Conference Board: Job satisfaction at record low

Disturbing findings from the Conference Board’s latest job satisfaction survey, which reached its lowest level since the survey began in 1987. Some endpoint comparisons:

Source: Yahoo, Associated Press, Conference Board

According to the AP article, these findings imply that the American work force could become less innovative, competitive, and productive over time. Potential explanations for declining job satisfaction:

Conference Board officials and outside economists suggested that weak wage growth helps explain why workers’ unhappiness has been rising for more than 20 years. After growing in the 1980s and 1990s, average household incomes adjusted for inflation have been shrinking since 2000. Also, compared with 1980, three times as many workers contribute to the cost of their health insurance — and those contributions have gone up. The average employee contribution for single-coverage medical care benefits rose from $48 a month to $76 a month between 1999 and 2006.

It’s difficult to know what forces and factors might be driving the underlying trends (lower pay, boredom, security, unhappiness with superiors) that are manifested in higher levels of job dissatisfaction. It would be helpful to have data prior to 1987, but accepting that as is, and assuming statistically significant and unbiased results, let’s consider them in the context of major structural developments of the past two decades. Two forces that spring to mind are productivity growth and economic globalization.

• Rising productivity could have a positive or negative impact. To the extent that it raises net income and/or free time, it should raise satisfaction. However, we’d have to have some idea of how the gains from higher productivity have been shared/divided among different industries, different types of workers (including in managers’ and executives’ compensation), different stakeholders (customers, creditors, shareholders, governments, society at large), etc. Further study might try to analyze whether declines in satisfaction have coincided with changes in the rate of productivity growth.
• Globalization has been a rising force since 1987, especially since the early 1990s, with undeniable effects on the structure of U.S. employment. And while education and retraining are reasonable responses, it’s important to consider that, relative to renovating an individual’s human capital, a job can be outsourced rather easily.
• We would also toss in the declining marginal competitiveness of our corporate tax code as a factor that, if it pushes capital investment outside of the U.S., amplifies the negative impacts of globalization (admittedly, this assertion requires that some qualifications be added to the role of productivity growth). The burden of corporate taxes has also been found under certain conditions to fall disproportionately on workers’ income.

Productivity gains can be shared among owners (share value and dividends), employees (income and benefits), executives (compensation), governments (tax authorities and and regulatory bodies), and society. The following table is a highly simplified back of the envelope tabulation, based simply on the annualized after-inflation growth rates in each of the following items, using a core PCE inflation rate of 2.7% per year (it doesn’t contain any direct estimates of productivity growth). Executive compensation data is fairly slippery — the low end is based on an amalgam of sources, and the high end is based on estimates of the ratio of average CEO compensation to average employee compensation (2006 ~ $400, 1980 ~$42, 1965 ~$20). Information on data sources is provided below.

For globalization, an overly simple proxy is returns to equity owners in developing markets. Brazil’s economy and Bovespa stock market index have been among the top performers over the period in question, returning almost 16% annualized the last ten years, and over 20% annualized since 1994; against an official annualized inflation rate over the past decade, we get a real annualized return around 9%, a figure that comports well with other emerging market return statistics.

We need to emphasize that this is a back of the envelope analysis that leaves plenty of questions unanswered. A more credible analysis would consider other potential forces and factors, formalize and scrub the data, and provide some meaningful statistical insights.  However, if we can at least assume that the ordinal findings hold up, then it’s a good start, and implies that the benefits of economic growth over the past decade or two have accrued first to developing economies and markets, then to equity owners and executives, then to public coffers, and only minimally to employees, which could help to explain rising job dissatisfaction.

