« Do we need a bubble? | Main | Productivity, the Canadian Dollar and Small Business - A Case Study »

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.


Productivity, pay and experience can pay off differently if looked at over a number of people over a longer time than if looked at for each person. In the skilled trades, the more experienced may work more slowly (and often are take a more independent line towards management), but their experience pays off whenever an unusual or difficult problem is encountered. And they teach their younger colleagues all the tricks that come with actually doing the job in all the different conditions that come along. A firm that wants to be around more than 10 years or so makes sure it has a core of these people, and is constantly developing replacements. This kind of human capital is slow to build, easy to lose, and very difficult to replace (take a look at any developing country for examples - loads of PhDs and no good machinists). It's inseparable from the actual plant and other physical capital, and from actually doing the work.

Encouraging later retirement may allow those countries that have let a lot of this capital decline build it up again.

Is there anyway to quantify the declining value of an undergraduate degree? Are there any studies that try and determine how many grads from each program get jobs in their field of study or at least get satisfying jobs. I know from my personal experience, being in the last year of my undergrad, that I would be very worried entering the workforce simply with an undergrad. And I'm majoring in economics, I dont know how people taking the less technical arts degrees would feel.

Another thing I would be interested in finding out is how much money gets spent on 'expendable' undergrad degrees. If we did scale back on these degrees and the money got sent back into the private sector, how much more productive would our manufacturing or service sector be? I hate to stereotype because I know very little of the issue, but it seems like for many students that university is a vacation that puts them into unneccesary amounts of debt.

Interesting post. And timely. I'll add my two cents worth in the context of some of what was said at the Liberal policy get together (productivity and innovation panel: http://can150.ca/canadian-innovation-generating-and-leveraging-success/ ) which Stephen has/is blogging about elsewhere.


Education

Roger Martin, Dean of the Rotman Biz School(U of T ) while at Monitor Company worked with Michael Porter on a major undertaking The Competitive Advantage of Nations, 1998, and they were later retained by the Mulroney Gov't for a Canada specific study: Canada at the Crossroads. The Reality of a new Competitive Environment (1991) http://tinyurl.com/ylcp8qu

When asked by an audience member, how have things changed since then?, he responded: The country has opened itself up to competition (post FTA and NAFTA) so that is good; the very complex tax system has been streamlined/made more efficient (also good); but from 1991-1994 Canada was a world leader in post secondary education - but has seemed to have neglected this priority since around 1995 onward (I took it to be a shot at the P. Martin/Chretien austerity efforts).

How to increase productivity/innovation (working smarter)? He didn't do a great job of explaining this. But, having reviewed the video, and knowing a bit of his prior work, his view appears to be this (supported by other panel members to some degree). Canada has a skilled and entrepreneurial workforce. Inventing things doesn't appear to be a problem. But commercializing them, taking a product to market and building a competitive endeavour around it is the problem. And his solution: more training of individuals with business/management skills - in industry specific areas (say high tech, bio engineering). So, it seems that he is advocating building upon very specific technical experience/expertise with a broader skill set.

Innovation policy? He suggests looking at the US or Singapore - emulate what they do. In Singapore, he claims that they identify SMEs (Small and Medium Enterprises) that are showing promise, and provide gov't support at the "retail" level not at the "wholesale". I read this to be the same sort of thing - providing human resources training and assistance /skills training in areas identified within companies that are in need or have hit the ceiling in terms of reaching their full potential.

Another panelist, OpenText's Tom Jenkins claimed that U of Waterloo's success in fostering the high tech industries so closely associated with it was not by accident. Partly, U of W founders were visionary in leading with CO-OP education in a two way flow of information/best practices combining learning with real world industry experience. Jenkins also pointed out that in the Waterloo area 2,000 jobs remain unfilled due to the lack of matching of skills requirement with potential candidates.

Jenkins also pointed out tht the productivity gap in Canada (with the US) did not happen overnight. It started 30 years ago. (Doing some quick math - this means around 1980. Hmmm. What happened around 1980? How about the first oil boom in Alberta? Quick easy money. Has anything changed since then in this regard?)

Closing remarks by Jenkins - if he ran a business like the gov't is run, it would be bankrupt ages ago. Measure/focus on outputs (outcomes) not inputs.

