CEO Succession

I was surprised to learn in Good to Great that outside CEOs were not associated with the transition from good companies to great companies. Harvard Business School Professor Joseph Bower picks up on this theme in his recent Marketplace commentary:

What companies really need is what I call in my new book, The CEO Within, an "inside outsider" -- that is, an outstanding inside performer who has retained his or her objectivity. They have energy, ambition and intellectual integrity. They see the magnitude of change needed, and because they are insiders they can move quickly with a real chance of success because they know the people, systems, culture and assets of the company.

Why aren't there more candidates like this available? To begin, a surprising number of companies don't have a real succession process. They treat succession as an uncomfortable event. Managing the development of leaders inside the company requires investment in every aspect of the way the firm is managed: who is recruited, how businesses are organized, how executives are paid and promoted, and how operations are planned and resources allocated. The process requires years, not days, of preparation. Companies need to change their ways on CEO succession or pay a price that goes far beyond the new CEO's compensation package.

At Dartmouth, the Board of Trustees are gearing up for a search for a successor to Jim Wright as the College's president. I wonder if this will have any bearing on the selection of Dartmouth's next president.

Good Jobs at Good Wages

I know, the employment report has no good news in it, but this front page story in The New York Times is sure to get some attention. The concept:

Would six-figure salaries attract better teachers?

A New York City charter school set to open in 2009 in Washington Heights will test one of the most fundamental questions in education: Whether significantly higher pay for teachers is the key to improving schools.

The school, which will run from fifth to eighth grades, is promising to pay teachers $125,000, plus a potential bonus based on schoolwide performance. That is nearly twice as much as the average New York City public school teacher earns, roughly two and a half times the national average teacher salary and higher than the base salary of all but the most senior teachers in the most generous districts nationwide.

The school’s creator and first principal, Zeke M. Vanderhoek, contends that high salaries will lure the best teachers. He says he wants to put into practice the conclusion reached by a growing body of research: that teacher quality — not star principals, laptop computers or abundant electives — is the crucial ingredient for success.

“I would much rather put a phenomenal, great teacher in a field with 30 kids and nothing else than take the mediocre teacher and give them half the number of students and give them all the technology in the world,” said Mr. Vanderhoek, 31, a Yale graduate and former middle school teacher who built a test preparation company that pays its tutors far more than the competition.

I would much rather see that, too. At this school, teachers will be paid so well that they'll make more than the principal, an inversion which generated this:

Ernest A. Logan, president of the city principals’ union, called the notion of paying the principal less than the teachers “the craziest thing I’ve ever heard.”

“It’s nice to have a first violinist, a first tuba, but you’ve got to have someone who brings them all together,” Mr. Logan said. “If you cheapen the role of the school leader, you’re going to have anarchy and chaos.”

Randi Weingarten, president of the United Federation of Teachers, called the hefty salaries “a good experiment.” But she said that when teachers were not unionized, and most charter school teachers are not, their performance can be hampered by a lack of power in dealing with the principal. “What happens the first time a teacher says something like, ‘I don’t agree with you?’ ”

Presumably, the principal listens to what the teacher has to say and then makes a decision, which may or may not accommodate the teacher's disagreement. Millions of businesses, and even some educational institutions, operate on this principle. Those that operate in competitive markets don't prosper by ignoring good advice or treating talented employees as if they are inconsequential. And the teacher is not an indentured servant here--"nothing" prevents a teacher dissatisfied with a principal from starting a rival school with better policies.

The Age of Friedman is not dead yet.

The Drop in Labor Force Participation

Following a comment on yesterday's post, here is an article from the the St. Paul Pioneer Press two years ago discussing voluntary withdrawal from the labor market. The key paragraphs:

So who is dropping out, and why?

Primarily the declines since 2001 are among younger workers ages 16 to 24 and women ages 25 to 45. Proportionally, since the teens account for a small number of workers in the state, women dropouts are mainly driving the changes.

The change with young workers can be more easily explained. Most don’t have to work. When jobs are flush and pay well, more take jobs. If jobs are slim and pay tight, homework and hanging out win out. “If jobs aren’t readily available they are not going to be searching for them and calling themselves in the labor market,” Stinson said.

