Labor Hoarding

[Sunfish]

There is some evidence from U.S Labor markets that Labor Hoarding is occurring. Skilled workers have left various industries and aren't coming back.

This is the explanation for evidence that the number of jobless claims are falling, but employment numbers aren't rising. Businesses arent letting people go and they can't hire new competent staff either.


Labor Hoarding
The practice in which a company does not lay off employees when it otherwise would (as during a recession). Labor hoarding is high risk as it reduces a company's profitability during a difficult time, but it guarantees employee talent will be available to that company (and, just as importantly, not to its competitors) when growth resumes.



Companies are down to minimum staff levels and are attempting to maintain production by working them harder. This increases costs (overtime, etc)

At some point this also creates wage pressures that cannot be contained.

My guess is that, as Qantas is a reactive, not proactive, organisation, it is going to wave goodbye to the last of its skilled LAMEs, its trainers and the old hands who actually knew how to make things work, just as it discovers that it can't make ends meet with 457 visas, overseas MRO's and what little (unskilled) labor it still has.

What that will do is make profits disappear.

If Virgin is smart, it will be operating in a counter cyclical manner and investing in training its tech staff up against the day when there is a worldide shortage of competent people.

[CaptCloudbuster]

Labor Hoarding
The practice in which a company does not lay off employees when it otherwise would (as during a recession). Labor hoarding is high risk as it reduces a company's profitability during a difficult time, but it guarantees employee talent will be available to that company (and, just as importantly, not to its competitors) when growth resumes.


Maybe Sunfish you have highlighted an explanation for QF carrying such an enormous Pilot Surplus for so long now.... Redundancies are an anathema.

Mainline growth set to resume?

[Ovation]

Labour Hoarding from a Engineering company POV.

Retaining surplus employees when there is nothing to do means you have substituted your company's cash for the Government's cash, by providing unemployment benefits from your own pocket. One of the reasons our Government collects taxes from businesses and individuals, is to provide exactly that benefit. Do you really want to pay tax twice?

When times are tough skilled employees will be likely the most motivated to keep their hand and mind busy, and will be dusting of their resumes and glancing toward the exit. If your competitor has work and you don't, your best employees will not hesitate to jump ship. Loyalty will (generally) mean far less to an employee than an employer.

When times are tough underperforming employees will try and stretch whatever work there is to delay the inevitable, and will not jump ship because they will generally be aware of their own "marketability". When the situation changes you are likely to have retained people you wish had left instead of the better performers.

When a business is suffering from difficult economic circumstances, chances are the cash flow will be under stress and reserve funds will be depleted. When times change for the better, it will be an uphill battle to fund work from cash flow, even more so if you've become a substitute for Centre Link.

Cash flow is the most critical element in terms of a company's (financial) survival. Think of it as the blood flowing around in your veins. Lose a little blood and you'll survive, lose a lot and you may or may not recover, lose it all and you''re dead.

[Andy_RR]

Retaining surplus employees when there is nothing to do means you have substituted your company's cash for the Government's cash, by providing unemployment benefits from your own pocket. One of the reasons our Government collects taxes from businesses and individuals, is to provide exactly that benefit. Do you really want to pay tax twice?


Sorry, you won't be paying any tax on salaries paid, so with a lower profitablility you'll be paying less tax by keeping your employees. I'd much rather be paying to keep employees I know than pay Julia or Obama to do the same job.

[Horatio Leafblower]

I think his point was that if you let your staff go, the government pays them instead of your business paying them.

Moreover, your business has already paid taxes to the government to pay for this to happen.

While I see his reasoning, I'm not sure its the approach I would take... :hmm:

[CHAIRMAN]

Ovation has it spot on.
Only two things matter in business - cash flow and profitability.
Any business can survive without either one in the short term, but eventually one of the two will run out:{
If you have the funds to retain valuable employees (cash flow) in the hope that profitability will improve, then you will come out in front if that hope proves founded:D
Otherwise you're screwed:{

[Andy_RR]

You're missing a fundamental point of business, CHAIRMAN. If you have no capability, you have no business and therefore no cashflow or profitability.

If you're just a warehouser of imported stuff, like too many Australian businesses, perhaps it doesn't matter, but if you do real things, your retained skills are as vital as cashflow!

[le Pingouin]

Ovation, have no fat reserve during a famine and you die. Fat in the system keeps things lubricated, supple and flexible.

I cack myself laughing whenever I read such brain dead zombie MBA material. Slavishly following the latest fad in management only to discover you need to move in a different direction and you've pissed squillions of dollars up against the wall in redundancies.

