"The Inequality Conundrum"

Roger Lowenstein of the New York Times on "The Inequality Conundrum":

The Inequality Conundrum, by Roger Lowenstein, NY Times: In 1976, Richard Freeman wrote a book called “The Overeducated American.” So many Americans had been getting college degrees that the relative wages of white-collar professionals had started to fall. It no longer paid to go to college and, for most of the ’70s, fewer people did. Just so, incomes of the educated began to rise again.

People like Freeman, a labor-market economist, waited for the cycle to turn. They expected that with white-collar types riding high again, more people would stay in school, and incomes at the top would level off once more.

But they never did. Instead, the rich kept getting richer. Across the spectrum of American society, the higher your income category, the more your income continued to grow. And for a quarter-century, albeit with zigs and zags along the way, that rich-get-richer pattern has held. ...

[W]hat puzzled Freeman remains a mystery to this day. Why isn’t prosperity spreading more equally? The leading theory has been that a global, high-tech economy creates big winners and losers. That is surely part of it. But Europe has computers, too, so where are all of its billionaires? ...

You can boil down most economic policy debates — starting with Hamilton versus Jefferson and moving to Bush versus the Democrats — to this tension: how can you promote equality without killing off the genie of American prosperity? The trade-off is clear at the extremes but fuzzier in the middle. A little redistribution, cleverly designed, doesn’t hurt. ...

Some redistribution is clearly good for the entire economy — providing public schooling, for instance, so that everyone gets an education. But public education aside, the United States has a pretty high tolerance for inequality. Americans care about “fairness” more than about “equalness.” We boo athletes suspected of taking steroids, but we admire billionaires.

The extreme divergence of American incomes we see today, however, is actually rather new. For most of the 20th century, America was becoming more egalitarian. The United States seemingly conformed to the standard theory of development, which held that industrialization produces fat cats at first (as factory owners rake it in) and then a more general prosperity as workers become more productive. It’s a feel-good theory that says, “Don’t worry if the rich are prospering; the poor will have their day.” ...

When it comes to raising the bottom in the short term, Washington basically has two choices: it can try to change market outcomes or it can redistribute after the market results are in. The first method is more intrusive. It includes limiting trade, regulating the workweek or restricting access to certain jobs, through mechanisms like licensing. Since the ’70s, the United States has moved away from such market interventions, but Congress seems to be acting on two of them. It just voted to raise the minimum wage, for the first time in 10 years, and it is seeking a compromise to revise the immigration laws.

And what about redistribution after the fact? The United States does less of it than Europe, and less of it than we used to. Even though the United States is richer than Belgium, a poor person in Belgium is better off than one here. On the other hand, the price for being Belgian is steep: Belgium’s median disposable income — what people have left to spend after they pay taxes and collect welfare-type payments — is only 72 percent as high as ours. ...

There is little agreement on how much redistribution is too much. But common sense tells you that a small increase in taxes when rates are relatively low, as they are now, isn’t going to curb people’s animal spirits. .... Though such thinking is a good argument for further expanding the E.I.T.C., which rewards people for working, in the long run you want to get folks moving up the skills ladder, so fewer people are in need of wealth redistribution. That this hasn’t happened is rather a conundrum. The incentives are certainly there. College grads make more than 40 percent more than high-school grads. Those with postgraduate degrees earn twice as much. ...

The Americans that Freeman once called overeducated are plainly undereducated today. Only about a third of the population graduates from college. Among the poor, there has been only a very slight increase in college-graduation rates.

To get more Americans to enroll in and complete college, the theory goes, you can either fix the schools (more teachers, longer school years, more student loans) or fix the students (more nurturing of kids from disadvantaged homes). Both approaches would cost a lot. But if you’re worried about inequality, it’s hard to see any alternative. Hamburger flippers simply don’t command a high wage. We can pass laws to change that — a minimum price for cheeseburgers, maybe — or we can, finally, invest in teaching the flippers to do something else.

Comments

[baileyman]

Has anyone looked into just how much incentive is necessary to preserve "the genie of American prosperity"?

As long as the rules and taxes are applied equally to all, isn't winning still winning and motivating enough even if the marginal winnings are less than under a different system? I dunno, but I think so.

[bakho]

A higher minimum wage is an incentive for business to increase the productivity of hamburger cooking by better training or investment in equipment.

Making health care universal with everyone paying fairly into the system and well funded K-12 education are good for the economy. By making payments into the system everyone pays and everyone benefits. A system that allows some people to opt out allows them to be parasites on the system.

A system that denies those who work hard, life's necessities is unfair in the extreme. It is a system that allows low-wage employers and those who receive the most fruits of the system to exploit workers and shift costs onto the others. Again, this is parasitic behavior.

Good health, personal or economic means eliminating parasites.

[Outside the Box]

The rules often do not promote economic efficiency (equality of opportunity). The state grants myriad licenses for mundane tasks such as arranging furniture, and trimming hair. This prevents others from competing equally for the pay. Public grade school lobby groups seek to increase rents to their members (more pay, job security), rather than putting student interest first. This prevents equality of opportunity with regard to education. Drop out rates in inner cities are fantastic, and the state doesn't even bother to teach civic skills important to employers to those who do graduate, such as treating others with respect.