I was listening closely - and I did not hear any of the panelists claim that Canada's Corporate Income Tax rates were too high, or that certain emitting industries need protection - the leverage is in human capital - and targeted training.

So, it is good to see a blog posting on this issue - human capital, here (though I may be slightly off topic)

Has there been any studies that break it down by sector. For example I would think in the health field education and experience count for alot. But say in the technology/telecommunications field, does specialized training pay-off in the long term? From my observations it does not because the half life of some of these skills/experience/training is probably 7 years. I've seen many highly educated people specializing in a particular field then 10 years down the line there skills are obsolete and they get laid off.

Now how about people who are educated in a field with a low supply of available job openings. These people then end up doing jobs they have no background or passion for. I have also seen these people wasting their time doing jobs they don't want. I've seen lots of arts people in jobs like purchasing and vendor relations that absolutely hate their jobs but they cannot find jobs in their field. Is this a wise use of education?

So my view is that there is a base level of education is needed to develop a civil society, to empower disadvantaged groups. Then there is education to train for jobs that society needs (engineers, lawyers, doctors, chemists, economists ....) but there should be quotas on number of students accepted and that should tied to the available or forecasted demand.

Encouraging people to over-educate for jobs that won't exist, is counter production and just leads to unhappiness.

Although I think there is a place for a type of liberal arts education that isn't tied to any job prospects and is done for self-actualization reasons.

Peter T: "A firm that wants to be around more than 10 years or so makes sure it has a core of these people." Absolutely. This is a key reason why firms pay more senior workers more than less senior workers. And why workers of 45 are as productive or more productive than workers of 25 despite being (usually) less physically able and not as good at certain types of cognitive tasks (e.g. some mathematics). But at some point many skills do start to decline - and what can and should employers do about it?

Ian Lippert -last time I looked at the numbers, the degree with the highest return was a master's degree. Go for it! And you're right that student debt is a big issue.

JVFM - "his solution: more training of individuals with business/management skills - in industry specific areas (say high tech, bio engineering)." Students want to get into business, but business schools typically restrict entry. Also accreditation requirements (e.g. requiring students to be taught by full-time faculty members) make it very costly to expand business schools. It's something academic economists talk about a lot over coffee as a lot of our students are people who would rather be taking business but don't have the GPA requirements.

Mick Marrs - the unhappiness of the overeducated is a big issue for immigration policy also. We select immigrants on the basis of their educational credentials but employers don't recognize foreign degrees (see some fascinating work by Phil Oreopoulos reported at
http://www.cbc.ca/canada/british-columbia/story/2009/05/20/bc-ubc-job-study.html

Great comments.

I'd be hesitant to base your assessment of productivity for professors too narrowly upon the type of study you reference. There is more to the job than simply publishing in top journals. And senior people are going to be engaged in those other things to a considerably greater extent than junior people. Some one has to administrate, someone has to supervise graduate students, someone has to do the policy related and government study things. Younger people are more likely on the cutting edge, which gives them a comparative advantage in publishing in what are considered the top journals. But does that really make their work more valuable?

It's something academic economists talk about a lot over coffee as a lot of our students are people who would rather be taking business but don't have the GPA requirements.

I think Martin was talking more about MBA/Executive Training etc. as opposed to undergrad HBA or equivalent. Martin, like Jim Balsillie co-CEO of RIM, was raised north of Waterloo, and completed his MBA at Harvard ("Ivey of the south").

To get into a full time Canadian MBA program (at least last time I was involved with helping someone) you usually require an undergrad degree (though not always), typically 4 yrs of valid and accomplished work experience, respectable GMAT score (although these can be practiced), essay and interview. Plus $$ (though student loans are available).

It is true, however, that getting into undergrad business programs is extremely competitive. And requiring high GPA. Not really as much a factor in MBA/Executive/Targeted programs.

Martin suggested there was something like $600 + million currently budgeted for "innovation" or whatever it was called in the current Fed budget - of that $240 million for research/invention - the rest targeted at areas for "innovation" that he claims have never worked and won't. So, he suggested in his one recommendation at the end - re allocate these funds to his preferred areas.