The reasons why women are leaving are more elusive.

Julie Hotchkiss, a research economist and policy adviser with the Federal Reserve Bank in Atlanta, has studied why women leave the work force.

She found that women with college degrees were less likely to participate in the labor force in 2005 than they were just five years earlier. Women were still getting college degrees at the same rate but the degrees were less of a pull into the labor market.

The increase in Hispanic women, who traditionally are less likely to be in the labor force, is another factor, as is the increase in women with children under age 6. Still, “unobserved” factors that couldn’t be explained, more than anything else, contributed to the reasons why women are dropping out, she said.

Read the whole thing.

What the Unemployment Rate Misses

In his Economic Scene column in today's New York Times, David Leonhardt discusses the challenges of measuring unemployment and using the unemployment rate to assess the state of the labor market. In a nutshell, we have a fairly low official unemployment rate and yet many people not working. In this excerpt, he focuses on a distinction that his colleague Paul Krugman once glossed over (to much fanfare in my first month of blogging):

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

As we discussed briefly then, the BLS does collect measures of unemployment that progressively relax the condition that individuals have to be actively looking for work. Leonhardt characterizes them as "broader but not especially useful." I don't think they should be dismissed so readily. They are found in Table A-12 of the monthly employment report. You can get the historical data here. Let's go to the picture.




The 4 curves are as follows:

• Blue: The conventionally measured unemployment rate, currently at 5 percent and low by historical standards. This is the number unemployed divided by the total number in the labor force (employed plus unemployed).


• Red: Add people classified as discouraged workers--those who have given a job-market related reason for not currently looking for a job--to the unemployed. The increase is very slight--historically between 0.1 and 0.4 percentage points.


• Yellow: Add people classified as marginally attached (beyond being discouraged)--those who currently are not looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. This currently adds 0.8 percentage points to the unemployment rate, which is typical of the full 14 year time period.


• Green: Add people classified as employed part time for economic reasons--those who want and are available for full-time work but have had to settle for a part-time schedule. This number is currently 9 percentage points of the labor force (augmented to include those marginally attached or employed part time for economic reasons).

The last measure seems to be a pretty good measure of labor underutilization. What does it tell us about what the conventional unemployment rate misses? In April 2006, the gap between the two shrank to 3.4 percentage points, compared to 4.1 percent today. The latter figure is about the size of the gap that prevailed around the recent peak in the unemployment rate in 2003. The gap was greater than 4.1 percent in most of the months shown prior to 1997. The gap was as narrow as 3 percentage points as the unemployment rate reached its lowest values in 2000.

The more comprehensive measures of labor underutilization are available and are consistent with the story being told in the article, though you have to get to "employed part time for economic reasons" to get much of a gap. I think they would be more "useful" to journalists if journalists chose to report them.

Barry Ritholtz also comments on the story and refers back to a measure of the "augmented unemployment rate," which doesn't include the economic part timers but also doesn't require that those who want a job have actually looked for one. (This information can be calculated from Table A-1 of the monthly employment report.) At present, there are about 5 million who "want a job" among the roughly 80 million who are not in the labor force, or about 6.25 percent. This proportion has stayed around 6 percent for several years.

Workaholics Are Us

Here is the abstract from a new article by Dan Hamermesh and Joel Slemrod:

A large literature examines the addictive properties of such behaviors as smoking, drinking alcohol, gambling and eating. We argue that for some people addictive behavior may apply to a much more central aspect of economic life: working. Although workaholism raises some of the same health-related concerns as other addictions, compared to most of the more familiar addictions it is more likely to be a problem of higher-income individuals and is more likely to generate negative spillovers onto individuals around the workaholic. Using the Retirement History Survey and the Panel Study of Income Dynamics, we show that high-income, highly educated people exhibit behavior that is consistent with workaholism with regard to retiring–they are more likely to postpone earlier plans for retirement. The theory and evidence suggest that the presence of workaholism calls for a more progressive income tax system than otherwise, although other more targeted policies may be part of optimal policy.

The full paper is here. The reference to negative spillovers and a progressive income tax reminded me of this earlier discussion.

