Entrepreneurship shrinking for last 30 years

Here is a very important story about the number and rate of entrepreneurship shrink for the last 30 years. In Washington Monthly.

$11 Trillion Dollars in off shore accounts

We applaud the work of the tax justice network's reporting of off shore tax avoidance schemes. The TJN report covered here in the Guardian. Estimates of funds held off shore accounts are around $21 trillion dollars.

There are proposals to use some of the money held in off shore accounts to resolve the global debt crisis.

You then think about how to unwind the off shore accounts.

So let first examine what these shelters are. The are country specific legal entities designed to avoid home country taxes. They use home country tax laws, foreign country sovereignty, international tax treaties and the international banking system to avoid home country taxes. They are operated by resource poor countries to generate jobs and income.

A typical example is a US company set-ups up a Cayman Island(0% income tax) or Irish company (10% income tax. They transfer or sell their assets (like a manufacturing plant) to the new company. So while the assets, site in a high tax country (Germany, France, Italy or UK), the profits accumulate in the Cayman Island (which has no income tax). These profits can be used anywhere in the world to purchase additional plants, equipment or supplies. If the profits were send back to the US they would be taxes at corporate rate of 35%.

Again, the Tax Justice Network reports between $11.5 trillion and $21 trillion in funds is sitting off shore.

So, how do we close down such schemes ? How do we minimize the impact on countries that were "poor" before off-shore banking. How do we make sure everyone takes a hit but no one group takes all the pain.

1) Enforce internal standards of transparency and information sharing
2) Reduce off shore repatriation rates
3) Provide foreign aid or incentives to countries to give up their off-shore business.

For example, the country of the Cayman Island has only 58,000 people yet hold $1.5 Trillion in deposits. There are over 250 banks in the Cayman Islands. Fifty percent of the income and jobs come from the financial services sector.

Unfortunately, the wealth and success come at the expense of the US tax payer.

I would propose tightening regulations and creating a long-term development plan to turn the tax-haven economies into a back office / outsourcing / service center for the banking and financial service sector. Plus additional subsidies for tourism.

Here is the link to the Tax Justice Network website.

Corporate Crime Watch

Just a general round-up of recent corporate crime and malfeasance

Libor rate setting scandal
Best coverage is at the Financial Times.

Wells Fargo Mortgage Discrimination

Well Fargo settled a discrimination suit with the department of justice for $175 million. The DOJ charged a pattern or pracitce of discrimination aginst Black and Latino borrowers who were steered to sub-prime mortgages and paid higher fees or rates than whites. Department of Justice Press Release.

HSBC laundering Mexican drug profits. There is a little less coverage of HSBC laundering money for Mexico drug lords and handling transactions for Iran and Syria.
Al-jazeera has the story.

UPS / Fedex price fixing has been alledged by a 3rd party shipping consultant called AFMS. Here is that story.

Glaxo Smith Kline was fined 3.0 Billion dollars for misrepresenting products. This story is from the NY Daily News but come from AP.

Another reason companies aren't hiring: Bad internal accounting

Beside being picky and risk adverse, ompanies have poor HR accounting systems. They can tell you what a new hire costs but they cannot tell how much profit a new hire brings. The have no clue as to their HR cost structure other than a top level view. So when they cut 10% they either cut 10% across the board. Or they cut 10% from support and ask everyone to work harder.

A second factor is increased productivity from long hours and more work from existing employees. Many white collar employees routinely work more than 40 hours a week as the norm. Through the fear of layoffs, employers have expanded employee hours while reducing benefits and time off. The recession has reset everyone's job expectations. The sad part is we may be heading back to a 12 hour work day. Unfortunately, this productivity means firms do not have to hire.

US manufacturing is performing poorly without Computer and Electronics Industry

The press and the Obama administration have been talking about a resurgence of US manufacturing. Here is a great piece of research that refutes that premise. It shows the real, poor performance of US manufacturing. The low and negative numbers are hidden by the effect of the computer and electronics industry's high productivity and value add.

Here is the link but you must still press the download button. The Debate over the State of U.S. Manufacturing: How the Computer Industry Affects the Numbers and Perceptions

Basically: manufacturing value added is distorted by consumer electronics; we are net importers of 18 out of 19 categories; and manufacturing employment has fallen dramatically since 2000.

The real reasons for slow US job growth

Just want to review the real reasons for slow US job growth.

The real reasons for slow US hiring are
1) lack of sales demand: now and expected demand in the future;

2) improved business processes including automation,

3)high profit expectations;

4) import growth (off shore manufacturing and outsourcing)

5) lack of government spending and hiring

Let look a little deeper into each one.

Skills Gap Smoke Screen: Socialize worker training costs

I recently read several news articles that blamed unemployment on workers not having the right skill sets. This just another cop out excuse for large and medium size firms to not hire. They also fail to mention the skill shortages exists only at the (low)price they want to pay. If they paid more, there is no skills gap.

