An Alternate “Truth” About Jobs–Not Steve, but the rest of us working stiffs

A good friend recently sent me an email asking if I agreed with some conclusions reached by Scott Winship in a well-written piece in the Wilson Quarterly titled “The Truth about Jobs.”  Winship basically concludes that that the decline in labor force participation among men has been voluntary, aided by some changes in payments for disability and other factors, and that pay reduction relative to productivity improvements is merely a catch-up with overpayments from earlier decades prior to the ’80’s, and that, ultimately, this will come back into balance. Thus, not to worry. He makes some references to outsourcing, but concludes it has been a net benefit in terms of lower prices of goods. He ends with an important view, with which I fully agree, that skill levels are a problem for a growing segment of the population,  and we need to address that issue, specifically. This is a very brief and incomplete summary of Winship’s article, and I would suggest it is worth reading in its entirety.  I disagree with some of the conclusions which are drawn from a different view, or at least emphasis, on what has happened in the last 40+ years. I hope Winship is correct in his thoughtful and well-researched observations and his conclusions, but I am skeptical.

I think we do have a systemic jobs problem tied to demographics and the relative rise of other economies that are more easily participating in the global economy in terms of markets, intellectual contribution and the use of existing and rapidly changing technology.

Over the decades of change referred to in Winship’s analysis we have shifted into a much more global interconnected world where the movement of goods and services has been significantly enhanced via technological developments. Thus, the benefit of labor arbitrage between countries is real and possible as is labor/capital(technology) arbitrage everywhere.

For many years in the US, “outsourcing” has occurred within our borders, moving more production to suppliers which creates economies of scale and lower labor costs because the skill levels required are different.  And labor cost arbitrage still exists between geographies within the US.

As an example, while I don’t have the precise numbers, I would posit that global employment in the auto industry is up. However, required skill levels are down and, for some time, global geographical arbitrage on labor costs has existed with there being little, if any,  technological arbitrage among countries today–similar technologies are available to almost all. The last time I was in China visiting auto plants the difference in labor content between a Toyota plant in Japan and China reflected the labor cost differential with more workers and less automation on the lines in China.  As relative wages rise, the lines in China have become more automated substituting capital(technology) for labor within a framework of a newer, more efficient production system than might be found in the developed world. This is real and cannot be glossed over as having an effect on the US and other developed economies.

Winship’s dataset of men only and their wage and labor force participation numbers is also a problem. The impact on wages (for men and the total work force) has been, in part, the gender wage arbitrage that has existed, and in some cases continues to exist, between men and women, even though the skill levels are not different–some would say higher among the women. Winship mentions the wage differentials but he doesn’t explicitly incorporate it as a cause for the slower rise in men’s wages.

He points out that more men over 55 are staying in the work force. I agree with much of his analysis here which emphasizes the education levels and the desire to work, not the need. Although, I do believe there is an element of need that comes into play–the need to think about sustaining oneself and a lifestyle for a much longer period than historically has been the case. My personal anecdote is noting that my father lived to 100 and was quite active for almost all of that period. I always said to him that I would take his bad genes as long as I got the good ones. It appears that I did get both…  I have to think about what kind of life I want to lead over the next few decades both financially and actively with my mind and body. It is hard to move away from the stimulus of work (and the reward) as long as I have that opportunity.  And the opportunities appear to be there for me and others.

I think this does have a lot to do with availability of skills in that age bracket, the adaptation of that group, in general, to the new world of communication and technology,  and the recognition that productivity levels remain high, particularly among the better educated, more of whom are maintaining their health. It isn’t as automatic that as an employee ages he or she becomes less productive or less adaptable to the demands of the workplace. It helps that labor laws make it more difficult to end employment for age reasons alone.

On a separate point, as one works one’s way down the age brackets I think we are finding fewer individuals wanting to work within a formal structured work place–they are less available–, thus only the over 55 are available for those jobs. This is a big overstatement, but on the margin it is certainly the case. The use of the internet, the infrastructure in city-states and even within smaller communities leads to the availability of a more entrepreneurial approach to work and provision of services than has been the case historically—and more of this is in the cash (or grey) economy.