[billy]

http://www.timwu.org/log/archives/134

A cartel of mobile phone companies controls innovation on our wireless networks. It’s time for government to step in.

Let’s say you’re an entrepreneur who has an idea to build a wireless fob that finds your keys even if you left them in Virginia or Barcelona. Or say you want to design a refrigerator that transmits a signal to Safeway, instructing it to deliver a gallon of milk every time you’re running low. To enter the market you will have to turn to one of the four mobile phone carriers that today exercise an oligopoly over wireless device communications: Verizon Wireless, AT&T, Sprint and T-Mobile.

Good luck. Get ready for an endless set of hurdles, including lengthy trials, revenue sharing and demands to cripple or modify features, without any guarantee of final approval. All that before your fob or fridge can transmit a tiny signal. In practice, many innovative devices never reach the market. The Big Four tend to approve only established partners whose devices fit their business plans, which is why we have yet to see all those wireless devices that were supposed to be in our future.

The firms already control what phones or devices reach Americans; 95% of cell phones are sold by the wireless carriers themselves. They strictly control phone design, blocking features that might threaten their revenue, like timers that keep track of how many minutes you’ve used each month. The carriers have also crippled or blocked alternative means of connecting wirelessly, like Bluetooth and Wi-Fi, because they want you to burn up minutes on their networks and charge extra fees.
The good news is that the federal government will soon have a chance to change all that and throw open America’s airwaves to innovation and entrepreneurship. It will come in the form of an auction, within the next year, of the few remaining pieces of a precious national resource–licenses to the nation’s wireless spectrum. This particular chunk of spectrum is becoming available because TV stations must stop using it to broadcast old-fashioned analog television by February 2009.

That’s why this year’s auction is so important. The Federal Communications Commission will soon deliver an initial set of rules to govern the spectrum auction. What’s needed to spur innovation is a simple requirement: that any winner of the auction respect a rule that gives consumers the right to attach any safe device (meaning it does no harm) to the wireless network that uses that spectrum. It’s called the Cellular Carterfone rule, after a 1968 decision by the FCC in a case brought by a company called Carter Electronics that wanted to attach a shortwave radio to AT&T (nyse: T - news - people )’s network. That decision resulted in the creation of the standard phone jack. Applying the Carterfone rule to the next spectrum auction would ensure that our key fob designer need only look up standard technical specifications and then build and sell his device directly to the consumer. The tiny amounts of bandwidth the fob used would show up on the consumer’s wireless bill.

The right to attach is a simple concept, and it has worked powerfully in other markets. For example, in the wired telephone world Carterfone rules are what made it possible to market answering machines, fax machines and the modems that sparked the Internet revolution.

Attachment rights can break open markets that might otherwise be controlled by dominant gatekeepers. Longshot companies like Ebay or YouTube might never have been born had they first needed the approval of a risk-averse company like AT&T. If you’ve invented a new toaster, you don’t have to get approval from the electric company. Consumers decide how good your product is, not some gatekeeper.

This is the so-called return to education. A few companies amass huge wealth through regulation that rigs the market.

The large inequality seen today is because of past such land grabs - software patents, proprietary formats, and so on. Since most of those industries employ a highly educated work force, an illusion exists that there is a return to education. Guy working for Microsoft has high earnings? Sure, because it is a protected industry. It is only recently, with outsourcing that this assumption is getting questioned somewhat.

So here is the latest land grab - the coming spectrum auction. Obviously a few companies are going to grab this, and make a ton of money. And the employees of these companies will get to have high earnings. And we will all wax about education and earnings.

The alternative? open access, much more smaller, companies, wealth spread more evenly across a larger group of workers, than the previous case.

But economists prefer to wax about education getting extra-ordinary returns, rather than admit that the high earnings to the educated are spillovers of the rent enjoyed by their industries.

says...

This is the so-called return to education. A few companies amass huge wealth through regulation that rigs the market.

To a degree this is true. Lawyer lobbies write laws that force citizens to buy high priced legal representation from guild members in myriad circumstances. Pharmacist lobbies force citizens to pay big money to buy pills from only their guild members. Some of the education bonus is politically provided rent , rather than free market competition.

This is not the whole story though. Colleges do provide real skills that are helpful in the business world. Engineers can design bridges that don't fall down, while the average high school drop out can't. Doctors can patch people up better than the average high school drop out, etc...

[Lafayette]

RL: [W]hat puzzled Freeman remains a mystery to this day. Why isn’t prosperity spreading more equally? The leading theory has been that a global, high-tech economy creates big winners and losers. That is surely part of it. But Europe has computers, too, so where are all of its billionaires? ...

Well, they are there, just not "in your face". Unless you read the "people magazines" in Europe.

Forbes' list of billionaires actually has a Frenchman in the top ten (or fifteen).

Hi-tech, aside from Bill Gates, is not the most important criteria for getting rich. Though Gates' strategy is one that is common to most of those who are richest. (Find a a good business strategy and hammer it till it works. If it works, it will earn you one helluva lot of money.)

