Severance Insurance

Geeeez, you'd think I wouldn't be so inept, but believe it or not and thanks to some spade work by a very good friend (thank you Matt), I've finally learned how to show you the graphs that are generated by the Bureau of Labor Statistics for monthly unemployment duration statistics for the period 1948 to 2007. That's almost 59 years of monthly data. I'd say that is representative of reality. The graphs below (in order) show that history for:

1. The percentage of unemployed workers who go back to work within five weeks

2. The percentage of unemployed workers who go back to work within 5 to 14 weeks

3. The percentage of unemployed workers who go back to work within 15 to 26 weeks

4. The percentage of unemployed workers who go back to work in more than 27 weeks

What's really interesting to me is comparing this data with the average unemployment duration as reported by the BLS. It clearly demonstrates the arbitrage that exists between average duration and the percentage of unemployed workers who get re-employed within the period defined by the duration data. No rocket science invoilved here. Insurers can clearly see that the odds are in their favor.

I'll dial into the average unemployment duration data in my next blog.

willy

Severance Insurance

It's only taken me three weeks, but I think I've finally found the source of severance insurance. I'm double checking now, but it looks like these guys (i) have a viable product. (ii)have been around for a number of years, (iii) have been playing with some of the big boys, (iv)but haven't met with significant success yet due to an ineffective distribution strategy.

It sure as hell has got to be ineffective, because nobody seems to know about them except for a few high placed finance executives in a few Fortune 200 companies. Give me a few more days, and I should have the facts straight.

willy

Severance Insurance

Following up on my earlier blog about whether it would be cost effective for corporations to re-train obsolete workers rather than fire them, pay severance and hire new employees, the following data suggests that if the almost 60 year trend continues, the cost to corporate America, to state unemployment trusts, to the Federal Treasury is going to reach a tipping point. This all says to me that the current approach is broken and without a proactive effort to change the model, the future isn't very bright for anyone.

I'm trying to figure out how to include some graphs from the Bureau of Labor Statistics. They go back to 1948 and show the cumulative month by month data for four categories of unemployment duration:

What is interesting are the trends shown in these graphs. Fewer people are getting back to work in less than 5 weeks. The range of those who go back to work between 5 and 14 weeks has narrowed. The number of workers who are taking from 15 to 26 weeks to get back to work is growing, as is the number who takes more than 26 weeks. What I'm learning here is that the trends are not only against the workers trying to find new jobs but also against the state governments whose unemployment trusts are paying out unemployment insurance and corporate America that is finding premiums on state unemployment insurance increasing. The residual impact on Federal programs has to mirror this data, so it would seem.

Is the reason that unemployment duration is increasing because (i) there are more workers to employ (estimated 140 million today) or (ii) that rather than being retrained in place workers are being fired, thrown into the "system", trying to get re-trained and then getting re-employed?

Somebody besides me needs to be thinking about this.

If you want to see these graphs before I figure out how to include them:

• Go to http://www.bls.gov/
• Click on "Get Detailed Statistics"
• Click on "Schdeule A"
• Click Unemployment by Duration
• Bring up data
• Set time frame to 1948 through 2007
• Click on "Include Graphs"
• You should now be able to look at the graphs

Interesting stuff.

willy

Severance Insurance

Let's start with the idea that companies hire skills and fire people. If there is any truth to this, that means that training new workers with "in demand" skills is going on virtually full time in order to keep the pipeline full, because we know that companies are hiring even as they are firing, but I sense it is going on outside the universe that requires the skills (more in a minute). Also, figuring out what those new skills are is pretty interesting challenge. But both (identifying new skills and training workers to them) are going on; think tanks, universities, community colleges, vo-tech programs, you name it. They're doin' (sounds like Bush) it, as are plenty of others.

So, as I suggested a few sentences ago, ask yourself how much of that sleuthing is actually being done by the corporations who are the end users of the skills? Some, I'm sure...but probably no where near as much as should be done. Wow! Maybe I've just stumbled on a new and credible reason for HR to exist...something that they could do that would actually render direct value to shareholders. There I go again...my cynical view of HR. My apologies to those of you who hang out in that space. You can tell. I've been burned.

My thinking (rambling?) on all of this was prompted by reading a review in yesterday's NY Times www.nyt.com by Stephen Kotkin of Robert Reich's new book, "Supercapitalism". It's interesting to me that Reich has the word "capital" imbedded in his title, because evidently he spends a whole lot of pages talking about labor, not surprising for Clinton's former Secretary of Labor. I guess he differentiates between capital and labor. Maybe he doesn't. I'm going to have to read the book.

What is really interesting to me is that I have taken the position more than once that corporate executives in America treat labor as capital. They accumulate it and spend it. Until I read Reich's book I can't tell whether Reich agrees. He certainly spends a lot of time on the imbalance of CEO/worker compensation. He suggests that the CEO compensation package should bear some relation to workers' total compensation....hmmmm, return on...human capital? Interestingly, he also suggests that CEO's could devote more of their "considerable talents" to raising the skills of loyal workers. Interesting thought!

Question: What percentage of a displaced group of workers from a corporation would that corporation want to keep if those people could be given the right skills? If there is even one, why wouldn't it make economic sense (it certainly would make human and social sense) to allocate the dollars that were going to be paid out in severance to retraining. If the corporation were into instant gratification, this wouldn't work, but if they weren't, it actually might work and actually position the corporation as a socially responsible employer.

Some conclusions:

• Labor is capital
• That could change if corporations were more progressive and re-trained the current workforce as a result of internal "future skill studies"
• Re-training could be funded through the re-allocation of severance dollars
• Corporations would build more loyal workforces
• Productivity would increase
• Quality would improve
• Credit markets would be less pressured during times of substantial worker displacement
• Federal/state programs for the unemployed would be less pressured

willy