Nickel and Dimed at Dartmouth

Last evening, the Ethics Institute and the Dartmouth Centers Forum hosted a public lecture by Barbara Ehrenreich, "Working for Change," based on her book, Nickel and Dimed: On (Not) Getting By in America.

She's a compelling story teller. Here's an example of something that I had not previously appreciated--paying rent. For the working poor, the monthly payment isn't the only or even the main challenge. Coming up with the first and last month's payments is more than most can manage. So this puts them into a different type of housing--the residential motel, which is less cost effective but allows more of a day-to-day payment. These facilities often lack a refrigerator and a microwave, which in turn means that nutrition suffers as well, with fast food taking the place of better meals. Problems cascade, and keeping it all together becomes more of a struggle, to say nothing of actually getting ahead. The Dartmouth has more of a recap of her talk.

She's also an occasional blogger. Here's her rather unconventional take on the economic stimulus plan, from a month ago.

The January Employment Report

The headline number from today's employment report was a decline of 17,000 jobs in January. (Permanent link likely here.) This number is not significantly different from zero, so the BLS calls it "essentially unchanged." However, the point estimate at this point is the first negative number since August 2003, and that will likely dominate the news.

The January report is also where we see some revisions for calendar year 2007, and these are worth considering when trying to get a fix on where we are in the business cycle. Year-end nonfarm payroll employment was revised downward by 376,000 jobs relative to prior estimates. Very little of this revision pertained to the 4th quarter. Factoring in the January number, employment growth has averaged 66,000 over the last 4 months. That's weak growth in anybody's book.

Looking at the household survey, the unemployment rate was also "essentially unchanged" with a 0.1 percentage point decline. Digging a little deeper, the two alternative measures of unemployment that incorporate marginally attached workers (and in one, those employed part-time for economic reasons) ticked up by 0.2 percentage points. These numbers are presented in Table A-12 of the report.

For more on the details, read Barry Ritholz at The Big Picture.

Narrowing, Widening, and Polarizing

This new NBER working paper by Claudia Goldin and Larry Katz just made it to the top of the must-read pile. The title and abstract (with my emphasis added):

Long-Run Changes in the U.S. Wage Structure: Narrowing, Widening, Polarizing

The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable in the 1950s and 1960s, widening rapidly during the 1980s, and “polarizing” since the late 1980s. We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

Although skill-biased technological change has generated rapid growth in the relative demand for more-educated workers for at least the past century, increases in the supply of skills, from rising educational attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980, however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials. Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower tail wage inequality.

The sentences that I have highlighted seem directly relevant to this earlier discussion in August 2006 about whether Paul Krugman was right to accuse Treasury Secretary Paulson of "falsely implying that rising inequality is mainly a story about rising wages for the highly educated." (See follow up posts here and here.)

I'll look forward to reading the paper and revisiting the broader issue.

Supply and Demand at Foundations

This looks like a great move for the Ford Foundation:

The Ford Foundation has selected a dark-horse candidate with little experience in institutional philanthropy as its new president.

Luis A. Ubiñas, who has worked for McKinsey & Company, the consulting firm, for 18 years, will lead the organization, the nation’s second-largest foundation, with $11 billion in assets.

Mr. Ubiñas’s appointment, to be announced today, is expected to stun the nonprofit world, which has been speculating about who in the field would succeed Susan V. Berresford, Ford’s influential leader for more than a decade, when she retires in January.

Increasingly, however, high-profile nonprofit jobs are going to people who have done well in the business world or in politics, a reflection on the pressure on charities and foundations to become more accountable.

I would not discount the role of the supply side of this market--talented people like Ubiñas are likely to see his new job as very similar to his old job, and over time, they have been making themselves more available to the non-profit world.

From my vantage point, this trend will continue as current generations of students make their way through the workforce. To a greater degree than past generations, they will spend some of their time in the private sector and some of it in the public and non-profit sectors, focusing on the skills they are developing that are applicable to similar challenges in all fields.

Economic Challenges

The trip to Hawaii wasn't all vacation. The impetus for the trip was an invitation to make a presentation to a financial audience on "Economic Challenges: What Have We Learned? What Do We Face?" Here are the slides.

