Job Creation – Economic Downturn

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Since the current economic downturn began, roughly coinciding with the announced collapse of Lehman Brothers, pundits and politicians have spoken frequently of the need for job creation as an essential component of economic recovery. Creating work and creating jobs seem to be two different, even if related, objectives and outcomes.

Creation of work implies a shorter horizon than creation of a china job. I create work when I identify one or more related or unrelated tasks for which compensation is appropriate for one or more individuals. Somehow a job implies longevity, if not comparative permanence, to the work. The tasks may be the same, but the duration differs.

If I want to put people to work, I simply need to identify the tasks, the skill set, the appropriate compensation, and the funding source. If I want to put people to work, the only missing components are the identification of an available labor source and the hiring of a sufficient number of individuals from the identified labor pool.

If I want to create jobs, I have a different challenge. For decades, employers have used automation and process improvement to reduce the labor content of their products and services. Some employers in some cases concluded that outsourcing or off-shoring certain jobs or functions had financial advantages that could yield financial advantages in the short or long term. In the interest of improved profitability or price competitiveness, employers made direct and indirect processes leaner with respect to labor and other resources.

Now, the call goes out to create guangzhou jobs. This call is distinct from a call to provide work to those not currently working but desiring work. This call has an implied sustainability to it.

So, employers, having dedicated resources to improving productivity and reducing labor content of products and services, now hear their elected officials promising to create jobs. As an employer, I can create jobs if I agree to reduce my profits or I can create jobs if the demands in the market exceed the capacity or capability of my workforce. The market either tells me it needs more of my existing goods or services than I can provide with my current workforce or it needs goods and services that I cannot currently provide with my current workforce.

The issue of reduced profitability may find resolution in government incentives, likely either tax benefits or direct stimulus money for hiring. A demand-driven solution seems much more difficult to implement, even though it is probably more sustainable. A demand-driven solution requires a change in the markets for goods and services.

A government funded economic stimulus package may need to provide short-term incentives to create jobs coordinated with demand-side stimulus to stimulate the market for goods and services. Do policymakers act as if they understand this?

Leading in Economic Uncertainty – A Survey

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I encourage leaders and people who think about what it means to be a leader during the current challenging times to complete the following survey. It is long; it may, however, provide useful insight into the roles, pracitces, and behaviors of leaders as we begin the second decade of the 21st century.

Click Here to take Survey

Thank you in advance for your participation in this current research of mine.

Jobless Benefits vs. Non-Sustainable Jobs of Questionable Benefit

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In the January 25, 2010 issue of Time, Nina Easton questioned the advisability extending jobless benefits indefinitely. Ms. Easton suggested that allowing eligibility for periods approaching two years may extend unemployment while providing a modest cushion to the unemployed who would prefer to be working. Ms. Easton’s article raises in my mind the question of the extent to which jobless benefits and job creation and economic stimulus are, and should be, synchronized.

Why is nothing said about creating sustainable jobs in sustainable new ventures that have two special objectives in addition to those you would find in most business enterprises: meeting an acknowledged need in the community and providing long-term employment to the chronically unemployed and under-employed?

The official jobs created data at Recovery.gov is categorized as recipient reported or agency reported. Recipient reported data is categorized as contracts, grants, and loans. Agency reported data is reported by ten individual departments: CNCS, DHS, DOC, DOD, DOE, DOI, DOJ, DOL, DOS, and DOT. As of 12/31/09, the federal government’s various recovery programs reported 20,368 contracts, 203,010 grants, and 986 loans.

Of the 20,368 contracts, 9,225 contracts provided no indication of jobs created and 1,437 (12.9% of the 11,143 and 7.1% of the total) that did provide job creation figures indicated fewer than 0.5 jobs created as a result of the contract. The 20,368 contracts totaled $25,081,315,704 in federal government funding to create 33,941.1 jobs for an average of $ 738,965.91 per job. The 5,310 contracts reporting 0.5 jobs created or more totaled $15,501,184,696.22 in funding and 33,684.4 jobs created for an average of $460,188.83/job while the 1,437 contracts reporting less than the equivalent of one-half of a job created received $855,094,999.83 in funding and created 256.7 jobs for an average of $3,330,976.59/job.

