Posted by Martin Harshberger on Fri, Aug 13, 2010 @ 04:41 PM
Everyone is talking about the stimulus package and job creation. Depending on which side of the political fence you’re on it’s either a great success or a total flop.
Unemployment is at 9.5%, some say it’s higher than that but somewhere in the neighborhood of 1 million folks have simply stopped looking. At any rate was the stimulus needed and is it working?
Well as to the first question there is no doubt it was and is needed. That only leaves one question did we spend the money wisely, or in my simple business outlook did we get an adequate return on investment?
Well if you look at the money allocated, $787 billion dollars, that seemed to me a significant amount of money to invest. Of that total about 57% of the money of $453 billion has been used. It seems a simple math step would be to simply divide the amount used by the number of jobs created and you could get a feel for it’s success.
That unfortunately is where it gets murky. The Congressional Budget Office has estimated the package to date has created 800,000 to 2.4 million jobs. Not a confidence building estimate was it. Obama said in February it will create 1.5 million to 2 million more. More than what? OK based on these two figures we have a range of cost per job. If we take the low estimate it cost the government $453 billion to create 800,000 jobs or about $566,250 per job. If we take the highest possible estimate it breaks down to about $188,000 per job.
Most of these jobs were created repairing infrastructure, we’ve all seen the signs on the highway, “Project funded by the American Recovery and Reinvestment Act”. Most of these we can assume are worthwhile projects. However they are projects, they’ll be completed and the jobs will go away. We’ve spent somewhere over $453 billion and created no lasting value, or worse yet no lasting employment.
To me that’s a short-term patch and no lasting impact. I read in a newspaper a few weeks ago that the total budget shortfall for all 50 states in healthcare and education is a combined $55 billion dollars. Wouldn’t it have made sense to put some of that money into hiring teachers and improving education at the state level?
Investment in quality education is the only lasting way to create jobs. Now I realize that’s a long term look and we need jobs today. Are highway paving projects the highest thing on our priority list?
What about manufacturing, medicine, research? Funding projects that create value and good paying long term employment.
I guess is you sum it up the stimulus is sorely needed, but like everything else driven by Washington it was lost in the execution. Congress and Obama were more interested in getting job numbers up quickly to make a positive impact in time for elections.. Like American big business, government is making short-term decisions for quick fixes and further mortgaging our future.
So you tell me, did the $453 billion provide an adequate return on investment?
Like so many other things nobody knows.
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Posted by Martin Harshberger on Tue, Feb 09, 2010 @ 09:27 AM
The unemployment rate for large company middle managers is increasing but worse the term of their job search is also increasing with many extending to over a year.
The news isn’t getting better, a survey in June by Watson Wyatt Worldwide, reports that 52% of companies will employ fewer people than they did before the recession began. One third of the 179 U.S.-based companies polled indicated they still anticipate further layoffs, although this is down from 46% two months ago. "While many companies are planning to reinstate or reverse some of the cost-cutting actions made to HR programs over the past 10 months, most do not believe that things will go back to 'business as usual,'" the survey states
The numbers aren't encouraging. According to the U.S. Department of Labor's Bureau of Labor Statistics (BLS), 14.7 million people were unemployed (9.5%) as of June 2009 compared with 14.5 million in May (9.4%) and 8.7 million (5.6%) one year ago. The number of long-term unemployed -- people without work for 27 weeks or more -- increased from 1,621,000 in June 2008 to 4,381,000 in June 2009. Meanwhile, approximately 6.5 million jobs have been lost since the recession started 19 months ago. And the "underemployment" rate -- which includes those too discouraged to look for work as well as those working part-time because they can't find a fulltime job -- increased to a staggering 16.5% in June compared to 10.1% a year earlier
A generation ago, says Wharton management professor Peter Capelli director of Wharton's Center for Human Resources, "layoffs at this level were temporary. Not now." Even if an equivalent job were open at another company, that company will most likely not fill the position or will hire from within. In addition, Cappelli notes, in the 1990s, the economy experienced a "big wave of startups that would take on corporate people who had lost their jobs or bailed out of them. These days, we don't see those smaller companies on the horizon."