In a nutshell:

I identified three challenges to the U.S. economy that I think are fundamental: low and declining saving in all sectors of the economy, a declining labor force, and a dwindling labor income tax base. In all cases, the challenges make us less capable of absorbing additional pressures, whether unforeseen events in the near term or emerging pressures from population aging and the growth of health care costs persistently in excess of the economy's growth (and their interaction through the government's entitlement programs).

My prognosis:

Absent more prudent behavior, prices—exchange rates and interest rates—will simply change to equilibrate imbalances. The dollar has started to depreciate, but to me, the biggest mystery in the economy is how the U.S. long-term interest rate can stay so low. I cannot see it remaining that way for long, and its rise will take the stock market and (what's left of) the housing market with it. (This is a fascinating chart that didn't make it into the presentation.)

But I’ve been saying this for a while. As an economist, I’m happy to be right, but usually even happier to be wrong.

Enjoy!

The Economic Logic of Illegal Immigration

So goes the title of a report to the Council on Foreign Relations by UCSD Professor of Economics Gordon Hanson. From the Introduction, here's a teaser:

This analysis concludes that there is little evidence that legal immigration is economically preferable to illegal immigration. In fact, illegal immigration responds to market forces in ways that legal immigration does not. Illegal immigrants tend to arrive in larger numbers when the U.S. economy is booming (relative to Mexico and the Central American countries that are the source of most illegal immigration to the United States) and move to regions where job growth is strong. Legal immigration, in contrast, is subject to arbitrary selection criteria and bureaucratic delays, which tend to disassociate legal inflows from U.S. labor-market conditions. Over the last half-century, there appears to be little or no response of legal immigration to the U.S. unemployment rate. Two-thirds of legal permanent immigrants are admitted on the basis of having relatives in the United States. Only by chance will the skills of these individuals match those most in demand by U.S. industries. While the majority of temporary legal immigrants come to the country at the invitation of a U.S. employer, the process of obtaining a visa is often arduous and slow. Once here, temporary legal workers cannot easily move between jobs, limiting their benefit to the U.S. economy.

I'll have to add this one to the "good intentions" pile of reading.

Blinder on Free-ish Trade

Via Greg Mankiw, we find Alan Blinder qualifying his support for free trade. Greg seems to be taking it personally. Rather, we should just take his suggestion (my emphasis below) to its natural conclusion:

Mr. Blinder's answer is not protectionism, a word he utters with the contempt that Cold Warriors reserved for communism. Rather, Mr. Blinder still believes the principle British economist David Ricardo introduced 200 years ago: Nations prosper by focusing on things they do best -- their "comparative advantage" -- and trading with other nations with different strengths. He accepts the economic logic that U.S. trade with large low-wage countries like India and China will make all of them richer -- eventually. He acknowledges that trade can create jobs in the U.S. and bolster productivity growth.

But he says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. He wants government to do far more for displaced workers than the few months of retraining it offers today. He thinks the U.S. education system must be revamped so it prepares workers for jobs that can't easily go overseas, and is contemplating changes to the tax code that would reward companies that produce jobs that stay in the U.S.

Fantastic. We can be a nation of barbers, gardeners, and custodians, and we can enforce this nirvana by favoring it in the tax code.

Jobs have many characteristics. It is true that for the purposes of talking about jobs in trade policy, economists often collapse these characteristics into a single characteristic, the wage at a point in time. Blinder is correctly pointing out that another characteristic is the risk associated with that wage in the future. That risk could come from a number of sources, of which foreign competition is just one.

When people choose jobs, they have the freedom to trade off among the characteristics embodied in each job. Standard economic analysis would suggest that, for jobs that require the same degree of skills, those that offered more risk would also have to offer higher average wages to compensate. Starting from an equilibrium in which workers have information that is no worse than the government about the terms of this tradeoff, a policy that favored less risky wages would necessarily generate lower expected wages. What's the compelling interest by the government to justify this shift in outcomes?

