Creative Class

While the business press points to May’s slowdown in the pace of layoffs as an early sign of recovery, Harvard economist Jeffrey Frankel says not so fast. Frankel, who’s also a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, prefers an alternative indicator of employment - total hours worked - which he says provides a better gauge of economic cycles (pointer from Economix).

Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs.

Frankel provides the graph below which tracks the trend in hours worked over the past decade.

Green chutes optimism is misplaced. The economic crisis continues to deepen at a pace that is on par with or worse than that of the Great Depression, according to an updated analysis by economists Barry Eichengreen and Kevin O’Rourke. They conclude that even though “trade and stock markets have shown some improvement without reversing the overall conclusion - today’s crisis is at least as bad as the Great Depression” (pointer via Mark Thoma).

Their first graph (below) tracks world industrial output leading them to conclude that: “World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots.”‘ They add that: “North Americans (U.S. & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.”

That’s the overall rate of unemployment, according to the Bureau of Labor Statistics’ newly released U-6 measure which includes “marginally attached workers” as well as those who work part-time for economic reasons. That’s quite a bit higher than the widely reported 9.4 percent figure also released today.

And, unemployment continues to fall unevenly by gender, race, class, and occupation.

Race: The unemployment rate for whites was 8.6 percent compared to 12.7 percent for Hispanics, 14.9 percent for blacks, and 16.8 percent for black men.

Gender: Men continue to experience higher rates of unemployment than women, with the gap widening to three full percentage points - 10.5 percent vs. 7.5 percent (for those over 16 years of age) - due to the concentration of men in manufacturing jobs.

Human Capital/Education: Unemployment is even more uneven by education or human capital level. The unemployment rate for college graduates is 4.8 percent, half that for high school (only) graduates (10 percent), and one-third of the 15.5 percent rate facing those without a high school diploma.

Class: And there remain huge differences in unemployment by occupation. The highest rates of unemployment remain concentrated in working class occupations. For production, transportation, and moving occupations overall, the rate is 13.7 percent, up from 6.3 percent last year. For production workers it’s 15.6 percent; movers and transportation workers, 11.8 percent; and construction and extraction jobs, 19.7 percent. For service occupations, the unemployment rate is nearly 10 (9.4) percent.

Unemployment is significantly lower for the creative class. For management and business occupations - including hard-fit financial jobs - overall the unemployment rate is 4.6 percent, up from 2.7 percent last year; and for professional and technical occupations it is 4.2 percent, up from 2.5 percent a year ago.

The unemployment rate surged to 9.4 percent today. But unemployment continues to fall heavily on certain demographic and class groups and in certain cities and regions of the country, according to the latest figures from the Bureau of Labor Statistics.

Greater Detroit still posts the highest rate for large regions (those with a million or more people), 13.6 percent, down from 14 percent in March. Los Angeles, Tampa Bay, Las Vegas, and San Jose also have rates above 10 percent. Greater Portland, Oregon saw the largest jump in its unemployment rate (+6.9 percentage points), followed by Detroit (+6.6 points) and greater Charlotte (+6.4 points). Iowa City (3.2 percent), Des Moines (4.6 percent), and Salt Lake City (five percent) post the lowest unemployment rates.

Ryan Avent notes the resilience of Washington, D.C. and of the Bos-Wash mega-region across the board as well as college towns. He also points to the surprising strength of the “eastern Rust Belt” especially Buffalo, Scranton, Syracuse, and Pittsburgh. These places all  experienced the kind of hit Detroit is taking today roughly a generation ago. They have had time to stabilize the economic trauma and to begin to rebuild around universities, heath care, technology, and creative industries.

Large increases in regional unemployment remain heavily concentrated in regions with large fractions of blue-collar working class jobs. The change in unemployment from April ‘08 to April ‘09 is closely correlated (0.39) with the regional concentration of working class jobs - that is, jobs in industrial production, transportation, and construction, according to an analysis by my colleague Charlotta Mellander.

