Wage Stagnation and Structural Unemployment

Friday, November 25, 2011

Wage Stagnation, a.k.a. “median wage stagnation”, can be defined as the lack of long-term real wage growth and can be best illustrated by U.S. worker wages from the 1970’s until present. Structural Unemployment occurs when there is a mismatch between the skills employers require and the skills of prospective workers. 

The current period of elevated employment is indicative of structural unemployment with thousands of job openings going unfilled, while many of U.S. workers lack the skills to fill them.  How are wage stagnation and structural unemployment interrelated with organizational productivity?  Many workers acquire their initial job skills during early formative years in secondary, trade or  higher education. Others may develop skills as the part of some informal or formal on-the-job training program through employers or trade unions.

Prior to World War II, skills developed early in life were generally suitable for the entire life time of many workers. However, as the post war world developed into the technology and information age, workers often are required to be re-trained or acquire new skills. Today, workers often change jobs and careers and reinvent themselves as whole industries undergo radical change and once solid jobs disappear.

The prime objective of a publicly or privately-held organization is to return economic value to its stakeholders, whether those are individuals, partners or shareholders in a common corporation. To do so, the organization must produce those goods or services demanded by its consumers, at both a price and quality that consumers require. To meet this objective, the organization must acquire, motivate, and retain individuals with the characteristics and skills to produce those goods and services.

Jobs that once could be had with a basic high school education, now often require additional technical training in numerical controlled machining tools, robotics, intermediate math, problem solving, and logical thinking processes.  While traditional four-year degrees in higher education have been the gateway for many workers to advance, numerous industries still continue to offer well paying jobs with two-year degrees and through trade and apprenticeship programs throughout the nation.

Organizations continue to find that in-house sposonered training is required to better engage new employees while building long-term relationships and developing future team leaders.  In order to become and remain productive and competitive, many organizations have resorted to partnership with local educational institutions to provide job related trade and skills training for current and future employees. Regard less of how it occurs, businesses with specific skill requirements have found that they must take action to ensure a significant inflow or skilled workers.

While issues with Wage Stagnation and Structural Unemployment cannot be addressed by any one organization, without real wage growth and a means to effectively deliver skilled workers to a business sector when needed, enterprises will continue with competiveness.

Walmart, Is Doctor Sam In?

Friday, November 18, 2011

Can the world’s largest retailer roll back prices on primary health care? Last week, the world got a look at the possible aspirations of Walmart’s latest venture, managing chronic diseases such as diabetes, asthma, high blood pressure, heart disease, and other illnesses. Walmart has been accused of destroying thousands of family owned and operated hardware, sporting goods, and clothing stores with its overwhelming marketplace presence. However, in the face of Walmart’s potential expansion into the primary health marketplace, it has eliminated health care benefits for its own employees who work less than 24 hours per week. Will patients vote with their wallets and abandon their primary care physicians in favor of Dr. Sam?

Many, if not most Walmarts have onsite pharmacies; others include optometrists; so why not include a primary care office? And some Walmart locations do offer walk-in clinics. It is hard to explain how a guy from Bentonville, Arkansas out did the Sears, Penney’s, and other retail mainstays to become an American institution, but he did. The basis for Walmart’s success has been its ability to put what the customer wants, at the price the customer is willing to pay, when the customer wants it on its store’s shelves. So how would this model that work in health care? Not many of us want a colonoscopy at any price.

For starters, it is unlikely that Walmart would perform even minimally invasive medical procedures within its stores. However, routine physical check-ups, diagnostic and basic laboratory screenings, health care and wellness coaching and counseling, as well as medication adherence and monitoring could be accomplished in a way to ensure patient privacy and protection. And while it is true that laws regulating health care do vary from locality to locality, so do most other regulation relatives to operating any business.

Would Walmart be able to appropriately staff a primary health care facility? It would not have to; it would merely sub-lease a space within a store to any existing or new medical practice that would then staff it with the required medical skills needed. Initially the facility might restrict the types of patients seen to routine physicals, health and wellness, and coaching and counseling. However, over time, patients requiring more extensive treatment could be seen as both Walmart, their medical providers, and the public became more comfortable with the services rendered. While Walmart would never (never say never) perform highly invasive procedures, it could certainly redirect a significant amount of traffic from the small medical practices as well as underserved communities throughout its market area. Walmart currently operates over 130 walk-in clinics in some 29 states. A good start on being the nation’s largest primary health care provider? And who operates these clinics, local and regional medical providers.

