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Staying Alive: Why I Pay What I Pay

April 24, 2013 by Leave a Comment
Staying Alive

The struggles of a business trying to survive.

Sometimes, when I sit down to write, I focus on documenting a recent experience. Other times, I think about things that I would like to know about other businesses but have never seen publicly discussed. This post is the latter. It’s about how business owners decide what to pay their employees.

I’ve been thinking about wages and wondering whether I am paying my people too much, too little, or just the right amount. I don’t have a good way to answer that question, but I thought that it might be interesting for me to list what I expect to get for various hourly wages, starting at the minimum and working up the scale. I’ll be eager to see your thoughts in the comment section.

I have to preface the list with a little background. My willingness to pay a given wage to a given person is influenced both by the relative scarcity of trained woodworkers with the skills I need and by the cost of living in my location, suburban Philadelphia. I am also going to omit, for the purpose of simplicity, the cost of benefits that we offer (paid vacation, retirement plan, health insurance and, coming soon, profit sharing). My benefit costs for each of my workers depends on that person’s years with the company (we offer more vacation time for longtime employees) and family structure, which drives health insurance purchases.

I also want to stick to wages for shop-floor workers. There is a lot of chatter about manufacturing jobs in the media, and these are generally hourly positions. The salaried and administrative positions in my company do not fit into any neat categories, because of the specialized nature of our work. So I’m not going to include them in the analysis. That said, let’s start at the bottom:

Minimum wage (in Pennsylvania, $7.25/hour): I don’t expect much for this, beyond a pulse. I don’t think it’s enough for any adult to live on, as it would be difficult to afford a stable living and transportation situation. It might be appropriate for the unskilled, youths or temporary workers, but that is not what I want.

$10/hour: This is my starting wage. For this I expect workers without much in the way of skills but who are reliable about showing up on time and work at a steady pace. They should be able to learn simple tasks (taking out trash, unloading materials) and perform them correctly. They should understand English well enough to take simple directions.

$12/hour: If the $10/hour employees work out and show some ability to learn the simpler technical tasks that we perform while we build our products, I can pay them a little more. I would expect them to perform a set of simple tasks on a regular schedule without supervision and to demonstrate a willingness to work on a flexible schedule. They should also have a valid driver’s license and be willing to work a flexible schedule and long hours when we need to make out-of-state deliveries. (They will be paid overtime for more than 40 hours of labor per week.) They should understand complex spoken English.

This is also where we start workers who have the desire to become skilled woodworkers but have had no training. This class of workers requires significant attention from management and co-workers, so we can’t pay them much. They need to demonstrate a good work ethic, curiosity and willingness to take direction. And, they need to show some talent, which we call “good hands.” This ability is not evenly distributed in the population, and it cannot be taught.

$13.50/hour: This wage is for workers who can speak English sufficiently to convey technical information back to the supervisor. For a worker on the training path, a raise to this level would be a reward for steady progress in acquiring our specialized skill set, and continued reliability and hard work.

$15/hour: This is where I start workers who have had general training in woodworking but do not have experience in the specialized skills that we use. Most woodworking training programs emphasize skills that are, in my shop, obsolete. We do not work with hand tools very often and our equipment is much more sophisticated than that found in schools. So workers fresh out of technical school will need significant training, and we will also have to determine whether they have good hands and a good work ethic.

$18/hour: I would pay this for workers who have had both technical schooling and some experience in another wood shop and whose skills and work ethic have been vouched for by former bosses. I still need to see whether these workers can perform at our level of speed and accuracy, which is higher than the industry average. And we will still need to put a significant effort into expanding their skill set to include the specialized work that we do.

$20/hour: This is what I pay workers who have been with me for sufficient time to learn our procedures and perform at a level where they can do most tasks most of the time without error. As custom makers, we do a very wide variety of projects and have an enormous library of designs. It takes a while for workers to encounter every item we make, because we do not produce every one of our designs regularly. I keep workers in this wage range until they can do a wide range of items without problem. Also, at this level they should not need constant attention from management.

$25/hour: These employees should have mastered every aspect of their jobs. They should be able to manage a helper if required. And they should be able to contribute ideas that improve our operations. This is also where I would start workers who come to us with previous experience doing work similar to ours. Most workers who can make that claim have many years of experience in other shops and a wide range of skills. Unfortunately, many of those skills are no longer needed in modern manufacturing. But their mastery indicates a dedication to acquiring and upgrading skills.