Income inequality in the US is due to the fact that a select group of people have been allowed to lay their hands on a set of corporate priviledges, namely manipulating Board Compensation Committees.

The individuals who people the Board of Directors of corporations are an informal clique and, with a bevy of smart lawyers, in complete legality, they manipulate the wealth generated by a company. This is how they distribute the wealth to those who run the company.

They are all feeding at the same trough, and when that trough is that of a publicly owned company, the losers are its owners, that is, the stock holders.

SabOx did not go nearly far enough. Stock holders, with the exception of some large pension funds, have very little heft at the Board level. So, this shameless game will continue for some time to come.

Don't expect any great changes as regards income inequality in the US until we change the rules regarding how corporations are run and by who. Particularly the right of stock holders to closer oversight than the ludicrous one-a-year stockholder meetings afford them.

There is no logic whatsoever to unlinking compensation from performance, but that is exactly what has happened over the past two decades. And, as for the golden parachutes, well most of them should be made out of sack cloth.

Stock holders should be represented directly on the Boards of publicly held companies. Not at arms length.

[Icarus]

Income inequality is not due to CEO compensation, as this amounts to a small sliver of the total pie.

Automation of processes, through technology and code, has rendered much work obsolete, or of low monetary value.

Simply put, the value of a person's labor is connected to the total cost of replacing that labor, whether through automation, or substitution. Every company would love to pay one penny less, and every worker would want one penny more, at every instant.

But, it is in no actor's incentive to negotiate continuously. Long term trust and faith is important in business, as every actor is essentially extending credit in a business relationship. Whether a supplier, a customer, or an employee...one actor extends credit in every transaction, and trusts the other party to comply with an arranged payment scheme.

So, the cost of substitution is the key. Low skilled work will always lead to a wage rate close to subsitance. Marx spoke of this movement when discussing the perils of having a boundless supply of low skilled labor. If another actor will work for one penny less, and the transition cost of subsitution is low, than the market will pull wage rates downward.

This is the pull of a globalized world, incessantly automating, mapping processes, grabbing tacit knowledge and codifying it.

From AutoCAD, Microsoft Visio, Excel, and other technological tools which promote automation, the class struggle takes place almost silently.

The "rational" logic in this system is to reward only those who are difficult, or costly, to replace.

[real person from the real world]

"To get more Americans to enroll in and complete college, the theory goes, you can either fix the schools (more teachers, longer school years, more student loans) or fix the students (more nurturing of kids from disadvantaged homes)."

Education is either the problem (as in lack of) or the solution (retraining). If you actually look around, you'll find that wealth many times has nothing to do with education. Wealth is more a matter of picking the right profession for which education may or may not, pave the way. I recently worked with a UNIX guy making over $100k, smart and articulate, and without a full college degree. He took courses at a local tech school. Not sure he even had a 2 year associates. Being a doctor does require education, bjt it's the profession, not the education that makes the money. It only takes a real estate license to sell houses. A class may make it easier to get your license, but it is not required. So, in actuallity, much of education is now dictated by business outside as well as inside.

Once upon a time, you took a graduate test to get into grad school, but many small business and tech schools now accomodate their current undergrad students with easy entry into grad programs. You pay your money, do a decent job on your homework, and you get your degreees. If you are already employed as an upper tier manager, it may add to your compensation, and your company may pick up the tab, but you were working already.

Many of the better employed elites here in the US, espcially females, coo about how the educated laid off and under employed should all become teachers. And the talking heads, a few years back, ragged on about how all the current teachers were going to retire en masse, leaving the young children without educators! Where is that trend now? Actually, availability of teaching jobs depends on where you live. Some areas of the US are desparate for teachers. Many others aren't. In our relatively wealthy areas, the schools are loaded with teachers aides - often house wives with a teaching certificate - ready for hire if a teacger leaves. Furthermore, unless you are able to teach Math or Science, two subject areas where national anxiety is a major driver, you are a surplus commodity. In our area, you may drive 50 miles 1 way, to the outtermost exurbs, to get a job at a school. And during the tech bust, the schools were bursting with out-of-work techies who were subbing.

Another reality is that 20 something kids out of college with just a bachelors and teaching cert, are cheaper then the fancy masters these colleges marketed to those in need of a job, and voters often just do not vote the money schools want for new hires. Furthermore, many principals actively try to get rid of older teachers, because they are often considered as stuck in old fashioned ways or not open to the new educational trends and fads like whole language.

The problem with Education Inc., is that it is now itself, a big business. Foreign students are a particularly prized source of income. Go by the financial aid offices at the start of the quarter/ semester, and see the lines. These students not only get tax payer help from our gov't, they also get taxpayer subsidized health and social services, even though they may be from families of the financial elite back home. Yet our own citizens get little hellp. Text books cost an obscene amount, and at times, cannot even be resold.

Then there is the cost of a school loan. Student loans have recently made headline for payola and schmoozing between the companies and the school loan advisors. And, each school has its own version of the "graduate" teaching degree it markets to the desparate, so you cannot just take classes at one school, and transfer most for credit to another.