Many displaced managers and executives are turning to starting their own businesses, some for the right reasons and some out of desperation.
Going our out on their own for whatever reason can be challenging for many of them. Middle management experience at a large company does not necessarily transfer to being a top executive at a small of startup firm. I remember clearly when I made the move from a Fortune 500 executive position to founding a startup. My boss trying to convince me how foolish and risky it was told me, I “didn’t even have P &L experience”. I remember thinking what a desperate comment that was, I had a huge organization and a budget of over $40MM dollars, what was he saying?
Years later I remembered that comment and how far I had come. I was lucky my startup was successful and grew to over $40MM in sales, but it was a steep climb. I really had no idea how much I had to learn in the “real world”. I had no experience with cash management, strategy, hands on marketing and sales, raising capital, handling lenders and investors, the list go on and on. All of this was done for me at some level of corporate organization.
Later on as I became a business coach I learned that many small company owners and top managers were doing what I did, learning the hard way, even many that had been in business for years.
The message to middle managers going through the job search or thinking of going out on their own is put aside the egotism everyone seems to leave a large company with and learn what smaller company needs are. It truly is a different and hands on world. Small and mid-sized companies are sorely on need of strong leadership, but you’ll have to be able to prove you’re the real deal. The issues are so common across markets and industries I wrote a book on them, positioning it to be a leadership manual for success. How do I know what those needs are? I learned them the same way I learned all the skills I needed to run a $40MM company, I learned them the hard way over a twenty plus year period or running my own businesses and coaching others.
The more knowledgeable you are about the situation of small and mid-sized business when you walk in the door, the better chance you have of walking out with an opportunity.
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Posted by Martin Harshberger on Tue, Jan 12, 2010 @ 01:20 PM
The headlines in this morning’s paper say the stimulus lacks validation. In other words there is no proof that the billions of dollars spent thus far are creating jobs. Is that a surprise to anyone?
The best explanation I’ve found on a stimulus package was on an anonymous website blog. It read as follows:
Can the government create real jobs really?
Let’s say you have five kids. Four have jobs, one doesn’t.
You feel bad the fifth doesn’t have a job, so you take 25% of the income from the four employed kids and “hire” the fifth kid to do shovel ready projects around the house.
Does the fifth kid really have a real job now? Is it self-sustaining? How long before the other four kids get tired of paying the fifth kid?
Of course it’s not a real job…
When our government makes temporary jobs to hire people for shovel ready jobs, jobs that are not self-sustaining, jobs that can only exist as long as people with real jobs are able to pay for these jobs out of their own pockets… these aren’t real jobs either.
To create jobs you must add value and create wealth. The money would be better spent on tax credits to encourage companies to invest in R&D, product development and expansion. If companies expand they create jobs and hire people. Those people get paychecks and create demand for new products and services, which in turn creates more jobs.
Depending on where you read it the stimulus package is somewhere around $780 billion dollars. And again depending on where you get your information it’s designed to “create” or save 6.5 million jobs. If my math is correct that’s about $120,000 per “job”. If the explanation above is correct, and I believe it is, we’re spending $120,000 for every non-sustaining job created by the government.
Does that say that each person hired to do highway work is being paid $120,000? Of course not, which makes the problem worse, the money isn’t going into the economy to create demand, it’s being absorbed in large part by government, which as we all know adds no value to the economy and creates no wealth.
The only way to create jobs is make more money available to the private sector to encourage innovation and develop new products and services. Even with the government’s ability to print money there is only a finite amount available. Every dollar spent by the government is a dollar that is taken from private enterprise.
To create a sound economy we absolutely must reduce the size and cost of government and invest in our future. The only way the stimulus package would make sense is if Obama reduced government spending by $780 Billion and made it available to private enterprise through bank loans, grants and more reasonable credit for sound companies. Small business creates jobs, if a proportionate amount of money was set aside in the form of credit access, job creation would be a reality.
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