Regions with higher levels of the creative class and higher levels of human capital have fared much better. (Year-over-year, change in unemployment is negatively correlated with both the creative class, -0.29, and human capital levels, -0.35, the percentage of adults with at least a bachelor’s degree).

Unemployment does not appear to be related to regional income levels (the correlation between the two is insignificant). And it tends to fall more heavily on regions with higher housing prices (with a significant positive correlation between the two of 0.18) - perhaps an artifact of the bubble.

Interestingly, regions with large concentrations of lower-end service jobs (like food prep, building maintenance, and personal care services, which are typically seen as the worst and least secure kinds of jobs) are holding up much better than those with large working class concentrations. (Change in unemployment is negatively correlated, -0.29,  with large concentrations of these standardized service jobs).

Seems to me, we’d be much better off developing new strategies to improve wages and working conditions in this sector - by say speeding the dissemination of better management models and improving innovation and productivity - instead of bemoaning the loss of blue-collar jobs or, worse yet, bailing out failed manufacturing firms.

While many restaurants and restaurant chains are getting killed by the economic downturn, P.F. Chang’s is up, up, up according to Slate’s Dan Gross:

P.F. Chang’s China Bistro, whose two restaurant chains—P.F. Chang’s and Pei Wei Asian Diner—are staples of upscale malls and mixed-use developments, said that same-store sales fell a bit but profits produced at its 350 outlets rose 38 percent from the first quarter of 2008. Operating margins—the holy grail of any business—at P.F. Chang’s 190 stores rose from 12.8 percent to 14 percent, largely because of “incremental operational improvement opportunities.” The stock has doubled since November.

The reason: mainstream mall appeal, affordable offerings, and especially good management - based heavily on the principles of “kaizen” or continuous improvement pioneered by Toyota and other Japanese manufacturers.

P.F. Chang’s made it to $1 billion in sales by taking cues from successful Asian businesses. Now by focusing on process improvement rather than helter-skelter growth, it seems to be doing so again. Continuous improvement, the philosophy pioneered by Japanese companies such as Toyota in which managers and workers relentlessly seek out small modifications that add up to big profits, seems to be the recipe for success in 2009.

Low-end standardized service jobs make up more than 40 percent of all U.S. employment. Imagine if more restaurants and service companies started to act like P.F. Changs. Innovation and rising productivity are the underpinnings of higher wages, and happy and engaged employees the key to more continuous improvement.

Business Week’s Michael Mandel crunches the numbers and turns up some disturbing results. While recession has hit hardest at blue-collar workers, it is taking its toll on professional jobs as well. Unemployment for professionals overall increased by roughly four percent between August 2008 and April 2009. But the recession is hitting much harder at certain types of professionals. Computing and mathematical jobs (heavy on software engineers, computer scientists, and systems analysts) are down 9.3 percent; engineering and architectural jobs (two-thirds engineering) are down 10.3 percent; and “creative professional” jobs - working artists, musicians, dancers, entertainers, reporters, editors, writers, and other media types - are down 11.3 percent.

The Seattle Times Jon Talton suggests the coffee-maker’s ongoing financial problems may be an “artifact” of deeper economic troubles:

“What if Starbucks is an artifact of an economy that’s not coming back? A time of rising, if fleeting, American affluence as we moved from dot-coms and telecoms, to day trading and house flipping, all based on the biggest run-up of debt in the history of the world. For this venti, triple-shot America, it might have been the quintessential bubble drink…

Although Starbucks suffered a 77 percent drop in its fiscal second-quarter net income, it actually beat analyst’s expectations slightly. Its shares have been generally rising since March and have outperformed the Standard & Poor’s 500 Index… Still, same-store sales remain in negative territory, a critical measure for any retailer. For two years, it has underperformed the Dow Jones Restaurants and Bars Index (yes, there is one).

Looking back, Starbucks’ fall was a leading indicator of the trouble massing across the land. Now the question becomes whether the America that emerges from the financial shock of the Great Disruption will have the appetite, and the cash, to fund Starbucks’ hopes.  How long will Wall Street just wait and see? However the recession has changed America, Wall Street is still in a pre-2007 mindset, and it may demand growth that Starbucks simply can’t deliver anymore.”