Of the 203,010 grants awarded (totaling $ 220,867,140,623.89), 53,941 grants (totaling $149,614,773,566 and 563,212 jobs created) provided job creation figures of which 23,719 (44.0%of those reporting job creation data, totaling $ 30,354,378,833.84 in funding) indicated zero as the number of jobs created. Of the grants reporting job creation data, 6,031 (11.2% of those reporting, totaling $5,941,548,974.86 in funding) indicated less than one-half of one job created by the grant. The 24,191 contracts reporting one-half of one job created or more totaled $ 113,318,845,757.34 in funding to create a reported 561,911.39 jobs for an average of $ 201,666.75 per job. The 6,031 contracts reporting less than the equivalent of one-half of one job created reported 1,300.86 jobs for an average of $4,567,400.78 job.

Of 986 loans, 10 (1.0% of the total) indicated fewer than 0.5 jobs created as a result of the contract. The 986 loans totaled $ 2,279,583,561.04 (average of $2.3 million per loan) in federal government funding to create 1,955.07 jobs for an average of $ 1,165,985.65 per job. The 125 loans reporting 0.5 jobs created or more totaled $ 759,306,200.00 in funding and 1,953.64 jobs created for an average of $388,662.29/job while the 10 loans reporting less than the equivalent of one-half of a job created received $ 96,133,000.00 in funding and created 1.7 jobs for an average of $ 55,248,850.57/job.

Out of 224,364 projects funded through 12/31/09 as part of the Economic Stimulus (Recovery) program, 158,294 projects (70.6%) did not report job creation data, 28,966 projects (12.9%) reported no jobs created and 37,104 projects reported at least fractional job creation. The funded projects received a total of $ 220,867,176,520.38 creating a reported 597,288.36 jobs for an average of $369,783.16 in funding per job created. An unknown portion, possibly a large portion, of project funding was budgeted for non-personnel costs. By comparison, Ford Motor Company with a market capitalization of approximately $36.5 billion employs 198,000 employees as of the end of fiscal year 2009 (Microsoft has a market capitalization of $245 billion with 93,000 employees). It seems that the economic stimulus projects, as currently reported, may be expensive compared to Ford (less expensive compared to Microsoft) on a per-employee basis, especially when one considers that many of the created jobs appear to be short term.

The key consideration is whether the jobs created are sustainable or temporary. If the jobs are temporary, federal and state government policy makers should consider shifting some unemployment resources to fund temporary jobs that may require less extensive pre-employment training and dedicate more resources to fund sustainable jobs of the future. Policy makers need to coordinate with industry, local, and regional planning bodies to identify long-term needs in their industries and areas, educational needs associated with those long-term needs, and develop plans for sustainable, in-demand job creation to phase-in and replace some of the current stimulus funding.

Should we be talking about “Jobs Created or Saved”?

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After 25 years of speaking with companies about the work associated with positions and about improving the productivity and other metrics associated with those positions, I continue to be intrigued by the on-going conversation about the number of “jobs created or saved” by various economic stimulus initiatives in the United States. I continue to hold the position that people in Washington DC either have no idea what they mean by the phrase “jobs created or saved” or they mean something entirely different than most people I talk to in the private sector.

A job is the work somebody does to earn money.  On the surface getting people jobs appears to be a good thing. Get people to work. Get them paid for doing work. Get the money into the economy to pay for other goods and services. In the short run, creating work for people to get paid for doing may be necessary and appropriate. Longer term, however, shanghai job creation may not be sufficient.

One challenge with job, or work, creation by the federal government is that the sustainability of the work may rely on the continuation of funding by the federal government unless the work created has its basis in the underlying economy. Ideally, for a federal government job creation program to be sustainable and, in the long run, a good thing, the created jobs should fill sustained needs within the respective communities. Jobs associated with a stimulus-funded construction project may be a good thing short term, especially for the individuals hired by the firm, but when the project is complete what work fills the new void for those individuals?