I can think of two. First, one could assert that the government has better information than the public about relative risks and rewards. Second, one could assert that the social cost of risky jobs is higher than the private cost, i.e. that the government bears a fiscal cost of people being employed in jobs with higher compensation risk. I am skeptical in both cases, but I would be interested in hearing other perspectives.

Dick Armey on Executive Compensation

Writing in the Washington Times today, Dick Armey cautions his former colleagues against more legislation about executive compensation. Best paragraph:

There is a healthy dose of arrogance in the idea that another law could beat an entrepreneurial marketplace for determining how to evaluate compensation. Poor executive performance shows up quickly on the bottom line. Heaped on top is the misplaced notion that since Congress is engaged in politics and government all organizations should have the same objectives and structures. Governments exercise force and create rules. By contrast, firms create wealth and create the opportunity for people to exercise their freedom to choose, to contract, to buy and to sell.

Compensation of top-level executives is a matter to be resolved between the executives and the board of directors. Boards may not do a good job in some cases, but I don't see how greater government involvement will improve outcomes systematically.

January Employment Report

My quick read of the just released January employment report is that the main indicators were partly up and partly down. We saw some improvement in payroll jobs (+111,000) with unemployment rates holding steady around 4.6 percent and hours and average weekly earnings slightly down.

January is the month in which the BLS revises its jobs numbers to better match the sample's underlying population drawn from unemployment insurance records. The result in this case is that there were an additional 933,000 payroll jobs at the end of December 2006 than previously estimated. (See the discussion regarding "Table B" in the report.) So combined with the 111,000 net new jobs in January, I expect that most of the news coverage will focus on these "additional 1 million jobs." You are likely to hear the phrase "8.2 million new jobs since August 2003" quite a lot, based on an update to these talking points.

UPDATE: My mistake--the 7.4 million new jobs in the talking points noted above already had the adjustments had already been factored in. Very smart folks.

It Is a Small Pool ... and It Seems To Be Shrinking All the Time

So says Jill Zimmer, mayor of a small town in Oklahoma, regarding the applicants for a job as city manager. Ralph Blumenthal writes of a coming shortage in municipal governments in yesterday's New York Times. He notes:

Fractious politics and disdain for government, the limits of small-town life and pay, and the aging of baby boomers traditionally drawn to civic careers are making the job harder to fill, even as communities increasingly turn to such professional administrators to oversee budgets, services and personnel.

The shrinking pool of recruits is a forerunner of what some experts call a broader government talent shortage to come. With the bulging postwar generation nearing its retirement years, statisticians forecast a growing gap of unfilled executive and managerial jobs.

The demographic part of this issue is what has gotten most of the attention, as shown in this graphic:


The article notes that pay has already started to go up:

Would-be city managers have no special course of study, though about 300 colleges offer master’s degrees in public administration, public management, public affairs or public policy. About 60 percent of city managers have master’s degrees, many in business administration. But while the association’s figures show a marked increase in the average salary of a city manager — to $97,075 in 2005 from $75,675 in 1999 — higher pay for school and hospital administrators lures many potential applicants away.

There's no way to avoid the laws of economics on this one--wages in the public sector are going to continue to go up, and government entities will likely get by with lower staffing ratios.

Monopoly and Hypocrisy

After reading this list of charges against Brian McLaughlin, a Queens assemblyman and president of the New York City Central Labor Council, I'm sure many people will be calling for his head (myself included). McLaughlin is accused of:

• stealing $95,000 from Little League baseball teams to pay his rent.
• creating two no-show jobs on his legislative payroll and keeping part of one salary.
• using his subordinates as “personal servants,” to take his dog to the veterinarian, hang Christmas lights, trap rodents in his basement and clean out his barn.
• making an aide use his E-ZPass at tollbooths to make it appear that he had returned home from Albany later than he really had, allowing him to bill for daily allowances given to legislators.
• using more than $330,000 from his re-election campaign funds to pay for personal expenses like a rehearsal dinner for his son’s wedding, renovation of his $760,000 house in Suffolk County near Long Island Sound, payment of his country club membership fees and the purchase and installation of a plasma television for a female friend.
• using stolen money for an $80,000 Mercedes-Benz for his wife, marina fees, school tuition for one of his children, rent payments on his Albany residence and rent payments on his Queens residence.