No, schools are now profit making ventures. Poorly paid associates teach, online courses that are cheap to run, allow even the smallest schools to compete, while the cost per credit hour still goes up and up. The money goes where? For the old line private school I went to, the money went into real estate and buildings for more students. When the bust came they laid a lot of the facuty off, who you could see walking around shell shocked at a local college, looking for more classes to get started again, in something new. What goes around, comes around.

[Lafayette]

rp: but many small business and tech schools now accomodate their current undergrad students with easy entry into grad programs. You pay your money, do a decent job on your homework, and you get your degreees.

Ever work with a BigMac MBAs?

I did. They never lasted more than a month before I had to change their diapers. The habit does not make a monk, and a diploma does not make a competent businessman (or woman).

Why? Because education became a for-profit business. Lower the standards, get more "though-put", and rake in the money.

I never bore myself repeating this in a Forum: Education and Health Care are not businesses, they are both public services.

Get it right -- take the money angle out of both of them. Live better.

Sounds too simple? Amazingly, it IS that simple.

[Bruce Webb]

"College grads make more than 40 percent more than high-school grads. Those with postgraduate degrees earn twice as much. ..."

Well as always you would want to correct that by separating out professional from academic degrees. And while we shouldn't have to point it out correlation does not equate to causation. The assumption that is being built in is that rewards naturally flow to people with higher degrees as if the training gained magically results in exactly the right level of marginal productivity. The idea that the gatekeepers of compensation might be arbitrarily rewarding fellow guild members disproportionately to their input remains invisible.

Yet in many cases in the professions this is made explicit. In medicine who does most of the work? The interns. Who get most of the pay? The practicing physicians. Same in a law firm. Does an associate who makes Partner in the Firm suddenly become that much more productive? And not to cut to close to home, but a Full Professorship with Tenure is a hell of a lot more comfortable in all kinds of ways than being a Lecturer at three different Community Colleges (typical here to make a bare living) yet the sheepskin on the wall has the same arcane title and represents the same amount of schooling.

To explain income inequality simply in terms of educational level is to comfortably ignore the power structure that has increasingly grown up around credentialling, with rewards increasingly directed at what you did rather than what your abilities might actually be.

It would be interesting to cross check this against the fall in funding for public universities and the shift in federal funding from a largely grant-based system to a loan system. Because one effect of a system based on educational credentials is to establish financial barriers for entry that rather artificially work to the benefit of the wealthier. There is always a way for an average student to earn a JD, MD or MBA, that is if you have enough money. You just move down the food chain of colleges. You might struggle passing the Bar, or getting Board Certified, but nothing is stopping that new MBA from being slotted into Wall Street based on connections. At a level of compensation that may far exceed actual contribution to production.

[Holly W.]

I'm with Bruce Webb on this. People like to talk about "education" when they mean "credentials." You could be the most brilliant self-educated person in the country, but if you don't have a degree or at least some classes in a college major that sounds like a job title, most employers won't let you get a foot in the door, no matter what your abilities might be or what knowledge you have. Businesses don't seem to want to make the effort to find out what people CAN do, or train them if they seem bright and motivated but lack experience in a particular field (unless you're a CEO brought in from another industry ...).

The only job I've ever applied for that tested me for my abilities was at U-Haul when I was looking for a summer job -- they're desperate for people who have good basic spatial comprehension and can do simple math problems. One or two others tested me for personality traits that they thought made a person suitable for their work, but couldn't have cared less what I was able to do. It's frustrating to listen to people talk about the return to "educated" or "skilled" labor when what they really mean is vocational training, be it nursing school, law school, an MBA, or whatever.

[Holly W.]

P.S. Has there been a plague of bots commenting lately, or is being asked to fill in the little numbers/letter box now a standard part of posting here?

[Bruce Webb]

Holly it comes and goes. I am not sure what triggers it, once you have done it once or twice in a session it seems to go away, suggesting it is recording something, perhaps your IP.

[Lafayette]

BW: The idea that the gatekeepers of compensation might be arbitrarily rewarding fellow guild members disproportionately to their input remains invisible.

And who, pray tell, in their right mind, would divulge such knowledge?

They would become over night ex-Board members, tarnished for life. Bye, bye Rolls-Royce.

PS: In the days of guilds, apprentices worked nearly all their lives learning a trade, at apprentice salaries, before becoming "Masters" of their trade. How times have changed.

[Lafayette]

RF: So many Americans had been getting college degrees that the relative wages of white-collar professionals had started to fall.

Why is it, to make a point, one must employ always a financial metric as an indication of value? Is that all there is, in terms of values? Apparently.

A college education is far more important than its ability to obtain a good job. It is also essential to the intellectual vitality of a nation, its ability to reason collectively, its ability for a people to be tolerant of one another, its ability to think beyond parochial interests. Etc., etc., etc.

I find the above remark absurd. So what? In a complex world, we need people who know how to think. You don't obtain that competence by reading the backs of breakfast cereal boxes in the mornings.