Tenure is a recruitment tool. If a university were to stop offering tenure, it would have difficulty recruiting young ambitious profs because another university offering the potential of tenure and a similar salary would be much more attractive.

The trick for universities is to try and identify people who have a high likelihood of working hard after gaining tenure, or people who will become so prestigious early in their career that just having them on faculty, even if they're not producing, is of benefit to the university.

You could also structure contracts such that profs get a small base salary, and a much larger component of their salary is bonuses based upon their research output and teaching quality.

I suspect, though I am just guessing, that as workers get older they value additional leisure more than they value additional wages.

Most work is not like being a university prof or researcher. For most people doing most jobs, increased productivity means working more. And most people have little or no say on how they do their job; procedures are a matter of company policy. You follow them or you are fired. So being more efficient isn't in the cards. So, supposing older workers value leisure more, and supposing that increased productivity means working more, wouldn't one expect firms to have to pay older workers more to avoid shirking? In other words, once a worker can afford canoe trips or vacations in St. Croix, you'd have to pay then an awful lot of money to convince them to work more, and maybe the margin product doesn't warrant it.

And young hot shots aren't all they're cracked-up to be. In the business world, relationships matter a lot, and young hot shots tend to be very hard to deal with, especially when confronted with the inevitable inertia present in firms (large ones in particular). Sure it's inefficient, and cutting through the BS gets more done but it also ruins relationships. Corporate HR goes to a lot of trouble to weed out those who rock the boat. Older workers don't tend to rock the boat.

As far as the tenure problem goes in a world without mandatory retirement, what about just ending tenure for professors above the retirement age (say, 65)? Seems like a good compromise to me--meritorious professors can continue working if they like, and those who are over the hill move on to retirement.

Education probably plays both roles, human capital in the more demanding technical and professional areas, and signalling in the less demanding areas, with colleges sorting individuals out of the former to signal higher quality there, and redirecting them towards the latter to still signal quality albeit less so. Human capital is both longer and more difficult to accumulate and more easily lost, whereas signalling is more permanent. While more human capital is desirable, there is less faith in the ability to increase it. While education wants to increase its business and standing with the story of human capital, they don't seem to believe in it much, or believe in signalling more and mostly only seem to want greater numbers to sort. Greater efficiency would be scaling back entrants but increasing their success rate, so failure is a failure to filter earlier.

If there were a case for defined benefit pensions, this would be it. Pay to work, or pay to retire, only the difference in cost is significant. Defined contribution is more problematic since the employer doesn't capture the savings from a shorter retirement.

Yes, good point. I agree with Patrick, in large corporations the value a worker has is in relatonships. Who to talk to, who to avoid regardless of he formal hierarchy. Then there is institutional knowledge, which procedures to follow and which ones lead to the black hole abyss. The experience of discernment, when to follow and contribute and when to step back knowing that an initiative isn't going to fly.

Young workers don't have this judgement, new immigrant workers don't know this as they always buy their superiors cool-aid.

Young workers have up-to-date skills but if they have to work in a multi-disciplinary team they usually get impatient and retreat to solitary manual/technical roles but what is needed are leaders.

As a previous post said, Canadians are already good at innovation but not at commercialization and that requires leaders, people who can build relationships and know how to compete on a global scale. I haven't seen this degree being offered, ... yet?

Jim S - you are absolutely right that someone has to administrate etc (though it's interesting that you don't mention teaching?). I've been chairing our university-wide tenure appeal committee this year. One persistent issue that we're seeing across units and over time is that untenured faculty are being overloaded with administrative jobs. Why? Because more senior people either refuse point-blank to do the administrative work or do such an inadequate job that no one wants to ask them to do it.

Andrew - this gets to your point. Actually tenure right now at Carleton is not guaranteed for people over 65 (Appendix A of our collective agreement downloadable from www.caut.ca/cuasa if you're interested). But no one has figured out a way to determine who's over the hill yet.

Antonio - my Dad is still teaching accounting in his '70s, and doing a good job by all accounts. Productivity doesn't always decline with age - my colleague, Steve Ferris, is publishing more now in his '50s/'60s than he did when he was younger. But sometimes a gap does arise between pay and productivity. And I don't think we as a society/economy have figured out what to do about it. (Mandatory retirement was one solution, but we decided we didn't want that any more).