If true, the only mysteries are how human DNA can be so configured to permit this stupidity and why it took so long to indict him.

Doing the math, the article reports that the total theft is $2.2 million over ten years in a union comprised of a million members. So that works out to 22 cents per member per year. Checking my own response to this, I got way more angry over it than I typically do to other economic crimes, like reports of CEO malfeasance, which often have much bigger financial impacts. So why am I so angry?

The union movement is predicated on protecting the rights of the downtrodden working class. It lobbies for special concessions from the rest of society--that we confer and protect the union's monopoly rents--on behalf a select group of people. And reports of corruption like this undermine that case, as McLaughlin would tell us that they are poor enough to need special protections from the rest of us but act in such a way that he believes they are not so poor that he cannot rip them off for his own financial gain.

The combination of state-sanctioned monopoly and hypocrisy is what set me off, well beyond the size of the actual crime.

The Couple That Drives Together ...

There's a fascinating story in today's Wall Street Journal, courtesy of Stephanie Chen, on older couples taking jobs on the road together. The crux of the matter:

Faced with a worsening shortage of long-haul truck drivers, freight carriers are turning to the RV generation, aggressively recruiting older couples like the Fords to climb behind the wheel. Schneider National Inc., the Green Bay, Wis., company that hired the Fords and put them through driving school, fishes for applicants through AARP, the advocacy group for people 50 and older, and has a Web page for "mature workers." This fall, the American Trucking Association plans a billboard and television ad blitz to lure older drivers.

"We just thought if Ma and Pa can drive the Winnebago, maybe they can drive the 18-wheeler," says Tim Lynch, a senior vice president at the trade group.

Since 2000, the number of service and truck drivers 55 or older has surged 19%, to about 616,000, according to the federal Bureau of Labor Statistics. The percentage jump is quadruple that of truck drivers overall. At Schneider, about 3,000 of the carrier's 15,000 drivers and independent contractors are older people.

The hiring binge has dramatically increased the number of husband-and-wife driving teams, and truck makers are trying to make their big rigs feel more like rolling homes away from home. Paccar Inc.'s Kenworth Truck Co. unit introduced a new model in March with leather beds and heated seats. Volvo Trucks North America, part of AB Volvo, has begun production of trucks with a full-size bed in the cab comfortable for couples.

Something for me to propose to the Voxwife, for our later years.

Sarah Priga on Men Not Working

The following comment was left on the original post on Men Not Working. It speaks for itself.

Sarah Priga said...

I am appalled by the lack of work ethic that is represented in this article. I am Mr. Priga’s oldest daughter and would like to say that "choosing" not to work and then glamorizing it in an article is reprehensible. His statements are untruthful – he was not left with custody of his 3 children from a divorce in 1996, and his disdain for work that was beneath him left myself, his parents (my grandparents) and my mother to care for and provide for my brother and my sister (by 1996 I was in college, living on my own AND WORKING). He did not have to quit working to care for my brother and it was not until recently that my sister (she was 22) moved back in with him because she also feels she does not “need” to work. The financial and emotional impact of growing up living with someone who does not fulfill even the most basic responsibilities is extensive and greatly impacted myself, my grandparents, my mom and the rest of the family. How can a person continually borrow money and neglect financial obligations while he waits for his “home run”. To hit a home run you have to step up to the plate. I am grateful that I had positive examples that showed me to get where you want in life and be a positive influence in society you have to work hard. I am deeply saddened to see this misreported information in a major news outlet.

The Right To Strike

Charles Whalen writes about the 25th anniversary of the PATCO strike in "Echoes of a Broken Strike," which made my local paper today. Somehow, the article manages to conclude as follows:

Through the International Labor Organization (ILO), governments around the world have declared that the right to strike is part of the freedom of association. In short, it is a human right. The ILO has also found that the U.S. permanent-replacement doctrine undermines that right.