Companies successfully got rid of their human resource, training and development departments during the business process re-engineering craze of the 1990's. The departments were viewed as non-value added (no direct bottom line contribution) so they were reduced, automated and outsourced.

In the tight labor market, companies have basically socialized employee training and development costs. They have gotten the workers, the government, and society to pay for something they used to provide.

Peter Cappelli at the Wharton HR Center has discussed this problem in more detail. His book is called "Why good people can't get good jobs".

Non Farm Payroll rose by 80,000. Black rate up to 14.4%. National rate stayed at 8.2%

June Unemployment Report Review

The BLS announced the US economy created only 80,000 net new jobs in June. The seasonally adjusted number job is a large drop from the 12 month average of 150,000 since June 2011. The slow jobs growth is linked to weak demand both domestically and internationally, consumer debt overhang, lack of government spending and a soft housing market. The US GDP growth rate was reported at 1.9% on May 31st, 2012.

The household survey reported an additional 128,000 people working but the population grew by 189,000 so unemployment remained steady. The participation rate (63.8%), the EM rate (58.6%) and the unemployment rate (8.2%) did not move.

Economists and economic writers have now reset their expectations to about 100K or less jobs each month, so the 80K number was in line with new expectations.
The average work week rose a small part of an hour (0.1) to 34.5 and average hourly wages rose slightly ($0.06) to $23.50.

Below is the median weekly wage in constant (inflation adjusted) dollars.



Wages have been basically flat since 1980. The second chart is median wages since 2000 by race: Total, white, black and Hispanic/Latino.





There was a little good news in the report: the household survey said the number of people who self reported they were working increased by 128,000 on a seasonally adjusted basis. An additional 156,000 people came back into the labor market which kept the unemployment steady. Many unemployment people are losing their benefits in the coming months.

Black Unemployment

The black unemployment rate rose to 14.4%. The black labor force participation rate was 62.0 (68.4% for black men over 20 and 63.0% for black women over 20). The black teenage unemployment was reported at 39%. For comparison, the white unemployment rate stayed at 7.4% and the Hispanic rate stayed at 11.0%.

Employment Stats

The long-term unemployed (27 weeks or more) stayed at 5.4 million people which represents 42% of the unemployed. The “work part-time, wants full-time” number was 8.2 million. These people are considered underemployed. About 2.5 million workers were classified as marginally attached to the labor force. They want work but have not looked in over four weeks. Finally, there were 821K discouraged workers (part of marginally attached) who are not looking because they believe there is no job for them.

Non-Farm Payrolls

As stated earlier, there were 80,000 jobs were added to the US economy in June. The private sector added 84,000 jobs (vs. adjusted 105,000 last month) and government employment dropped again by -4,000. Job growth came from increases in durable goods manufacturing, temp help, leisure and hospitality, computer information systems and business consulting. The losers were construction (-7K) and retail trade (-5K).
Manufacturing added 11,000 positions; Construction added 2, 000 jobs; business services was up 47,000 jobs and healthcare added only 11,000 new positions. US manufacturing continues to impress with solid gains (+500,000) from the bottom of the recession.

Government Employment

Total government employment drop by -4,000: the federal government lost 7,000 employees and the state governments lost 1,000 people while local employment was up 4,000. Since the recession started in December, 2007 the government has lost 433,000 jobs. The private sector has added 4.3 million jobs since December 2009.
Basically the lack of government hiring is slowing the economy. If government hiring continued at the same rate as private sector hiring and additional XXX,XXX jobs would have been created.

Seasonal Adjustment

One controversial aspect of the report is how the BLS handles seasonal adjustments. The household survey has reported an average of 500,000 new jobs each month since January on an unadjusted basis, yet the seasonally adjusted number shows only 150,000 new jobs on average. The seasonally adjusted number shows much lower employment growth. The establishment survey reported similar results. Since January, in the business establishment survey, there were about 460,000 non-seasonally adjusted new jobs on average. But the adjusted establishment numbers since January come in at an average of 150,000.

Other news

Average work week increased by 0.1 hours to 34.5 hours and wages added 6 cent in June.

ADP reported an increase in private payrolls of 176,000 positions.

Monster Employment Index moved up to 153 in June from 147 in May. Hiring was up 5% compared to same month last year.

ADP Payroll Report might be better than BLS

I heard some commentators on the radio discussing the difference between the ADP employment report for June (+176,000) and the BLS non farm payroll number (+80K).

We believe the ADP numbers are more accurate actual number. Here's why.

The number are projections from an actual payroll system, not surveys. The data are based on new employees paid from ADP. Each one unique and trackable. There is much less bias in the these numbers because people want to get paid. The same

The BLS survey is subject to sampling error and seasonal fluctuations. There is less of an incentive to answer the BLS survey.

So right now, we are watch the ADP payroll number and the weekly jobless claims