Walmart could become the dedicated primary medical provider for small and medium employers by contracting directly with the employer. Consider this adaption of the model, Walmart provides basic and routine well care, pharmacy, dental, and vision services on a capitated basis; while catastrophic and major medical care and hospitalization coverage is provided by a fully or self-insured health care plan. Capitated rates could be relatively low $10-$15 PMPM and catastrophic and major medical based on community rating. Sounds like an HMO, look out Kaiser, here comes Dr. Sam!

Health Care Cost and Consumer Accountability

Friday, November 11, 2011

For decades, the true cost of health care has been hidden by the inability of the consumer, a.k.a. the employee and their dependents, to see the total cost of services provided. Documents such as the Explanation of Benefits (EOB) are great resources, however they are delivered long after the care itself is provided. Medical providers are often ill prepared and ill equipped to provide complete costs upfront since they themselves do not know the expenses associated with many services not directly provided by their facility. Many consumers do not realize that they do have a degree control over when, where, and how many non-emergency services are provided. Consumer Directed Health Plans were thought to provide the incentive for health care consumers to “shop” for medical services, in the same way that they would shop for a car. The problem is that there is no “Kelly Blue Book” for health care procedures which is easily accessible to most employees and their families. The result is that consumers are often unknowledable about the total cost of a medical procedure, and thus lack the information to shop around for the lowest cost or for that matter, the highest quality provider.

While some form of high deductible and consumer directed health plans have been marketed by carriers since the later 1990’s, only in the last decade have Consumer Directed Health Plans begun to be offered through employers in significant numbers. An April 27, 2011 report in Plansponsor stated that Consumer-Directed Health Plan participation increased 22% between 2009 and 2010, to an enrollment of 28 million, according to analysis by Mercer’s National Survey of Employer Sponsored Health Plans commissioned by the American Association of Preferred Provider Organizations. While sounding impressive, CDHP’s have a long ways to go to match the estimated 69% take-up rate for PPO plans reported in the same survey. The survey went on to report that 51% of employers with 20,000 + employees offered employees a CDHP.

The increasing popularity of Consumer Directed Health Plans is a simple economic function, i.e., lower premium costs to both the employer and employee. Typical private insurance premium costs for CDHP’s can range from $40 to $230 per month less for individual and family coverage respectively than standard PPO’s.. Employer sponsored plan premiums for both fully and self-insured plans can be significantly lower with the combination of group pricing, employer contributions, HRA/HSA incentives, and pre-tax employee contributions.

But the question remains, has Consumer Directed Health Plans contributed to lowers overall costs, a better informed, educated, and knowledgeable health care consumer? In a recent 2011 survey commissioned by ACS , A Xerox Company and carried out by Buck Consultants, 56% of HSA participants reported that their qualified plan offers a reasonably priced health care option compared to other alternatives. The survey also concluded that "… employees are benefiting from more educated, responsible health and wellness decisions … ".

Survey participants with HSA’s report:

     54% - Saving more money to cover medical costs

     18% - Engaging in healthier lifestyle choices

     18% - Researching preventive care programs

     28% - Shopping for lower priced prescription drugs

     31% - Better health care planning throughout the year

Results such as the ACS - Buck survey are certainly encouraging and appear to point to an emerging trend in the consumption behavior of some health care consumers. However, we are still taking about less than one third of health care plan participants being enrolled in a Consumer Directed Health Plan. And while 28 million individuals is no small number, it does represent a minority and of greater concern, individuals who may be healthier participants and are thus less likely to need health care. Leavening a concentrated pool of less healthily individuals in the remainder of the population.

Tough Times for Employee Recruiting

Friday, October 28, 2011

Times are tough – everywhere; individuals, governments, and organizations are all dealing with significantly less earnings, revenue, and income. Virtually every facet of our economy is affected; lowered consumer consumption, reduced governmental services, and even reduction or outright elimination of employee recruitment efforts.  Nevertheless, public and private employers are facing a significant brain drain as baby boomers have begun to retire. Even in the face of reduced pensions, 401(k) balances, and prolonged periods of unemployment; many workers are continuing to retire. Many organizations requiring highly skilled technical, professional, and scientific skills are facing a “war for talent”.

In addition, while it is true that some baby boomers are postponing retirement, organizations continue to struggle to fill critical roles in their technical areas of research and development, product development and production, and systems infrastructure.  The Pew Research Center estimates that beginning on January 1, 2011, 10,000 baby boomers are expected to retire every day for the next 19 years. That is a total 3.6 million employees potentially exiting the labor force ever year. Great news for the 9.1% of Americans currently out of work (provided if they have the required skills), even if only half that number actually retire.

