusting for productivity. The wages in US are higher, I believe, than global wages AFTER adjusting for productivity.  So the incomes for those jobs that americans have will not rise much or may even fall. It will stretch middle class households beyond redemption.

Volcker-Warren conundrum

At such times, America should call Volcker-Warren combine to lead the entire financial reform process.   The Warren appointment is being fought at the CFPA level itself so that it is easier to control the Warren-influence over the general Financial reforms process. I hope, rather pray, that Warren ultimately triumphs. She is the only hope in otherwise hopeless economic and political landscape. Same goes for Volcker, the ultimate Volcker rule is so watered down, I doubt Paul Volcker is really satisfied with it. It is time for leaders of America to stand up and be counted. Alas, there aren't any.

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My book "Subverting Capitalism & Democracy" is available on Amazon