There has been much research trying to estimate the dollars floating around the rest of the world in an undocumented economy. There has been some recent work (U of Wisconsin– http://www.ssc.wisc.edu/econ/archive/wp2011-1.pdf) which may indicate a growing amount of that cash, more than previously estimated, resides within the US.  And, by the way, taxing that income could add $500 Billion to US governments’ revenues. More people are working than the BLS statistics pick up. Do we really believe that all the number of  long term unemployed are actually not working? But, instead,  aren’t they producing some income–maybe sufficient to sustain or even thrive?  Here’s an anecdote for you: We have all heard about companies pushing more people to part-time employment to avoid ACA rules and, ultimately reduce their costs. One of my fellow directors at a company told me that one of her clients–a national retailer–is having employees in certain states with insurance exchanges ask to be moved to part-time because the cost of insurance on the exchange will be lower than or no worse than their current costs. It makes them untethered to a company for the benefits, more mobile and flexible, and with the possibility of making up for the income at another job either on or off the books. One could make the case that the younger generations don’t view the government as doing much for them so why should they pay taxes. That is happening at a time when the ability to work off the books has risen and continues to. Just think what 3-D printing could do to that ability once it is truly operable. I attended a meeting with one of the founders of MakerBot where this was made apparent. The real discussion with him was about the grey economy.

Winship’s final paragraph re the importance of education is particularly valid and critical: People, for the most part, figure out how to survive and thrive under any reasonably open system. Their ability to maximize the thriving part does depend on skill levels, educational attainment and overcoming the systemic inequalities that exist. That does need to be a focus. The developed world has a more severe problem than the developing world as it is more difficult for good things to happen in a replacement economy vs. a growth economy. But we must do significantly better.

There is much more to be written on this topic but I do have other tasks to perform–mostly on the books :-).

Lean In Again: Some Observations on the Comments re Sheryl Sandberg’s Great Book

In Dealbook, Professor Steven Davidoff published an interesting article, “Why So Few Women Reach the Executive Rank,” which provided a pretty good summary of what many have drawn from Sheryl Sandberg’s observations in her book. I still say everyone really does need to read her book. I would add to my admonition in my earlier post–Read the book, carefully. I would also suggest reading Davidoff’s article carefully as well.

I think one quote in Davidoff’s article is very telling– “women have to behave like men to rise to the top.” This seems to be a universal conclusion of what Sandberg is saying in her book. I think a more complete statement,  is “women have to behave like the men who are currently at the top to rise to the top themselves.”

I would posit that in many cases we have the wrong men at the top who are pretty much, across the board, producing sub-optimal performance relative to what it could be. Most corporations are operating below their potential because the culture does not allow the best talent, female or male, to rise within the organizations. Exclusion and prejudices about what constitutes a good worker or a good manager, in my view, often lead to less capable people managing parts of any organization. It is easy to identify women as a class being excluded. And there are a set of prejudices and difficult work environments that exist specifically related to women. There are also less explicit prejudices which end up excluding a set of men as well. Sandberg hints at this in her book. Organizations that minimize both these prejudices–female and male–end up with more successful women and a different set of successful men. And, I believe, a more successful business–certainly relative to their peers. We need to identify more clearly what it is about those organizations (too few in number) where this is happening.

Trying to understand what it is about the culture and the general environment in those few organizations where the presence of more women in the ranks may be an indication of that culture, might provide some clues about what it takes to create the right environment.  I am still trying to figure that out, in spite of having been part of an organization where that happened. I think we need a few professors to take on the challenge of identifying the organizations and truly figuring it out.

In Praise of Sheryl Sandberg (and all women)

While working out in a gym in Abu Dhabi, of all places, I watched Soledad O’Brien’s CNN interview with Sheryl Sandberg re “Lean In: Women, Work and the Will to Lead.” It was a reinforcing interview between two intelligent and focused women with a great supporting cast. It is worth watching as an adjunct to the book. Everyone should, of course, read the book–I mean EVERYONE.