That's a fascinating perversion of language--one would not ordinarily think that freedom of association, particularly in the context of a human right, would be forfeited simply by owning the capital used in production. Here's how he develops his argument:

This week marks the 25th anniversary of one of the most devastating strikes in modern U.S. labor history. On Aug. 3, 1981, more than 12,000 members of the Professional Air Traffic Controllers Organization (PATCO) walked off their jobs. It was not the first illegal strike by public-sector workers, but conventional means of resolving such cases failed to impress President Ronald Reagan: He discharged and permanently replaced those who would not promptly return to work. The U.S. labor movement has never recovered, and working families across the nation continue to pay the price.

It was an illegal strike. Reagan took an appropriate course of action. But as you can tell from the last line of this opening paragraph, Whalen wants to link this event to bigger changes in the labor market. The transition begins:

In the immediate aftermath of the PATCO strike, many observers reported that Reagan's action marked a turning point in U.S. labor relations.

History has shown this assessment was right on the mark. If it is true that the strike is labor's "only true weapon," as some unionists suggest, then practically the entire movement has been disarmed. This also indicates that the legal right of workers to organize and bargain collectively has little real meaning.

Hyperbole, anyone? Unionized workers have the right to act collectively--they do not and should not have the right to act coercively. Collective action prevents the employer from treating one union member as a substitute for another. That restriction has value. It obviously does not have as much value as a prohibition on using other workers as substitutes for the union members. This is what has Mr. Whalen so animated:

Private-sector companies have had the right to permanently replace workers during bargaining disputes since 1938. Until 1981 few employers took advantage of this option. In the 1950s and 1960s, for example, there was only one documented use of permanent replacements for about every 80 major work stoppages, according to a calculation by Joseph A. McCartin of Georgetown University. In the first 10 years after 1981, however, there was one documented use of permanent replacements for every seven work stoppages.

Private companies began calling the unions' bluff--that there was something inherently more productive about the union as a whole than other workers. That activity should have been a wake-up call to the unions--that their real value-added could come from promoting training, skill development, and continuing education by their members. I'd be the biggest supporter of organized labor you could find if unions were organized around this principle.

A Trifecta at the Big Picture

Barry Ritholtz of The Big Picture provides some of the very best real-time commentary on the macroeconomy. He offers up three excellent posts today on the release of the July employment figures. The top line number came in at 113,000 net new payroll jobs, with the unemployment rate moving up to 4.8 percent.

In "NFP: Final Piece in Fed Puzzle?" he suggests that the Fed will likely stop its rate increases by September, if not with the next meeting. More interestingly, he provides the explanation for why I have never been interested in the high-frequency activities at the Fed:

All the teeth gnashing over a 1/4 point hike -- is there THAT much difference between 5.5% or 5.25%? I find it quite telling, as it reveals how fragile this recovery actually is. A robust economy with strong job growth and healthy organic expansion wouldn't care a whit about a 5.5% Fed funds rate. Yet the markets have been wailing about the Fed as if they had Bernanke's boot on their collective throats.

This is quite true. A quarter of a point shouldn't really be of such profound interest in the market. It certainly isn't in my book.

In "Where are the Household survey Bulls?" he points out that normally, when we have a weak showing in the payroll (or establishment) survey, those who like to be cheerleaders point to a possibly different outcome in the labor market talk up the unemployment rate (which is fine) or the employment number from the household survey (not fine). Well, this month, the unemployment rate increased. So where are the opportunists this month?

And, finally, in "Where are the bodies? In line at Unemployment," he makes an interesting case for supplementing our monthly news from the payroll and household surveys with weekly news from the Unemployment Insurance Weekly Claims Report. These data pertain to insured (not total) unemployment, the difference being that not everyone who is unemployed is eligible for unemployment insurance. Picking up on a report by Paul Kasriel of Northern Trust, he considers the year-over-year change in initial claims for unemployment insurance. The rationale is as follows:

[T]he recent behavior of initial jobless claims clears up some ambiguity about the interpretation of the weaker payroll growth of the past three months. Some have hypothesized that the recent weak payroll numbers are a result of a shortage of employable bodies rather than slower demand for those bodies. If that were the case, we would expect that employers would be firing considerably fewer employees now than they were a year ago. In fact, they are firing about the same number each week.

Presumably, one could find more detailed information, with a two month lag, at the Job Openings and Labor Turnover Survey.