Hasn’t some one written a book about the “Dumbing Down of America”? They should. Secondary school aptitude levels are appallingly mediocre. Kids enter the workforce thinking life owes them a living. We hire immigrants to do physical jobs we no longer want to do, while we stuff ourselves to the brink of obesity. When will we start building the public vomitoriums in the malls?

And, Freeman was worried that salary levels were falling - because we are over-educated? They still are falling, for the unskilled and semi-skilled laborers. What does that indicate? That their level of education is not adequate in a modern economy transiting from the Industrial Age to the Information Age. They’ve become road kill on the highway of life.

[Lafayette]

HW: One or two others tested me for personality traits that they thought made a person suitable for their work, but couldn't have cared less what I was able to do.

And another gripe that has come out in the long European recession has been the response to a résumé that says you are "over-educated" for the job.

I guess, when times are so bad the jobs are as rare as hen's teeth, Personnel departments are afraid that you'll get bored and start looking elsewhere?

I suggest that a first and foremost cost savings an incoming CEO can make is with the Personnel Department. Junk it. It is a den of inbuilt prejudices in a profession that has no benchmarks worth noting.

It is true that a company has its own "corporate culture" and that culture is set at the top. Work for a company of overgrown thieves and expect the worst at the bottom. If there is anything lacking in the education of leaders today, it is a sense of morality.

We see it time and time again ... in this nation dedicated to the notion that it "Trusts in God".

[baileyman]

Check out
http://www.nytimes.com/ref/magazine/20070610_WEALTH_GRAPHIC.html?_r=1&oref=slogin
which just showed up in the NYT. It purports to show nominal salaries over time for people by age, sex, education, industry, and more. I was interested in what a 22 year old professional might see over time. In industry after industry, since 1983, the 22 year old professional has seen something on the order of a 0.1% annual rise in salary. This represents "returns to education"?

[baileyman]

http://www.nytimes.com/ref/
magazine/20070610_WEALTH_GRAPHIC
.html?_r=1&oref=slogin

Here's the rest of the URL.

[Lafayette]

bm:This represents "returns to education"?

If they've been employed continually throughout that period, they should consider themselves lucky.

They've not known long-term unemployment, meaning more than 5 years and typically longer. So, why complain?

If you want excellent returns, seek risk premiums. A steady job is a good enough return ... and it is getting rarer and rarer - particularly for the unskilled and semi-skilled.

[real person from the real world]

Lafayette says:
"I suggest that a first and foremost cost savings an incoming CEO can make is with the Personnel Department. Junk it. It is a den of inbuilt prejudices in a profession that has no benchmarks worth noting."

So true. I also recommend, "The Cult of Personality (testing)" by ANnie Murphy Paul.

Some psych texts will refer to tests saving companies money, but how? By weeding out what? Can we really say they weed out would-be theives or people that are somehow undesireable? Frankly, I think these tests and the bizzarre questions used to interview are designed either to merely weed out, for the sake of weeding out, OR to camoflage covert discrimiation for age, obesity, or whatever.

Importation of visa workers creates a surplus pool of workers that (Counterintuitively, does little to lower corporate costs), but creates a glut for employers to weed thru. I went to a seminar on getting a job in open source, sponsored by a local group. Actually it was no such thing. A techie employed as a hiring manager for a local college text book manufacturer was just using the forum to tout a book he wrote, while trashing everyone elses job advice book. He started the lecture with what he assumed would be a joke: a picture of a man with a snow blower. The symbolism ought to be clear to the enlightened reading this blog.

I won't rehash my views here, but the importation of visa slaves for companies saves relatively little money. It also harms US IT, by making it dependant on first one 3rd World country then another, and by the lack of continuity, and loyalty caused by contingent labor. The only thing this kind of business does is create foreign middlemen, to import the visa slaves and vend them off to each other or to those vendors with access to a US Company. They bleed off money and create nothing. Meanwhile, our own HR departments, do their job, like the medical insurance industry, by WEEDING OUT as many potentials as possible. My employers (we do staffing) also says, "Screen to fail." MOST EMPLOYERS ARE UNWILLING TO LOOK AT THE FLEXIBILITY AND ADAPTABILITY OF HUMAN BEINGS.

[Lafayette]

AM: MOST EMPLOYERS ARE UNWILLING TO LOOK AT THE FLEXIBILITY AND ADAPTABILITY OF HUMAN BEINGS.

Up the corporation!

The book "Up the corporation!" had junking HR (called the Personnel then, because it took another decade before management understood that personnel were also human resources) on the Things-to-do List of a corporate executive when remodeling a company.

All the real, tangible value-added that HR offers can be subcontracted in. Meaning this: The principal focal point of Personnel should be the managers themselves. They should have the Personnel responsibility for their direct reports.

Outside consultants can teach managers the latest management techniques (yes, there are quite a few):
*How to create a job spec,
*How to interview against a job spec,
*Motivational appraisal techniques,
*Design and distribute a career guide (that defines each promotion level by tasks and metrics) that will serve all regardless of the function,
*Teach them key interactive skills with direct reports, and
*effective management communication.

HR can then take a long walk off a short pier.