The problem with economists, academic or not, is that selection in their field of education is based upon mathematical performance when the problems of economics outside of multiple regression analysis is one of moral philosophy, human behavior, and our institutions. We teach people a lot of formulas. We teach them models. We teach them political dogma that purports to make use of those formulas. But we do not teach them enough philosophy to understand the limits of their intitutions, and in particular, the limits and constraints of the calculus of measurement. And we send them out into the world incorrectly armed, and poorly trained to fight a battle that does not exist while ignoring the one that does.

Rhetoric is the only test of reason. Mathematical categories, as we currently know how to express them, cannot represent the plasticity of utility that humans actually use in their personal economic thinking. The problem is, that you can't test rhetoric very easily. The beauty of math is that it is a Godelian construct. The fault of math is, that as a Godelian construct, it cannot achieve what it is that we desire it to, despite our having built a political system that relies on economic theory as the means of making decisions, and enacting policy.

It's just madness.

I'm not sure that its any more rational than 'the will of god' was before intellectuals killed the church..

"The problem with economists, academic or not, is that selection in their field of education is based upon mathematical performance when the problems of economics outside of multiple regression analysis is one of moral philosophy, human behavior, and our institutions. We teach people a lot of formulas. We teach them models. We teach them political dogma that purports to make use of those formulas. But we do not teach them enough philosophy to understand the limits of their intitutions, and in particular, the limits and constraints of the calculus of measurement. And we send them out into the world incorrectly armed, and poorly trained to fight a battle that does not exist while ignoring the one that does."

OH MY GOD. You never see this in print, and certainly never so eloquently put. Bravo.

Less eloquently, the entire modern edifice of academic economics is no more relevant than alchemy. It is a hierarchical monstrosity of irrelevant mathematics, false theory, and closed doors. No Harvard Degree? You know shit. Don't publish in the right journals? Who the hell gives a damn about your contribution. Wanna keep your cozy job? Shut up. How on earth can you even begin to calculate the social value of such a field?

It is always fun to reflect that the early founders of economics were not economists, and would be denied a hearing by most economists today - unless they were there to cut their lawns; "Hey Ricardo, do I pay you to yammer or cut grass?" Seriously. You know it to be true. In fact, if you think about it, as the academic structure was constructed, the field of economics became less and less entrepreneurial, less intuitive and creative. It only pays now to be more exclusive, tight, regulated, and structured to the point where the brightest minds of our generation worry more about prestigious tenures, newspaper columns, and talking head fees than why people in Yemen are facing complete fresh water collapse. I guess that's a job for idiot NGO's, or something.

What does the contemporary economist contribute anymore, beyond simply replicating himself or herself ad nauseam in the school process? Hard to say. That last paper tweaking some algorithm in a completely theoretical ideology is all we get for our investment it appears. Fat lot of good that will do the folks in Yemen.

Of course, as we all know, the recent financial boondoggle - fully rationalized by every tenured Prof in the western system - has poked a Titanic sized gash in the hull of economic credibility. Finally, there is talk of widening the field to include such painfully obvious concepts such as human behavior, psychology, and history among others. But what good will that do if it only means maintaining a strict hierarchy that by its nature defeats innovation and asymmetric thinking? How are critical movements supposed to form when they are refused an effective forum inside of academia?

We have come to believe that human capital is only that which can be measured, quantified, and slammed into an excel spreadsheet. We have evolved that way because academia has made it so. If you attempt to discern the billions of human variables that truly comprise a humans "capital" that can never be measured and give them expression, you are no longer an economist. You are a philosopher. Or something. But you are not an economist.

Rant over, and apologies all around. Pet peeve of mine.

Frances

"What should an employer do [with those less productive older workers]?"

Hmm. If asked by an employer, I might

- point out that the privilege of being able to be an employer carries with it certain ethical and social obligations;

If the person was an MBA, and uninterested in ethical obligations, I might then point out that people in workplaces watch how others are treated, and ditching the older workers would make the most skilled workers look elsewhere, which would mean the younger ones would not get the training they needed to be more productive.

If that did not persuade, I might also point out that older workers know where all the landmines are. If they want to pay you back, all they have to do is sit there and say nothing when they see something about to blow ("Gosh, well I am not productive enough to do anything about that"). And they can screw your business and you will not know - they know how it works better than you do (I have seen this happen - I worked in the UK in the 80s).

