Notebook, 8 April 2012: Management, Work and Incentives

A short post in response to some comments I read recently in a blog series over at New Economic Perspectives. In particular, some of the comments characterizing the workforce, and doing so inaccurately:

Critics of JG/ELR. Critics argue that a job guarantee would be inflationary, using some version of a NAIRU-Phillips Curve approach according to which lower unemployment necessarily means higher inflation. Some argue that JG/ELR would reduce the incentive to work, raising private sector costs because of increased shirking, since workers would no longer fear job loss. Workers would also be emboldened to ask for greater wage increases. Some argue that the program would be so big that it would be impossible to manage it; some fear corruption; others argue that it would be impossible to find useful things for the workers to do. It has been argued that a national job guarantee would be too expensive, causing the budget deficit to grow on an unsustainable path. We will examine some responses to these criticisms in the following sections.

While, in the terms of their discussion, the economic impact of full employment, i.e., inflation and an upward shift of equilibrium (prosperity), has validity, characterizations of employee behavior and incentives in the quote above, are ill-founded, specious and need to be refuted. I come to this from working in a series of small, successful start-ups, and I’ve seen a lot of new hires up close over the last four decades.

When it comes to my experience with prospective hires who show a greater tendency to shirk, the rule of thumb I’ve developed over the years is that one in every four or five hires yields a superior employee, one in twelve or thirteen are exceptional. I have also found that the deeper down in the barrel you dig for employees, the results remain the same. If anything, they are better employees, grateful for a chance and willing to undertake whatever it takes participate and fit in. In other words, the deeper in the barrel, the more marginal the job-seeker, the tendency is for the ratio to shift from one in five, to one in four, and the marginal workforce yields a slightly better employee than what is generally regarded as a “good hire.”

Which all sounds counter-intuitive, but in the terms of that discussion which got me started here, it should be perfectly understandable: the marginal hire has more incentive to do a good job for you. The effect on cost of goods produced is therefore mitigated slightly by having a generally more efficient workforce, requiring more training in the beginning, but less management in the long run. Which all proceeds from the often observed fact that, for the marginal hire, it is more likely that the given job itself has more “utility” than it does for the seemingly better candidate.

And the utility of the job itself is key.

And it doesn’t matter at all which level the given position demands. Let me repeat that. Whether you are looking for entry level, experienced, highly skilled employees or manager, the one in four-or-five ratio remains the same. You are exactly as likely to find a superior hire when filling an entry level position as a management position. Ask yourself how many managers are mere timeservers? How many of them are bright, creative and engaged?

I’ve wandered outside the ambit of their discussion, I admit, but I’ve always had a different view of work and the workplace than most. One of the best management books I’ve ever read was Kurt Hanks’ Motivating People, which posits the notion that money, in itself, is never a motivator, but the things which money can do are, be that paying a mortgage, putting a child through school, spending a summer touring Europe, personal development, or whatever. The key is utility, and it is the manager’s job to keep the focus on maximizing every employee’s utility.

Every manager should know Maslow’s hierarchy of needs by heart:

My major point in response to that series of comment is that the timeservers and shirkers are already gainfully employed, and that the additional costs posed by job security imagined by some, to be passed along to clients and customers, is already factored in. So I definitely find this argument specious. I don’t buy the argument full employment is guaranteed to be inflationary, whatever the history shows, because mediocre or under-performing management has always been the norm. My other point is that whenever any employee, at any level, is found to be shirking or performing just well enough to get by, but no more, then the problem lies in the fact that work generally doesn’t rank high in anyone’s utility scale, and generally speaking, it should. When mediocre and under-performance is found, the problems lie with the business model, the specific workplace and the employment situation combined with any extra-curricular concerns of a given employee, many of which are easily manageable.

Very few (maybe one in twelve or thirteen) managers perform as if they recognize that the rewards of work are holistic, and that hardly any of those rewards are tangible.

Anyways, after cogitating over this a few days, I thought I’d share these thoughts while enjoying my morning coffee. I wish a Happy Easter to all.

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