As for interviewing, it should consist of no less than ten interviews. Ten smart people cannot all get it wrong - or they shouldn't be in management. If they know the function in question, they should know how to interview someone who is a candidate for that function if they have a copy of the job spec.

Hiring a bad apple should reflect on the manager who did so - not on his skill of hiving of an awful choice to some one else in the company.

[cm]

baileyman: As Lafayette also points at, a good part of "returns to education" is the ability to obtain a job (roughly) commensurate with your ability from which you would otherwise be excluded for lack of formal credentials. There is a pricing-in effect on all sides -- availability of more credentialed workers will drive up credential requirements for jobs, and will lead to more focus on obtaining the credential rather than the underlying skills, compelling Real Person's "Education, Inc" to offer more small-gauge educational and vocational programs focused on obtaining a certification with least effort. Compare also "grade inflation". Following expediency seems to always lead to inflationary debasing schemes of all kinds.

[cm]

Lafayette: Outsourcing your staffing will only work for standard (commodity) job descriptions. Otherwise it will amount to little more than screening out resumes by standard means (e.g. positive/negative keyword and phrase matching). Of course, that generally applies to internal HR staffers as well. I'm hearing from enough sides that the hiring managers have to go through the "raw" resumes themselves, or else they will get only garbage from HR. I don't know how outsourced staffing could perform better there.

[real person from the real world]

Hey, CM! We offer outsourced staffing services! And we have had real hits! One client mowed thru 40, count 'em 40 infrastructure candidates, about 5 of them ours, and the 5th was a winner! The poor hiring manager explained calmly specifics, and duly quizzed managerg with MS Text book in hand. One failed candidate figured it out, and came to use and we realized the guy had a geek manager looking for another younger geek of low mileage (therefore cheap) rather than a real manager. Our CEO/SVP (this is a tiny company) spent hours grilling carefully selected resumes (Indians have the patience to excel at this, since this is getting to be a big biz for them), and we sent over a guy that turned out to be a winner. We will sell you the service, while we hire a bunch of guys paid peanuts over in india to source and screen, while they learn on the job, and we screen them over again here. Actually, a lot of them get someone from DICE or Career Builder or Yahoo/Google Groups or some networking service for a "US Citizen or Green Card Preferred" Client, OR they haggle with the 5000 other Employer/Vendors for their best Java guy or whatever, and mark the guy up and send him on to you.

Raw resumes can also hide lies. I just had a situation where two guys for the same position had a large number of some very similar phrases in the Summary and Tech Skills sections. Chances are, their experience is similar, and they used a template (both came from the same lower layer employer/vendor), but you never really know. Phone interviews sometimes are hard to hear, and can provide opportunities to look tech questions up, for out of state techies.

Ultimately, wouldn't businesses be better off hiring people and training them from scratch, and just keeping them? promoting them, and bring on more over time? ....or is this just toooo expensive to bring on a few people for entry level? If you are afraid they will quit after learning at your expense, have them sign a contract!

Layfette mentioned something about the old guild system of the middle ages, where you trained with a master, but did not become as master until many years later. Maybe we need a guild system for technology.

[cm]

real person: Yes I know you do outsourced staffing, I do pay that much attention, but hopefully without offense I will contend that where you can provide value to your clients is mostly in commodity jobs, the idea being that in order for you to source the right candidates, you need to know closely enough what the client needs, which unless you work very closely with the client means that either the job description and skill set is standard, or the client itself is so clueless and/or lazy that it doesn't really matter (and by appearances that seems to happen often enough).

When I say commodity, I don't mean it in a derogatory way or that it means cheap, but in its original sense as "ware of a standard quality". In that sense, even highly prized IT or programming skills are commodity as long as they apply broadly enough, and are not tied to niche products, exotic work places, etc.

I suspect if the client does some sort of relatively esoteric specialty stuff, you guys will not be of much help, unless you specialize in that kind of thing. That's what I meant.

[baileyman]

cm, Lafayette:

You guys are of course correct in the micro sense, for any single job seeker. What I have pointed out to you is that the entire class of 22 year old college educated professional job seekers has gotten no share of productivity growth and no share of inflation for some 23 years. Like I say, I'm sympathetic with your views, but hey, the target's over here, guys, try another arrow.

[real person from the real world]

It's not just java or sql programmers that are commodities, anyone outside of executive managmentis! Me especially. My employer pays me peanuts, yet I am his biggest expense, and have the most responsibility. I am supposed to keep the army overseas in line, up-to-date on consultant interviews, build the database, keep the data clean, format some of the resumes that need it, spell check them and watch English usage, write emails for not only the non-english but the less educated sales person, and keep tract of a billion different contracts they have to send to each other (non-competers, master service, with task orders, and various flavors), console the losers, and keep anyone hireable, on the hook.... all for the princely salary of $10+/hr. I refused to work on commission becasue my bills are regular, and this silliness is feast or famine, especially with the trend now, toward permanent hires.

I am there some days 12 hours straight, other days I need to keep things short, plus I have other duties I won't go into.

Whoever reads the resume, I still say this is a POOR way to place people. People want jobs, but employers would rather weed applicants out, instead of really trying to see what someone could do.