$30/hour: This is foreman-level pay, earned by a worker with complete mastery of both our particular skills and the wider demands of the trade. This worker should be an energetic and innovative leader, able to monitor all the activity in the shop, to provide direction to other workers when required and drive innovation in our procedures. This person will work closely with me and with the office staff and is likely to work a lot of overtime, which enhances pay.

So that’s my wage picture. You might break it down this way: the first $10/hour gets you reliability, the next $10/hour gets you a skill adequate to do our regular production, and the next $10/hour buys all of the extras. One of the paradoxes is that many of those extras are skills that we do not actually use anymore. Anyone who has been around long enough to get to master level has experienced the revolution in manufacturing that I have seen since I started my business in 1986. Back then, the machines were dumb and the workers were brilliant. Now the machines are a lot smarter, and some of the requirement for employee brilliance has been eliminated. Since we are custom makers, however, we occasionally end up doing something that could be done by machine but will require a lot of investment in programming and tooling. It is faster to push it out to the shop floor and let them figure it out. That’s when the master-level workers shine.

I want to close by repeating that this is what happens in my own shop. Different companies, in different industries, and in different locations, may end up with very different numbers. I welcome any thoughts on what I have written.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/04/23/why-i-pay-what-i-pay/?partner=rss&emc=rss

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Toyota Will Make Lexus ES 350 in Kentucky

April 19, 2013 by Leave a Comment

Toyota has been eager to bolster its Lexus brand in the United States, the automaker’s biggest overseas market, where luxury car sales now outpace sales of other autos. Toyota also wants to shift more production from Japan to overseas markets to better insulate itself from the currency gyrations that have wreaked havoc with its bottom line in recent years.

For communities like Georgetown, Toyota’s decision to expand auto production came as a vote of confidence in American auto manufacturing after years of painful cutbacks by domestic automakers. Despite that decline, the United States remains one of the top auto manufacturers and employers in the world, thanks to Japanese and other foreign automakers that have expanded production here.

Those foreign automakers are getting plenty of incentives. On Wednesday, the Kentucky Economic Development Finance Authority approved $146.5 million in state tax benefits to help Toyota expand production in Georgetown, in a sign of how aggressively states are wooing companies that will create and maintain local manufacturing jobs.

“I feel like the state has just won the Kentucky Derby,” Gov. Steven Beshear of Kentucky said as cheers erupted in a broadcast streamed live in New York from Toyota’s Georgetown plant. The site is Toyota’s first wholly owned factory in the United States, and its largest manufacturing plant outside of Japan. “We actually see Toyota as a Kentucky company,” he said.

Toyota said that it would invest $360 million to install a new production line that will build about 50,000 of its flagship Lexus ES 350 sedans at Georgetown. The move will increase annual production at the plant, which already assembles the Camry, Avalon and Venza models and employs about 6,600 people, to about 550,000 vehicles a year.

“For manufacturing, Kentucky is Toyota’s home. It has some of the most experienced engineers in the world,” Akio Toyoda, president of Toyota Motor, said in New York. He said that building the Lexus here would help Toyota better meet the needs of its American customers, and would reduce the effect of the exchange rate on car prices for American consumers.

Since 2008, a punishingly strong yen has weighed on Toyota’s profitability, making it more expensive in dollar terms to produce in Japan and eroding the value of its overseas earnings in the home currency. Mr. Toyoda said a recent respite in the yen’s strength would not affect the company’s plans to protect itself from future ups and downs in currency.

Toyota’s new expansion follows brisk sales in the United States of the Lexus ES, a midsize luxury car that is selling twice as fast as it did in 2012. Though the car comes in conventional gasoline and gas-electric hybrid models, only gas-powered cars will be made in Kentucky for now, Toyota said.

Toyota currently builds the Lexus ES at a plant on the island of Kyushu in southern Japan. Seeking to soothe worries back home that Toyota is reducing manufacturing jobs there, Toyota said that it expected to announce soon that the plant would manufacture another model. The Kyushu plant will also make and export the hybrid version of the ES, Toyota said.

Toyota’s chief executive for North America, Jim Lentz, said the investment came on top of plans already under way to spend $2 billion to expand and upgrade Toyota factories in Indiana, Mississippi, West Virginia and Canada in the last two years. Those expansions have also created new jobs.

