Why Unemployment is High and Will Remain High

Change has exploded the work environment we once knew. In 2002 a book called The Tipping Point rocketed up to #1 on the best seller lists. It explained how small social trends build up to a point where huge changes plop into our culture in what seems to be an epidemic or a storm of insanity.

Several of these social termites have been eating away at the traditional employment structure in the United States for the past 25 years. Now some of the support timbers have given way, and we are surprised. “This happened so suddenly.”

No, social commentators have been warning of this for many years, yet “workers rights” triumphed in every debate. Now we have employers who either do without employees or work around the rules.

Taxes, technology, torts, and teaching have all conspired into this storm we have called “High Unemployment.”

 

Taxes

One of the foundational rules of economics is:

• Tax an activity and you get less of that activity.

The inverse is also true:

• Subsidize an activity and you get more of that activity.

As we look at our tax structure, we see the employer taxed heavily each time he hires another person. That tax can be money such as the employer share of Social Security and the Unemployment Taxes and it can be regulatory such as employer Health Insurance and Maternity Leave, personal days, sick days, etc.

When budgeting for a new employee, a company must account for these taxes. When an executive sees that it will cost him the employee’s salary plus another 20 to 35%, he will think of some other way to do business.

Since many of these regulations don’t take effect until an employee works more than 20 hours a week, many businesses hire lots of part-timers and only schedule them for 10-15 hours a week. This has the perverse effect of the worker having to shuttle between three different jobs to get 40 hours of work each week. Wasted time, wasted gas, and still no benefits.

On the other hand, the government lavishly spends to reward unemployment. Nearly two years of benefits await the worker laid off from his job. Plus, there are Food Stamps, re-education grants, and who knows what else one can dig up from the federal and state treasuries. Once a worker gets caught up in this largess, it is so difficult to get out.

“I can make more money on unemployment than on an entry level job.” I hear this ALL the time from folks looking for a job. So, they sit at home waiting for the checks. And in the meantime they lose touch with their networks, skills grow obsolete, and the worker’s confidence goes into the toilet.

 

Technology

Modern offices no longer need so many folks. Typists, secretaries, administrative assistants, office managers, and book keepers have all been replaced by computers and easy to use software. Factory workers are being replaced by robots. The invention of ocean going container and inter-modal transportation  threw thousands of dockworkers and rail works out on the streets.

And this wave is only growing stronger. Mid-level managers of powerplants and harbors, programers, and schedulers are being replaced by expert systems software.

 

Torts

Discrimination, wrongful discharge, and sexual harassment lawsuits. Just say these words and watch the color drain from a business owner’s face. We are arguably the most litigious nation in the world. (We have more lawyers in the southern half of Texas than in ALL of Japan!)

Employers no longer have time or money to train or coach an employee toward management. They have to pay for and keep records of the seminars given on sensitivity training. A company can’t fire a slacker. Too much risk of getting sued and spending hundreds of thousands on a defense.

Now the employer sees each employee as an enemy instead of a team member, a liability instead of an asset. Is there any wonder that an employer would try to farm out the work to India instead of hiring someone?

 

Teaching

Our schools spit out diplomas in greater numbers than any other country. We have more universities than any two countries combined. Yet these schools turn out folks without the needed  business skills, and worse, without critical people skills.

We have young people with communication degrees who cannot write a decent report, are unable to craft and deliver a speech in public, or speak a foreign language. We turn out graduates who understand the place of women’s rights, but who have no idea of the rights of the customer. These new graduates are able to tell me all the reasons why capitalism is a failed format for society, yet they can’t dress themselves in appropriate attire for an interview.

And we haven’t even touched the subject of the lack of engineers, mathematicians, and computer programmers…

 

These four trends are not new. However, they’ve grown to the point of changing the hiring attitudes of American companies. These enterprises know they need people, but the risks of hiring are HUGE. So, they do without hiring, using temporary and contract workers. They hire consultants instead of increasing staff, and offshore as much work as possible, not just for the cost but to escape the risk and regulations.

I have seen this attitude change in myself. In past businesses, I have had employees. What a huge hassle! I have vowed never to have employees again. If I need some help, I’ll farm it out. I’ll hire a company to do it. I’ll never have another book keeper, office manager, shop foreman, or janitor. It is just too hard. Our system is stacked against getting hired.

So, my prediction is that high unemployment will last for many, many years. What is a job seeker to do?

If you are determined to seek a conventional job, you must:

•  Be able to instill confidence in the hirer that you can make them money above your cost.
• Show by your attitude that you will never be a potential for a future lawsuit.
• Keep trying. It will be a long slog.

 

The quickest path to employment is to become flexible and conform yourself to the new work reality:

• Start your own business as a consultant or contractor in your area of expertise.
• Joint venture with other one-person businesses.
• Learn to sell yourself and your services.

Welcome to the New Business Model.