If that did not work, I would post a sell recommendation on the company's shares on the net, as my good deed for the day.

"Finally, there is talk of widening the field to include such painfully obvious concepts such as human behavior, psychology, and history among others."

You mean the concepts that won Smith his Nobel in 2002 and North and Fogel in 1993?

Peter: I guess ethical behaviour in the employer-employee relationship is a one-way street.

"If we want to pay some workers more than they produce, we have to pay other workers less than they produce, because there are only so many economic resources to go around."

I'm quibbling, perhaps, but this statement bothers me in the way that a grammatical error would. Workers' contributions to the production process are not strictly additive. If I remember my micro theory correctly, provided that the production function is convex, we can pay all workers more than their marginal product.

Andy: Aha! The "adding up problem", as I think it used to be called. And if I remember my micro and history of thought correctly, I think that if the sum of the marginal products is less than the total product, that means we have increasing returns to scale, which is incompatible with perfect competition. With U-shaped ATC curves, we have locally constant returns to scale, so the sum of the MPs equals TP. And under IRS, we get monopoly, or monopolistic competition, so factors are paid their marginal revenue products, which is less than their value marginal products. Under free entry and monopolistic competition, in LR equilibrium, we get sum of the MRPs equal Total Revenue. It's only in monopoly, with super-normal profits, that we can pay all factors more than their marginal revenue products.

"If education makes people more productive, then more education can increase the productivity of our economy."

On this thought - it would seem to me that there is a point where productivty returns on education diminish. For example, spending six years doing a PhD on foucault...

Agreed, I think the problem is that this issue is only addressed as 'as a society how do we get more people educated and into well paying careers'. Instead we should be asking 'why do we live in a society where only those who are highly educated become successful'. I think there is a certain element of selection bias going on here. All those who are in positions to have a real say on policy are those for which the education was successful for them. What about all those people who lack the skills needed to succeed with post secondary education?

There are barriers to entry that go beyond simple monetary challenges. I was surprised to find out that only 18% of canadians have a university degree. What percentage of our population are actually using their university degrees? What solutions are available for those that arent successful in the post secondary market? Some people are never going to get a post secondary education and at some point there is going to be serious diminishing returns to pumping more money into the education system. A cost that very likely gets paid by the low skilled labour force.


Nick

While the analogy is not perfect, I doubt you would get the same contribution from the same mass of single-cell bacteria as you would from a human being. And you do not get the same production from 20 isolated people as you do from a team (and yes, Adam Smith's division of labour is part of the answer, but only part). Maybe the formal economic reasoning is wrong, rather than the reality?

On education, can I only repeat the point that many - perhaps most - things in life can only be learned by doing them. And this is as true of skills as anything else. 18% of Canadians with degrees may be too little or too many - but no amount of degrees makes a competent carpenter, manager or driver. For these, you actually have to ensure that you are building houses, managing people or driving cars. The danger sign is that you are importing your plumbers or, worse, your plumbing. In the latter case, you not only have no skills, you do not have the ability to produce them either.

Peter: "And you do not get the same production from 20 isolated people as you do from a team.."
Agreed. But formal economic theory has been able to handle that, at least since 1871, when we discovered marginal analysis. In team production, the marginal product of a worker is not the same as the average product, in general. The whole can be more (or less) than the sum of the parts. But in perfect competition, at zero profit long run equilibrium, it will nevertheless be true, that for small changes in output, Marginal product will equal Average product. If MP were greater than AP, the firm would reduce its costs and increase its profits by getting bigger.

I think the post is on the mark.

I think more training should be on-the-job rather than in the universities because the training is directed towards increased productivity on-the-job. Meanwhile, anyone who has been to university will tell you that most of what they learned was not used later in life. However, with the proliferation of universities and higher education in general, companies are not using them as a crutch so that they can avoid providing any sort of training of their own.

Nick

"If MP were greater than AP, the firm would reduce its costs and increase its profits by getting bigger." And this, of course, does not happen?


The comments to this entry are closed.

Search this site

  • Google

    WWW
    worthwhile.typepad.com
Blog powered by Typepad