So it begs the question that in the light of the loss highly skills technical, professional, and scientific talent, why would organizations reduce or eliminate recruiting efforts? Could it be a false sense of security or a sense of over confidence? Are organizational leaders overly optimistic about their ability to attract and retain the required workers? Have they been lulled into the delusion that high levels of unemployment translates into a ready and available labor force of highly trained and skilled workers? Corporate recruiters, like most of us are attempting to maximize their return on investment. In these lean times, it makes good sense to focus recruiting efforts on those schools which are most likely to produce the best candidates.  Increasingly, organizations are looking at the top state schools and not so much at the Ivy League.

Nor should we become tunnel-visioned into thinking that the talent war is restricted to engineers and computer scientists at Apple, Cisco, and Microsoft. Retail organizations the likes of Domino’s Pizza, Dunkin, Popeyes, KFC, Subway, Panera’s, and Chipotle Mexican Grill are struggling to find the talent to expand and manage their domestic and overseas operations. Securing that talent often means looking outside the organization and even outside the retail industry.

As pressing as the talent war is on existing and established companies, consider the impact on new and growth organizations. Large well established companies at least offer some degree of assurance that they may be around in two weeks. While past performance may be no guarantee of future performance, existing and established employers have a track record, good or bad, which can be analyzed. Start-up and organizations in the early stages of development offer very little more than unknown risk. Attempting to recruit highly skilled talent for such a company that has no track record, is not yet profitable, few secured customers, and an untied untested product is a challenging task.

The Invisible Workforce

Friday, October 21, 2011

No matter what you call them: independent contractors, freelancers, temporary, provisional or interim workers; the current economic conditions has bred an invisible workforce, many of whom are working for cash and off employers official payrolls. The IRS reported in 2005 that Americas under reported their incomes by some $1.3 trillion.  So significant an issue is this; that IRS actually has a chapter in its Audit Techniques Guide to assist examiners in reviewing for potentially non-reported and under reported incomes. While this may seem like a non-issue for employers, the IRS and states are just as concerned with employers who have misclassified workers as independent contractors and are thus under reporting Federal and state payroll taxes. Failure by an employer to properly classify workers as statutory employees and remit payroll taxes can lead to significant fines, back wages, legal fees, and potential civil or criminal sanctions.

Last month, the DOL, IRS and seven states signed a memorandum to share information on businesses who failed to remit payroll taxes. Non compliant businesses run the risk of getting hit by the DOL, IRS, and states for their violations. Focus is not just directed at misclassification, agencies are also looking at failure to comply with FMLA, Title VII, FLSA, and ERISA. Denial of participation in health, welfare, and retirement plans can carry penalties equal to or greater than failure to pay minimum wages and overtime.

Many employers have long appreciated the advantages of "alternative" work arrangements with independent contractors, contingent workers, consultants, "freelancers", and temporary staff because these arrangements often produce cost savings and increased flexibility. The temptation to classify a worker as an independent contractor can be great, considering that, employers do not pay unemployment insurance taxes, workers' compensation premiums, or the employer's portion of Social Security and Medicare taxes for independent contractors. In addition, such workers generally are not eligible for fringe benefits such as health insurance and retirement benefits. Independent contractors are generally not protected by most employment laws such as Title VII, the FLSA, and ERISA. Therefore, such workers often forego overtime wages, pensions, and protections from unlawful discrimination.

Stepped up enforcement has been under way for a couple of years. Beginning in 2009, Labor, Treasury, and IRS began an effort to audit some 6,000 organization to assess the possible tax violations. The current administration allocated some $25 million towards the efforts with the DOL reporting that it collected $172 million from April 2009 to March 2010 covering some 219,000 workers. If you do the math, you will see an almost 7 to 1 return on their investment.

New York, California, Connecticut, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, Oregon, Rhode Island, Utah, Vermont, and Wisconsin have all formed misclassification "task forces" to ferret out organizations, which attempt to evade state and federal payroll taxes. New York alone reported identified $157 million in unreported wages in its 2009 annual report. Massachusetts discovered $6.5 million in unpaid taxes from April 2009 thru March 2010. Moreover, this does not include the fines, penalties, legal fees, lost production, and administrative costs associated with these efforts in just two states. You can be assured, that in addition to these 16 states, there are 34 others states and the District of Columbia that are doing something similar or are preparing to act with a watchful eye.

Why Do Employees Leave Their Employers?

Friday, October 14, 2011

The traditional means of evaluating retention is to look for the reasons which cause employees to voluntarily quit their jobs. However, last week we examined why employees stay with their employers and explored the concept of “job embeddeddness”, the “web” of attachments which bonds the employee to their current organization.