The other challenge associated with the current “jobs created or saved” is that it generally does not seem to consider whether the people doing these new jobs were employed doing something else before coming into the new position. Combined with reports of miscounting, the credibility of the reported results is questionable. On the other hand, if self-reporting of “jobs created or saved” the only metric available for a quick assessment of progress, then that metric should be used with care and with the recognition that the perceived improvement may be short term at best.

As for the sustainability factor, we eventually need to get community leaders, elected and non-elected, looking at long-term community needs and long-term solutions. It seems surreal to be using economic stimulus money, for example, to be addressing long-standing issues associated with the disruptive change experienced by the auto industry and the steel industry in Michigan, Ohio, and elsewhere. Using stimulus money may help people short term, but a short-term infusion of cash cannot remedy 20 years or more of troubled economy. Leaders in long-suffering regions need to identify industries that can be sustainably stimulated, not just jobs. While some argue that “clean coal technology” is unattainable, it is an example of the type of industry that may be needed to sustainably stimulate the economy. While fixing a few roads may provide short-term relief, for longer-term impact somebody might want to look at how to fix roads better or to build roads that need fewer repairs, if at all.

Leadership, Economic Crisis and Stimulus, and Job Creation

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Leaders worldwide somehow recognized the presence of an economic crisis in September 2008. The crisis was at least in part precipitated by poor leadership. Disagreement seems pervasive about the source and the specific indications of poor leadership. Some blame greed while others suggest the housing bubble and mortgage credit woes have their root in the easing of credit in the late 1990s to enable home purchasing by people previously not qualified as homebuyers. Some in the U.S. propose expanding government spending while others express concern about growing federal budget deficits.

Agreement seems rather widespread that job creation is crucial to recovery from a global economic downturn. The focus of the U.S. media is, perhaps understandably, economic recovery and job creation in the U.S. From the perspective as a business consultant for 25 years, mentoring startups and improving productivity in established companies, very few elected representatives in Washington, DC and in state capitals, or in the media for that matter, seem to have much of an understanding of job creation. The White House’s official tally of “jobs created or saved” treats monthly payroll numbers as if one person working for one month is the equivalent of a job created. Whether this is just an example of clerical errors in tabulation or indicative and symptomatic of widespread miscalculation, the integrity and credibility of reports of jobs created or saved is no better than doubtful.

Economic recovery cannot happen with artificial job creation. Job creation is not easy but is no mystery. Enterprises, public or private, must find new activities for new employees or the work associated with existing activities must rise to the point of stimulating the hiring of additional staff. Net job creation means hiring people previously unemployed but it also means adding paid hours to the work weeks of people previously under-employed. In our collective effort to stimulate the economy and promote recovery for individuals, communities, and nations, leaders need to help individuals, communities, and nations discover new and sustainable ways for real net job creation. Community leaders need to meet together to discover the existing needs within the community and uncover the funding to start addressing those needs. Some enterprises will expand their payrolls. Some new enterprises will need to emerge. Some people will need to learn how to perform new tasks. Some people may need to relocate.

In tonight’s State of the Union address, President Obama talked about improving efficiency, creating jobs, and reducing the deficit. Those are not inherently mutually exclusive topics but simultaneously achieving all three will require leadership and creativity. Improving efficiency and productivity generally implies using fewer resources to accomplish the same work or using the same resources to accomplish more work; on a relative basis, improved efficiency and productivity implies job loss. If we, as an economy, want to improve efficiency and productivity, to accomplish our goal of maintaining or improving our competitive position, and we want to have net job creation, the number of net jobs created will inherently be comparatively larger. Increasing the employment base of the country may increase the country’s tax base and contribute to deficit reduction. Reducing spending is another path to deficit reduction. Stimulating the creation of new jobs seems to eliminate reduced spending as an option. If that is the case, the path to deficit reduction is a program strategically to employ the unemployed and to employ the underemployed better. Then, the ultimate scorecard may need to reflect the expansion of the payroll tax base rather than such difficult-to-measure metrics as “jobs created or saved.”