Traditionally tightly controlled from its headquarters in Toyota city, Toyota has revamped its management structure in recent months to give more authority to regional managers, including a new team of executives in North America led by Mr. Lentz. Mr. Lentz said bringing Lexus production to the United States was the first decision made by his team, and that he expected similar decisions to follow.

Article source: http://www.nytimes.com/2013/04/20/business/toyota-will-make-lexus-es-350-in-kentucky.html?partner=rss&emc=rss

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Bucks Blog: Monday Reading: A Week at a Fat Camp for Grown-Ups

January 2, 2012 by Leave a Comment

December 30

Friday Reading: Municipal Cutbacks Leave Residents in the Dark

A discount retail chain shuts down, manufacturing jobs return with lower wages, municipalities try to balance their budgets by shutting off streetlights and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=7da0ffd0a2c0991f8335b1113e3cab85

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Bucks Blog: Friday Reading: Municipal Cutbacks Leave Residents in the Dark

December 31, 2011 by Leave a Comment

December 30

Friday Reading: Municipal Cutbacks Leave Residents in the Dark

A discount retail chain shuts down, manufacturing jobs return with lower wages, municipalities try to balance their budgets by shutting off streetlights and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=8f2769669e4f7222ef3e4d91583e295e

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Does America Need Manufacturing?

August 26, 2011 by Leave a Comment

Over the last two years, the federal government has doled out nearly $2.5 billion in stimulus dollars to roughly 30 companies involved in advanced battery technology. Many of these might seem less like viable businesses than scenery for political photo ops — places President Obama can repeatedly visit (as he did early this month) to demonstrate his efforts at job creation. But in fact, the battery start-ups are more legitimate, and also more controversial, than that. They represent “the far edge,” as one White House official put it, of where the president or Congress might go to create jobs.

For decades, the federal government has generally resisted throwing its weight —and its money — behind particular industries. If the market was killing manufacturing jobs, it was pointless to fight it. The government wasn’t in the business of picking winners. Many economic theorists have long held that countries inevitably pursue their natural or unique advantages. Some advantages might arise from fertile farmland or gifts of vast mineral resources; others might be rooted in the high education rates of their citizenry. As the former White House economic adviser Lawrence Summers put it, America’s role is to feed a global economy that’s increasingly based on knowledge and services rather than on making stuff. So even as governments in China and Japan offered aid to industries they deemed important, factories in the United States closed or moved abroad. The conviction in Washington was that manufacturing deserved no special dispensation. Even now, as unemployment ravages the country, so-called industrial policy remains politically toxic. Legislators will not debate it; most will not even speak its name.

By almost any account, the White House has fallen woefully short on job creation during the past two and a half years. But galvanized by the potential double payoff of skilled, blue-collar jobs and a dynamic clean-energy industry — the administration has tried to buck the tide with lithium-ion batteries. It had to start almost from scratch. In 2009, the U.S. made less than 2 percent of the world’s lithium-ion batteries. By 2015, the Department of Energy projects that, thanks mostly to the government’s recent largess, the United States will have the capacity to produce 40 percent of them. Whichever country figures out how to lead in the production of lithium-ion batteries will be well positioned to capture “a large piece of the world’s future economic prosperity,” says Arun Majumdar, the head of the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E). The batteries, he stressed, are essential to the future of the global-transportation business and to a variety of clean-energy industries.

We may marvel at the hardware and software of mobile phones and laptops, but batteries don’t get the credit they deserve. Without a lithium-ion battery, your iPad would be a kludge. The new Chevrolet Volt and Nissan Leaf rely on big racks of lithium-ion battery cells to hold their electric charges, and a number of new models — including those from Ford and Toyota, which use similar battery technology — are on their way to showrooms within the next 18 months.