When Wendy Harman and her co-authors analyzed employee turnover in their 2007 work, “The Psychology of Voluntary Employee Turnover”, they focused on a second concept, that of Lee and Mitchell's “unfolding” model. Unfolding is a trigger event within an employee’s life which causes that employee to question their current employer-employee relationship. It could be job related such as a change in job duties, a new manager or it could be unrelated, such as a spouse’s relocation. It may result from a negative event in the form of a less than desirable performance review or a positive event such as an unexpected external job offer. In any case, unfolding sets in motion a change in the sea-state of the employee’s mental model as it relates to their present employment situation, which eventually leads to a job change.

The “unfolding model” puts forth the processes in which the employee must now evaluate their current employer-employee relationship. What are the consequences of staying? What are the consequences of leaving? What are the trades offs, higher salary, longer commute? As with any relationship, there could be both positive as well as negative outcomes to whichever course of action is taken. While unfolding presents an image of a rational and logical employee methodologically weighting the pros and con’s of staying or going, behavioral economics paints another picture entirely.

Behavioral economics tells us that not only employees, but individuals in general; do not always function as the rational beings we might perceive them to be. In fact, individuals may at times act in completely irrational manners to their own self detriment and in the case of employees, to that of their employers. As humans, we have a tendency to be “overconfidence, optimism, and extrapolation” about our current and future circumstances.

Combine the unfolding model with behavioral economics and we have the potential for some employees to see greener pastures on the other side of the fence. Thus employees will uproot themselves and families to move across the country with the overconfidence, optimism, and extrapolation that all things will be better with their new employer. Unfortunately, this often occurs without forethought and planning and on settling into their new job many employees discover they may have traded one set of issues for new ones.

Organizations may not be able to prevent every unfolding event from occurring, however, employers can identify and track their high performers and provide an optimum work environment. Designing positions which both challenge as well as develop potential future organizational leaders, rotational assignments which broaden the individual’s knowledge and scope within the company, mentoring relationships which help employees avoid certain relationship pitfalls; are all time tested methods of strengthening the organizational bond, i. e., . job embeddeddness.

Why Do Employees Stay With Their Employers?

Friday, October 07, 2011

A great deal of money, time, and energy is spent on determining why employees leave their employers. But the simple and obvious reason is, because they can! Even in difficult economic times, top organizational talent, can and often does leave for perceived greener pastures. Would it not make more sense to determine why employees stay and focus that same money, time, and energy to determine whatever makes employees stay? One focus of why employees stay with their current employers can be found in the concept of “job embeddeddness”.

Job embeddeddness, a concept founded in the disciplines of applied and industrial psychology and encompasses those aspects of employment which keep an employee affiliated with their current organization. Yes, it certainly includes tangible aspects such as compensation and benefits but also includes co-worker relations, supervisor-employee relationships, the work itself, the public image of the organization, the community in which they live, and even the daily commuting requirements. Job embeddeddness, may be defined as “a web of forces that cause one to feel he or she would not leave a job”. The concept has similarities to the marketing notion of consumer “brand loyalty”. Thus job embeddeddness is a predictor of the likely hood that an employee will stay vs. leave an employer.

Wendy Harman, the lead author of a 2007 study on voluntary turnover stated, "As we head into an era of the largest brain drain the world has ever experienced, that of the baby boomers leaving the workforce, it is going to become increasingly important for organizations to be able to keep their best workers. Turnover is extremely expensive for organizations and becomes even more so the more an organization increases the amount of training time and money it invests in its employees. Knowing how to retain these employees creates a less costly, more stable work and community environment."

The work environment, whether an office, factory floor or classroom, is a social environment in which most of us spend one third to one half of our day. Even in today’s business world of multiple jobs and career changes throughout our lifetime, workers may invest several years with any single employer. Relationships developed at work often go on to continue well after employees separate from their current employers. Recognizing that these social relationships exist within the workplace is one means of building and reinforcing job embeddeddness.

While during a period of high unemployment, employers may ignore voluntary turnover or even consider it to be good for the organization, business cycles changes. Furthermore, if it is the organization’s top talent that is leaving, organizations will want to reconsider their lack of concern. Lastly, an organization’s community image may affect its ability operate within the external environment when it comes time to build or expand a mill or plant. Thus, employers who are known for their disregard of employee relationships may still find it difficult to attract a disable workforce even in these times of high unemployment.

As employers, we cannot necessarily design jobs around the unique social environment of each and every employee. Nevertheless, we can provide jobs with a high degree of flexibility as a means to encourage job embeddeddness and increase retention of our top talent. Furthermore, we can educate our organizational leaders in those features of job embeddeddness which strengthen the employee’s bonding to and affinitive for our organization.