My read of the primary focus of the book is an exhortation for professional women to look in the mirror with a new eye and seek leadership opportunities and not convince themselves (or allow others to do so) that they can’t or shouldn’t. There is an occasional recognition that there are many other women throughout the workforce who don’t get a fair shake. It is also an honest personal appraisal of Sandberg’s career to date, the mistakes she has made and the lessons she has learned. It is a management primer for women–and men–that specifically deals with the prejudices we all bring to our interactions with the other sex (notice I didn’t say “opposite”). It has application to interactions with anyone, since we are all different products of nature and nurture. The facts and data–read the appendix!–that document reasons for the gender gap, as well as the anecdotes throughout the book provide support for Sandberg’s conclusion that things won’t really have changed “until half our institutions are run by women and half our homes are run by men.” They certainly won’t change for the women further down the pyramid until that happens. She often says that men have to do their part to produce this change but she really puts the onus on the women. It is an important message.

In my mind, though, there is a bigger message in the book and an unstated opportunity for companies who get it now–and some have–to set themselves up to take advantage of “gender arbitrage.” This is not the classic definition of gender arbitrage, which is hiring smart women for less, but the “gender arbitrage” that was defined back in the late ’80’s when we took the Lehman Research effort from 15th to 1st in the rankings in three years. Boris Groysberg and Ashish Nanda, who did much of the work creating a series of Harvard Business School cases about what happened there, pointed out that we had more women and more successful women in the department–statistically off the charts–than any other firm in the business. Somehow, we created an environment where the best women on Wall Street were attracted to the firm and thrived and new female  analysts became successful quickly. It got defined as gender arbitrage after the cases were written. We also had many very successful men. It was a hard-working but supportive place to work. It was really IQ/Acumen/Attitude arbitrage. The women were not paid less than the men and in many cases made more, tied to their success as analysts and, ultimately, managers. There were many little and some big things we did that helped produce the success. I would suggest that you go to the HBS Publications website and spring for a copy of the Jack Rivkin Lehman A case if you really want to get into the nuances. Boris is now teaching a course at HBS, “How Star Women Succeed,” and the case is a part of it.  Why the environment initially existed is hard to explain. It started with just wanting to create something special that had nothing to do with gender–just capabilities and a big “no-jerk” policy.  There was one thing, though, that made a difference. From the very beginning there were many people involved in the interviewing processes, but our lead interviewers were two of our first outside hires–two very capable women. An interesting thing happened as a result. Here were two people who were clearly part of the decision-making process and were serious about talent and attitude. Other women they interviewed were attracted by their attitudes, their openness, their empathy and the clear understanding that they were decision-makers. Interestingly, the men they interviewed knew that they were a big part of deciding whether the men would be hired and that they (the men) might end up working for them (the women). Some men just opted out because of that, which was fine with us. The ones who didn’t, understood how the organization was going to work, recognized the talent and the opportunity and clearly didn’t have a problem with the working relationships. In fact they saw the working relationships as a big plus. It all fed on itself and created a supportive environment where the gender balance really worked for us. We didn’t just have a good gender balance. We got the absolute best where there were no impediments and much support in the work place and in their lives in general–for both the women and the men of like minds.

I don’t think organizational success has to wait until talented women lean in and work their way up the jungle gym to the top. If the organization truly creates the environment that doesn’t tolerate the jerks and provides continual support for both the women and men making decisions about their lives, they will end up with teams that really work. And the best managerial talent, which should be equally balanced among the sexes, will rise through the ranks. Who knows if the real organizational structure, if this truly happens, will have “ranks” as opposed to something more like the jungle gyms Sandberg refers to. Sandberg points out that “Research already suggests that companies with more women in leadership roles have better work life policies, smaller gender gaps in executive compensation, and more women in mid-level management.” I would submit that there are companies with all or some of the above because they started down this path many years ago. We need many more. What a waste of having impediments that prevent the best to rise. It is important to read Sandberg’s book, though. If male and female employees  and executives cannot empathize and learn from her story, the gender arbitrage, as I define it, won’t happen. There is more to say on this subject, but everyone please read the book, and then we’ll talk.