Not only have you bought expensive skill sets for those workers with training, you paid handsomely for them to take them away, and then you have to buy a whole new lot of very similar skill sets. But that's alright because it was yesterday's manager who paid for the redundancies last quarter and the new broom is doing the rebuilding this quarter.

[onetrack]

Telstra are a classic example of brain-dead management slavishly following "labour consultants" idiotic views. In the early 2000's, Telstra senior management employed some American "labour consultants" to advise them on staffing levels.

These American MBA whizz-kids told the Telstra bosses they were employing far too many linesmen, and the numbers needed to be seriously reduced. Telstra management did just that.
They sacked hundreds and hundreds of loyal "linies" who had a vast storehouse of knowledge and skill sets - and some of these blokes had been with Telstra since they left school.

Within weeks, fault diagnosis and repair times had blown out from a few hours to a day repair time - to 2 or 3 weeks. Telstra customers suffering from phone & broadband faults became furious and mercilessly abused the staff handling the "faults and difficulties" lines (hdikt? - my wife was an "1100" F&D operative).

Within a couple of months, the "brains trust" of Telstra had re-hired more than half the "linies" - but not on wages - on sub-contract rates. Telstra infrastructure repair costs ballooned.
The cost of this managerial balls-up to Telstra has never been subject to any inquiry - because we're talking about a public company (run by a "Mexican" and his "3 amigos") - so the balls-ups can be easily well-hidden in the accounts - and the CEO is only responsible to the shareholders, who are easily brushed off.

Shortly afterwards, the "Mexican" pulled the pin and grabbed his $3M golden handshake, reassuring all the shareholders he'd done wonders at the helm of the nations biggest communications company.

All that he did do, in reality, was lose a vast storehouse of employee talent, cost the company a fortune (Telstra shares underperformed the market by 20% under his guidance, and it's estimated that Telstra lost $25B in corporate value) - collected $43M in salary over 4 yrs - had customer complaints increase by 240% under his command - and hid the true story of the stuff-ups with convoluted book-keeping - and good PR.

The Trujillo shambles that haunts Telstra | Crikey (http://www.crikey.com.au/2009/08/14/the-trujillo-shambles-that-haunts-telstra/)

[le Pingouin]

Very true. It's very definitely all about maximising management remuneration and not shareholder return, profit or other things of benefit to a company. Those things might coincide to some extent but you're fooling yourself if you think they're the same. The only loyalty they have is to themselves.

[Shagpile]

Incentives matter

Listen to the freakonomics podcast by Levitt & Dubner. Some really funny and amusing stories that explain human behaviour through incentives.

My fav: the Cobra Effect. British rule on India, they want to reduce snake numbers so they create a bounty on cobras. Locals start breeding cobras outside of town to make money. Authorities find out and cancel bounty. Locals release breeding cobras into wild. Net increase in snake population!!

Fast forward to modern times. Some American state wants to reduce wild boars so set up bounty on pig tails. Locals get tails from butchers! Hunters get tonnes of scrap food to draw pigs out of woods. Shoot a couple but 30 pigs now have tonnes of food and breed like...pigs! Net increase in pig population.

You think it's any different with company management? These people have years to game the system to maximise results for themselves.

[Typhoon650]

Always makes me laugh when so called managers complain about employee loyalty and how fast they'll jump ship, then in the next sentence merely refer to employees as a financial burden that should be cut loose ASAP.
And you wonder why employees have no loyalty to a company any more? It's because the company has no hesitation in undermining an employee's conditions or letting them go at the drop of a hat.
What is also amusing is the current crop of managers have no hesitation flooding the market with their resumes as soon as that 3 year contract is coming up for renewal and it's time to go find more money....but how dare a lowly employee use the same techniques to further their career.
As anyone with any brains knows, management's job is to provide direction to a company (that includes predicting upcoming downturns in company growth and creating plans to bring in more business), not just cull staff and overheads when times get tough. But of course, it's just a whole lot easier to cut staff than it is to actually get out there and do your job...that impinges on those lovely long lunches.
As long as we teach "management" as a degree at university and reinforce lazy, bonus driven salary packages for managers, we'll never stop the problem.

[Shagpile]

One place with no management whatsoever is game company Valve (makers of Steam, Half-Life, Portal). All employees work on whatever projects they want and completely self organise. They pick and choose what will work best for the company and do it.

Download their staff handbook here and take a look:
Handbook (http://www.valvesoftware.com/jobs/index.html)

Most people cannot comprehend how this would be possible at all but it works!!