TIME does the future of work.

Clergy and butlers are among the happiest workers; musicians and dentists are fairly happy; roofers and gas station attendants not so much. This interactive graphic tells me I’m happier as a professor than author - I couldn’t find blogger on the list…

In this economy, many organizations engage in downsizing as a cost-cutting measure or a means of increasing productivity. Apparently, such programs have mediocre rates of achieving the goals set by the downsizing.

In a Watson Wyatt survey (according to an article by Bob Nelson, Ph.D and author of the intriguingly entitled book, Managing for Dummies):

• Only 46 percent of companies who downsized met their expense reduction goals.
• Only 33 percent met profit objectives.
• Only 21 percent enhanced shareholder return-on-investment by doing so.

Nelson’s article goes on to say that because downsizing isn’t typically effective at meeting corporate needs, one round of layoffs tends to beget more. (This would suggest that if your employer has recently done a round of layoffs, you should probably dust off the resume and start updating.)

Downsizing tends not to help companies improve or return to profitability because they don’t take into account the perspective of (top) employees, according to Nelson. Here are a few traps employers can fall into:

• Believing survivors will be thrilled just to have jobs, and will forgive anything else.
• Believing that if anyone subsequently quits, it will be the weak and poor performers.
• Assuming that employees take what management is saying at face value.

Having been at a company that collapsed during the dot-com crash, and another that downsized following the 1991 recession, I recall management making all of these incorrect assumptions, and more.

As corrective advice, Nelson stresses the need to communicate excessively with employees during any downsizing and involve them directly in decisions. He also points out that lots of praise and recognition is free and goes a long way.

As the creative economy flattens hierarchies in day-to-day activities, any situation that creates an “us” versus “them” mentality would be especially toxic to productivity and longevity. Conversely, getting everyone involved might present some alternative solutions.

Is your organization looking for alternatives to downsizing? Or falling into the traps described by Nelson?

The U.S. lost 563,000 jobs in April, down 100,000 or so from the 663,000 jobs lost in March. But the unemployment rate continued to rise, increasing from 8.5 percent in March to 8.9 percent last month. according to the Bureau of Labor Statistics (BLS). This brings total job loss to 5.7 million since the onset of the recession in December 2007. (Yesterday, the Wall Street Journal reported reported that unemployment was “less bad” in April as private companies cut 491,000 jobs, compared to 708,000 in March, according to data from payroll processor Automatic Data Processing and forecasting firm Macroeconomic Advisers.)

But the real unemployment rate is as high as 15.8 percent according to the BLS U6 measure which includes marginally attached and discouraged workers.

The impact of the recession continues to be extremely uneven by gender, race, class, and occupation.

Race: The unemployment rate for whites was eight percent compared to 11.3 percent for Hispanics, 15 percent for blacks, and 17.2 percent for black men.

Gender: Men continue to experience higher rates of unemployment than women - 10 percent vs. 7.6 percent (for those over 16 years of age) - due to the concentration of men in manufacturing jobs. BusinessWeek’s Michael Mandel notes that the unemployment rate among men is now “at or near the post-war high,” causing him to worry that, “The difference in the pain being absorbed by men and women is astonishing, and may have long-term social and political implications.”

Education/ Human Capital: Unemployment is even more uneven by education or human capital level. The unemployment rate for college graduates is 4.4 percent, half that for high school (only) graduates (9.3 percent), and one-third of the 14.8 percent rate facing those without a high school diploma.

Class and Occupation: And there remain huge differences in unemployment by class or occupation (PDF). The highest rates of unemployment remain concentrated in working class occupations - production workers (14.7 percent), movers and transportation workers (12.5 percent), and construction and extraction jobs (19.7 percent). For service class workers the unemployment rate is 8.7 percent. Unemployment is significantly lower for the creative class. For management and business occupations - including hard-fit financial jobs - the unemployment rate is 4.4 percent; and for professional and technical occupations, it remains less than four percent (3.6 percent).