This flurry of activity comes against a dismal backdrop. In the last decade, the United States lost some five million manufacturing jobs, a contraction of about one-third. Added to the equally brutal decades that preceded it, this decline left large swaths of the country, the Great Lakes region in particular, without a clear economic future. As I drove through the hollowed-out cities and towns of Michigan earlier this year, it was hard to tell how some of these places could survive. Inside the handful of battery companies that I visited, though, the mood was starkly different. Many companies are working on battery-pack designs for dozens of car models. At the Johnson Controls factory in Holland, Mich., Ray Shemanski, who is in charge of the company’s lithium-ion operation, said, “We have orders that would fill this plant right now.” Every company I visited not only had plans to get their primary factories running full speed by 2012 or 2013 but also to build or expand others. Jennifer Granholm, Michigan’s former governor, has predicted that advanced batteries will create 62,000 jobs over the next decade.

Jon Gertner (jongertner@gmail.com) is an editor at Fast Company. His book “The Idea Factory: Bell Labs and the Great Age of American Innovation” is due out in March.

Editor: Dean Robinson (d.robinson-MagGroup@nytimes.com)

Article source: http://feeds.nytimes.com/click.phdo?i=f54593a33a6677dd65eaae4504dcded4

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Economix: Podcast: Job Woes, Pet Boom and Annuity Puzzle

June 4, 2011 by Leave a Comment

The economic recovery from the shock of the financial crisis has never been all that strong, but the Labor Department’s monthly report on jobs and unemployment painted a picture of an economy that may be struggling even to keep growing.

Catherine Rampell, who covers the economy for The Times, says in the new Weekend Business podcast that the number of nonfarm payroll jobs created in the United States in May — just 54,000 — was far lower than nearly all economists had predicted. The unemployment rate moved in the wrong direction, too — upward, to 9.1 percent from 9 percent. And manufacturing jobs declined for the first time in seven months. There was little in this report to cheer about, although it’s possible that some of the problems were temporary, stemming from factors like bad weather and global supply-chain effects persisting from Japan’s earthquake, tsunami and nuclear disaster.

In a separate conversation on the podcast, David Gillen talks to Andrew Martin about one area of the economy that has been nearly recession-proof: the pet business. As Mr. Martin writes on the cover of Sunday Business, pet foods suitable for human palates have been proliferating, and pet “parents,” as the industry calls them, have often lavished treats on their cats and dogs even when they’ve cut back on spending for themselves.

I also talk to Richard Thaler, the University of Chicago behavioral economist, about what he calls “the annuity puzzle” — the unpopularity of annuities despite their economic advantages. Traditional pensions are a form of annuities, but as most working people shift to defined-benefit plans like 401(k)’s, they are faced with a bewildering set of options upon retirement. He writes in the Economic View column in Sunday Business that few of them have been buying annuities even though it might be in their interest to do so. The reasons for this seem to be more psychological in nature than a matter of pure financial calculus.

In a conversation with Phyllis Korkki, I describe another behavioral quandary, which is the focus of my Strategies column in Sunday Business. This is “the trading paradox,” the propensity of many investors to trade frequently, regretting some of those trades yet feeling unable to do anything about it. A new study by Barclays Wealth highlights these internal conflicts. Because frequent trading is associated with market underperformance, curbing this behavior could be of great benefit. Much like overeating or gambling, however, for some people frequent trading isn’t easily corrected.

You can find specific segments of the podcast at these junctures: the economic outlook (29:29); news summary (21:33); the pet business (17:39); annuities (12:53); compulsive trading (6:02); the week ahead (1:56).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

Article source: http://feeds.nytimes.com/click.phdo?i=e18b3097ccd6969a7d53b8d0820baba8

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Economic View: Jobless Rate Is Not the New Normal

April 10, 2011 by Leave a Comment

The turmoil of the last few years, however, has shaken up the economy. Is it possible that it has affected the natural rate of unemployment — increasing it to 8 or even 9 percent? Such a climb would imply that the prospects for a rebound in output and employment have been greatly reduced — and that high unemployment would be our new normal.

This is implicitly the view of some Federal Reserve policy makers, who say that there is nothing more the central bank can do to lower unemployment. And it’s the view of those who say “structural” factors are the main cause of our current high unemployment, which stood at 8.8 percent in March.

Fortunately, there is a more compelling explanation. Strong evidence suggests that the natural rate of unemployment actually hasn’t risen very much. Instead, the elevated unemployment rate appears to reflect mainly cyclical factors, particularly a lingering shortfall in consumer spending and business investment.