I work with as a subvendor to some other staffing companies, and they are all "boiler" rooms and resume black holes. I have to deal with some poor consultant and his employer/vendor (a third layer down) ringing every day, a couple of times, to see if I heard anything, but the hiring managers at wherever are still eyeball deep and cannot make up their minds or found someone better, or whatever. Who knows? you never hear from them again. It's a wonder there are enough subvendors out there willing to keep sending resumes to this useless consulting black holes.

Then there are the small 1 man operations that go nuts when you tell them someone else submitted the same resume to you. Straving souls chasing pennies rolling down a hill.

This whole thing is nuts. If it wasn't even MORE miserable to try to find a better job I would, but I am older, with health problems, and something coming in is better than nothing. I am grateful I have a paycheck, inadequate as it sometimes is. My employer is not a bad guy, nor are the visa guys.

They did not create the problem. Microsoft and Bill Gates and every other company that thinks they are clever for hiring visa people is the problem.

[cm]

baileyman: I thought I did address the aggregate picture, particularly with my pricing-in argument. To some extent it is a phenomenon similar to tech/science progress, and perhaps indeed the very same thing -- the bar keeps going higher and higher. In a sense it's a feature, not a bug. When the aggregate education/skill levels have risen, that very skill level that commanded a premium 5 years ago won't so anymore.

In practice, as skills and in particular creative skills (in the broadest sense, basically anything beyond applying rote knowledge in a fixed process) are difficult to assess, the measure of the skill is replaced by credentials and pedigree, including post-ed job titles, employers, and prestigious products.

One unfortunate side effect of today's (in fact the post-WW2) global acceleration of tech/science progress is that specific advanced skills are now obsoleted in less than a human lifetime, and not too often within a decade (the span of a "mini career"?), and realistically most have only one shot at penetrating any skill area in such depth as to warrant claims to expertise that go beyond knowing a few buzz words and rough outlines.

At the same time, a number of celebrated recent "innovations" in the IT/computer marketplace are really old hats, and have taken in cases about 20 years to leave the lab and be accepted by industry.

[peter]

"On the other hand, the price for being Belgian is steep: Belgium’s median disposable income — what people have left to spend after they pay taxes and collect welfare-type payments — is only 72 percent as high as ours. ..."

That's what he writes -- Mr. Lowenstein -- in his thought provoking piece on inequality. He simply trots out the party line -- the familiar American party line -- that "the price of a being foreigner is steep" -- and that we Americans are richer.

Has anyone ever tried to analyze what this particular factoid is made up of? First, anecdotally, most western europeans in all quintiles SEEM richer to me -- or at least no poorer -- than their American counterparts. Second, if you strip way that absurdly overpaid first US percentile, and strip he slightly less well rewarded first percentile out for EU or Japanese income stats, so as to be able to compare Apples with Apples, what do you find? I'd wager that the 72% difference between the Belgian average GDP per capita and the US figure would all but vanish. Third, since "economic goods" like college tuituion, and health care are radiclly less expensive in the EU or Japan, what do you get if you control for them in the calculus? Has anyone computed it? Third, the emphsis is always on "averages" -- the figures for comparing global living standards since time immemorial are based on averages. But why? If you look at "the median" or "the mode" as you compute and compare international income distributiion, what do you get? Far less difference -- if any I suspect -- between your Belgian and your America. In other words being a pesky skeptical former Brit, I'm challenging the long-held US mantra -- so useful in making many of the crappy outcomes of so much of American economic life seem more tolerable -- that we are "the richest nation on earth." For the vast majority of Americans -- 99% I should guess -- we are not. Used to be in the 50s. No longer.

[peter]

Just to add.....

In other words what I'm saying -- and I'm not a professional economist -- is that the primary justification put to the US public for our income disparities being far wider than those of other OECD nations is that there's a trade off, namely greater US growth and greater average wealth. I believe that argumnent to be bogus. The American public are being hoodwinked into thinking they're getting a better standard of life than the poor Belgians, and thus should shut up about degrees of income inequalities on this side of the pond many times greater than those to be found in that economically backward little country.

[Lafayette]

cm: Outsourcing your staffing will only work for standard (commodity) job descriptions.

Marginal Competency

Not at all.

Whether a person sits full-time in an HR department or is subcontracted punctually for an assignment is of little consequence, except in cost. Recruiting someone does not change because the position is standard or not standard. (It is typically in the latter that a head-hunter is employed to do the job. But, frankly, most head-hunters are wankers. All they do is cultivate diverse opinion about the candidate from sources to "flesh out" the résumé (CV) and verify that the candidate has indeed had the illustrious career that he/she depicts in the overblown résumé. And, for this detective work, they are handsomely paid.)

The guy who sits at an HR desk is a 100% full-time cost, whilst recruiting is not a full-time assignment. So, they do deathly somersaults figuring out what to do with the wasted time in between recruiting assignments. Usually they do a lot of "management training" - and some haven't even had a day's work at managing.

So, subcontracting any HR-function is just like a temp worker doing a specific job at a specific time. In fact, when subcontractors work at a number of different companies, they are optimizing their labor input.