Please note that we are not anti-globalization. But we do believe that developed economy countries can do a better job of designing and implementing policies that, while still friendly to trade and growth, can help mitigate the negative domestic impacts brought about by global economic development. We also believe that while health care reform is an important piece of the puzzle, closing the ‘compensation gap’ domestically would ideally be resolved in the private sector. However, the issue requires some enlightened executive and board leadership, and if history is any guide, the problem is most likely to be addressed via higher tax rates on top incomes. Finally,  if corporate taxes fall disproportionately on labor income, or amplify negative impacts of globalization, then they could be an indirect factor in job dissatisfaction, along with the more direct impact of payroll taxes and benefits costs.

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Via a tweet from Laurie Ruettiman of the Punk Rock HR blog, there’s a video version of the AP story. Ruettiman also blogged about a new CBS series, “Undercover Boss,” that might contribute towards reducing job dissatisfaction (or not…time will tell). If you get a chance to watch the trailer she linked, it’s worth it (it’s a fun site to peruse too, see especially her short and sweet employee handbook). According to Ruettiman, Undercover Boss (like The Office, The Beatles, white boy blues, and the Mini Cooper) is another clever premise borrowed from the Brits.

Judging by the trailers, the show gives executives an anonymous, and thus open, firsthand view of their company’s line operations, and more importantly, some insight into the questions we raised above. In a year when corporate profits are expected to rebound nicely, a show like this could gain quite a popular following (of course, more cynical interpretations of corporate participants’ motivations are possible). If this allows a growing ’fair pay’ movement to take root, shareholders beware. With Wall Street’s social capital at all time lows, labor costs, including non-union labor, might be due for a trend reversal in the years ahead – though admittedly, that might not happen in the face of historically high unemployment levels. If it doesn’t happen, then current job satisfaction trends are more likely to remain intact, which, over the long run, will impose unwanted costs on us all.

DATA: According to one set of estimates (http://www.pay-without-performance.com/Core_Guay_Thomas-IsUS-CEO-Compensation-Inefficient.pdf, p. 65), executive compensation increased at an annualized nominal rate of just under 13% from 1993 to 2003, and another 13% in 2004 (http://www.guardian.co.uk/business/2005/aug/04/executivesalaries.executivepay2). It declined 15% in 2007 and 11% in 2008 (http://www.forbes.com/2009/04/22/executive-pay-ceo-leadership-compensation-best-boss-09-ceo_land.html). If we interpolate conservatively (g = 0%) for the years 1987-1992 and 2005-2006, we get an annualized rate of 5.2%, which is in the ballpark of a study that found a 5.57% annualized increase from 1997 to 2004 (http://www.cfapubs.org/doi/pdf/10.2469/faj.v63.n3.4687). EBRI estimates that employee compensation costs grew at 3.3% annually from 1987 to 2004 (http://www.ebri.org/pdf/publications/facts/0305fact.pdf).

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a state registered investment advisor. The foregoing article is intended only for readers’ interest, amusement, and edification. It is not an offer to buy or a solicitation to sell any security, nor is it a recommendation to engage in any particular investment strategy. Any mention of public securities herein is purely coincidental, and no securities mentioned are owned by the firm’s clients, principals, or the firm itself. SCM participates in the Amazon.com Associates program and earns a small revenue sharing fee (~4%) on qualified merchandise for any “click through” sales from our website.

URLs:

http://finance.yahoo.com/news/Americans-job-satisfaction-apf-1483464009.html?x=0&sec=topStories&pos=3&asset=&ccode=

http://www.youtube.com/watch?v=Gps7Dx8cN4Q 

http://finance.yahoo.com/q/hp?s=%5EBVSP&a=00&b=5&c=2000&d=00&e=5&f=2010&g=m

http://www.bcb.gov.br/pec/metas/InflationTargetingTable.pdf

http://punkrockhr.com/undercover-boss/

http://www.amazon.com/gp/redirect.html?ie=UTF8&location=http%3A%2F%2Fwww.amazon.com%2Fgp%2Fentity%2FWhite-Boy-Blues-%28Series%29%2FB000AQ2MUU&tag=symmetrycapit-20&linkCode=ur2&camp=1789&creative=390957