Consider the effects of changes in industrial composition. The housing bust and financial crisis led to a decline in construction and finance employment that is likely to be long-lasting. Does that imply a substantial rise in normal unemployment? Almost surely not. Compared with the pre-crisis days, about 1.3 million more construction and finance workers are out of work. Even if they all remained permanently unemployed — which is obviously unrealistic — this change would add less than a percentage point to the normal unemployment rate.

More fundamentally, the economy can usually cope with changes in industrial composition. During normal times, industries decline and grow, and displaced workers move to new sectors. For example, manufacturing jobs declined steadily as a share of total employment in the 1990s, yet the normal unemployment rate remained very low.

The real problem today is that jobs are scarce in just about all sectors. An important study, published in 2010 and recently updated, showed that workers who have lost jobs in construction and finance have been leaving the ranks of the unemployed at almost the same rate as those laid off in less troubled industries. The problem isn’t about particular sectors; it’s about a general lack of hiring.

What about declining geographic mobility? Today, about 11 million families are underwater on their mortgages, which means they owe more than their homes are currently worth. This could make it harder for them to sell their homes and move to jobs in other regions.

But the argument that such “house lock” is a source of high unemployment runs into two empirical walls. First, jobs are not plentiful anywhere. In the most recent data, the unemployment rate in every state was above its level before the recession. So our unemployment problem wouldn’t go away if only people could move more easily.

Second, if house lock were an important factor, we would expect to see greater declines in labor mobility in states with more underwater mortgages, and among homeowners compared with renters. A study scheduled for publication in The Journal of Economic Perspectives finds no support for either of these hypotheses.

Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, made waves last August when he pointed to a recent climb in posted job vacancies as evidence that current unemployment is mainly structural. Normally, there wouldn’t be this many vacancies until unemployment were closer to normal. Therefore, he argued, a severe mismatch between unemployed workers and the skill requirements or location of available jobs had raised the normal unemployment rate by as much as three percentage points.

But this analysis misses the fact that early in recoveries, vacancies typically rise relative to unemployment. Also, as discussed by Peter A. Diamond in his recent Nobel prize lecture, businesses that are relatively more plentiful today — for example, larger companies and those outside of construction — tend to post their vacancies more consistently. Thus, the changing composition of companies helps explain the unusual rise in vacancies.

When experts weigh the evidence, they come down strongly on the side that normal unemployment has not risen greatly. Once a year, the Survey of Professional Forecasters asks respondents for their estimate of the natural unemployment rate. In the third quarter of 2010, the median estimate was 5.78 percent, almost exactly one percentage point higher than in the third quarter of 2007, just before the recession started. (The highest estimate was 6.8 percent.) And the Congressional Budget Office uses 5.2 percent as its estimate of the natural rate.

All of this suggests that most of our high unemployment is still the consequence of low demand. Consumers remain hesitant to spend because unemployment and debt are high. Companies are unwilling or unable to invest because customers are few and credit is still tight.

This diagnosis suggests that the appropriate remedy is to stimulate demand. In February, I suggested a number of steps the Federal Reserve could take. Some additional fiscal measures would also be useful. More public investment (as the president has advocated), additional aid to state and local governments, and a cut in payroll taxes for employers would all help. Given the severity of the long-run budget problem, short-run fiscal stimulus should only be undertaken as part of a comprehensive package of gradual spending cuts and tax increases. That would give the economy the jolt it needs, while providing reassurance that the United States will remain solvent over the long haul.

 

REGARDLESS of the cause of extended high unemployment, it is a disaster for families, the economy and government budgets. Thus, if I am wrong, and more unemployment is structural than the current evidence suggests, this is no excuse for washing our hands of the problem. Only the nature of the needed policy response would change. Instead of focusing on increasing demand, we would need policies to help workers and jobs find one another, measures to move workers to where the jobs are (or vice versa), training programs and better education.

And even though today’s unemployment appears mainly cyclical, it could turn structural. The longer that unemployment remains high for cyclical reasons, the more likely that job prospects for unemployed workers will be permanently damaged. In a number of European countries in the 1980s, for example, prolonged recession appears to have caused normal unemployment to rise sharply. Getting cyclical unemployment down quickly is the surest way to prevent that from happening in the United States. 

Christina D. Romer is an economics professor at the University of California, Berkeley, and was the chairwoman of President Obama’s Council of Economic Advisers.

Article source: http://feeds.nytimes.com/click.phdo?i=36f9320c2e12dd0569f33100564ee08a

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