I have written enough job specs to know that the difference between a floor-sweeper and a CEO is not more than about five levels of real competence - depending upon the size of the company - which is easily written into a professional corporate career guide. When one looks very closely at the differences between, say, supervisory and management responsibility, the difference is typically in number of people overseen, interactive skills, etc.

Each level of responsibility is one notch up the ladder with a few, selected additional competencies, which is what constitutes a job spec. It is each level of additional competencies - like marginal utility - that determine whether people have reached their level of incompetence career-wise - and that is where their career stops.

The specificity of each job (finance, engineering, sales) of course is different across a company, but the distinctions in competence from one level to the next are easily identifiable.

It ain't rocket science. Most HR is pure fluff. (And, someone please tell me, when the redundancies (layoffs) start flowing why are they always the last people to go?)

[cm]

Lafayette: The "traditional" staffing process works by sourcing and filtering resumes, and/or application letters (back in the days when applications were actually read by a human). The purpose of head-hunting is employing social networking, it's a different paradigm. (One connotation being that people of such great competence and prized skills are not applying, but you have to poach them.)

What you describe sounds like employing HR and external staffers likewise to source candidates with fitting "generic" skills, but paying externals on demand.

In a number of workplaces I know HR is actually pretty "lean". What this means in practice is that a lot of stuff esp. in the benefits area is outsourced, and HR is washing their hands off of it, and expect employees to spend their own time navigating the maze of middlemen and case workers if they want to get the benefit or fix the inevitable screw-ups in billing to avoid begin stuck with some bill. As a result, people are discouraged from using the benefits, which maybe is the point.

When outsourcing/cutting staffing, it will perhaps be the same. As I said before, where I work and in other places I know of, the standard mechanism of sourcing people is to go through employee referral, which at some point (plausibly) stops yielding, and the staffing resume mill apparently doesn't work either.

But then I'm in a group where there is nominally a large focus on specific subject-matter skills that IMO "generic" staffing agents are not qualified to do. All they can do is keyword-matching, which tends to yield a large number of resume liars and will screen out those that only put their actual skills on it.

[real person from the real world]

CM notes, in his comments to Layfette:
"The purpose of head-hunting is employing social networking, it's a different paradigm. (One connotation being that people of such great competence and prized skills are not applying, but you have to poach them.)"

Right on, and it in a nutshell! And this also beggs the point: CEOs and other top execs are self promoting egoists who get rockstar pay, generous benefits and follow a different career path from the mere mortals making subsistance wages in the lower levels.... The CEO gets his job via *networking* with old buddies, and those in an inferior position but situated in a way to help, and who will look for favors in kind later on. There special websites cropping up to facilitate this kind of networking.

Meanwhile, the commodity worker is paid shit, gets few or no benefits, and has to endure psych tests and bizzare questions designed to weed out people who could possibly be undesireable in some way (altho the test sellers probably have rather weak proof of the value of the tests in doing this).

So, you get ego maniacs and amoral greedy stiffs in management, and a tendency to get slick talkers who know how to sell themselves for commodity jobs, but may be no better or even worse then an average Joe who couldn't sell himself or was being discriminated against covertly for age, health, obesity, or just on gut feel by HR.

How did companies ever get good employees years ago, before HR started using these tests? Or, were people just better back then? Now suddenly, companies cannot find the people they need, so they have to import them.

[cm]

real person: (BTW, when I'm "addressing" my comments to anybody, it is supposed to indicate it is in response to their comments, but not (necessarily) directed exclusively at them; this may be obvious, but just to say it regardless.)

Social networking is a basic ingredient in human society, "connections" have always helped those who have them, and there is nothing wrong with it per se. Wouldn't you give somebody referred by someone whose judgement and intentions you trust an edge over some stranger, all other things being equal? Many things in life that people call "luck" are really a matter of your knowing of an opportunity or getting the foot inside the door through some "inside" contact who happens to know you.

For the most part (I would hope) this is accidental, as many happen to have conveniently placed family members, neighbors, school mates, ex-teachers, etc. It becomes a problem only when connections are emphasized over everything else, and people start cultivating networks (sometimes euphemistically referred to as "friends") for the purpose of getting this edge, not because they want to relate to people on a human level (the origin of those networks, but maybe I'm being naive here). If you are not the type of person to participate in this game, that will put you at a disadvantage.

[real person from the real world]

I have nothing against networking per se. The problem is the inequity of the rock star with the obscene income vs. the average joe/jane who lack these connections, or connections that can provide any substantive help.
Networking just reinforces the rockstar pay and the myth that these guys are above the status of ordinary humans, and keeps job access within the old buddy system.

To build such networks, you need the talent and you really need to start at an early career point. If you end up with a gap or a mistep, you can lose it all .... Also, not all of us are good networkers. But ultimately, what really counts? Your ability to network or your capacity to do the job? Perhaps those who successfully network are better for management? Yet look at Enron, and some of these other Execs caught abusing company funds or artificially manipulating demand to benefit themselves. The systems seems to be promoting those with greed and self-interest who promote others with greed and self-interest.