Tag Archives: Work

Firm Inefficiency

Economists are often stereotyped as claiming that firms are very economically efficient, i.e., that they very effectively minimize costs and maximize profits. This is a common source of derision of economists by other social scientists. And it is true that efficiency is the standard assumption made in textbooks and in math models. But over time I’ve been persuaded that it is often far from an accurate assumption. (And I doubt that most older economists believe it.)

I’ve been persuaded by a steady accumulation of plausible examples of widespread persistent inefficiencies. No one example is overwhelmingly obvious – all have stories for why they are only apparent inefficiencies. But added all together, they persuade me. Some examples:

  1. Threats Help Productivity – When firms face more competition, they often have big bursts of productivity. But if increases were possible, why not do them before?
  2. Long-Lasting Deadwood – Firms often keep employees who are widely known within the firm to not be pulling their weight relative to other employees. They tend to be fired during a downturn, or after a takeover.
  3. Not Invented Here – Firms are famously reluctant to adopt changes that appear to have been developed elsewhere, preferring instead changes for which someone internal can take credit.
  4. Shooting Messengers – Many firms greatly discourage passing bad news up to bosses. GM was just exposed as such a firm via a safety issue. Those who do pass bad news up are punished as if they were personally a big cause of the bad news.
  5. Yes Men – If bosses keep quiet about their opinion, they can evaluate subordinates via comparing employee opinions with boss opinion. But bosses consistently forgo this by telling subordinates lots of opinions and punishing those who question such opinions.
  6. Mergers & Acquisitions – Firms that buy and merge with other firms seem to consistently lose money.
  7. Poison Pills – Rules that discourage takeover attempts by financially penalizing such attempts prevent investors from getting more for their shares.
  8. Overpaid CEOs – It is far from clear that firms actually earn more when they hire more expensive CEOs.
  9. Too Many Meetings – It is widely believed that most firms hold too many meetings that go on too long with too many people.
  10. Too Many Interviews – It is hard to find much evidence that interviews add info on job performance. So why do candidates go through so many interviews?
  11. Biased Evaluations – Bosses consistently give lower evaluations to people they didn’t hire, relative to people they did hire. Yet official evaluations don’t correct for this.
  12. Excess Credentials – People consistently feel pressure to hire people whose credentials make them look good on paper, relative to people they believe would do a better job.
  13. Few Experiments – Firms tend to be reluctant to do experiments, such as to find preferred product variations. Experiments would force them to admit they don’t yet know.
  14. Few Track Records – Meetings are full of people making predictions on decision consequences, but firms almost never keep formal track records to rate accuracy.
  15. Reward Braggarts – Firms consistently neglect people who don’t toot their own horn, even when their superior features are widely known.
  16. Allow Info Silos – Groups and divisions with a firm are allowed to keep a lot of info secret within their group. Yet if the firm works together toward a common goal, what can be the benefit of keeping such secrets?
  17. Predictable Consultants – Management consultants are often hired at great expense to give advice that is quite predictable given the opinions of those who hired them.
  18. Little Telecommuting – Telecommuting seems to save big on costs, yet is not adopted much.
  19. I’ll add more here in response to suggestions.

My working hypothesis to explain these inefficiencies is that the people and supporting coalitions closest to them tend to gain from them, and that selection pressures on political coalitions are often much stronger than selection pressures on firms.

If many of these inefficiencies are real, then yes government regulators can also see them, and yes it might not be that hard for smart sincere people to design regulations to increase welfare by correcting for them. However, government regulatory agencies are also “inefficient” in many ways, leading them to choose and enforce regulations which differ from those that would most increase welfare. To judge if we are better off giving regulators more powers over firms, we must judge the relative magnitudes of these two types of inefficiencies.

Note that firm efficiency may still be a reasonable assumption to make in models, even if it is not an accurate assumption. Modeling is always a tradeoff between realism and understanding.

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Trustworthy Telepresence

In a recent Ipsos/Reuters poll, which questioned 11,383 people in 24 countries, about half believed that they would be at a disadvantage in earning promotions because of the lack of face-to-face contact. Previous research suggests part-time telecommuters do not communicate less frequently with managers. … After four years of experience, the average male telecommuter will earn about 6.9% less than a non-telecommuter. (more)

Telecommuting requires the use of various types of media to communicate, such as the telephone and email. Emails have a time lag that does not allow for immediate feedback; telephone conversations make it harder to decipher the emotions of the person or team on the phone; and both of these forms of communication do not allow one to see the other person. Typical organization communication patterns are thus altered in telecommuting. For instance, teams using computer-mediated communication with computer conferencing take longer to make group decisions than face-to-face groups. (more)

Decades ago many futurists predicted that many workers would soon telecommute, and empty out cities. Their argument seemed persuasive: workers who work mainly on computers, or who don’t have to move much physical product, seem able to achieve enough coordination to do their jobs via phone, email, and infrequent in-person meetings. And huge cost savings could come from avoiding central city offices, homes near them, and commuting between the two. (For example, five firms might share the same offices, with each firm using them one day per week.)

But it hasn’t remotely happened that way. And the big question is: why?

Some say telecommuters would shirk and not work as much, but it is hard to see that would remain much of a problem with a constant video feed watching them. Bryan Caplan favors a signaling explain, that we show up in person to show our commitment to the firm. But a firm should prefer employees who show devotion via more total work, instead of wasting hours on the road. Yes inefficient signaling equilibria can exist, but firms have many ways to push for this alternate equilibrium.

The standard proximate cause, described in the quote above, is that workers and their bosses get a lot of detailed emotional info via frequent in-person meetings. Such detailed emotional info can help to build stronger feelings of mutual trust and affiliation. But the key question is, why are firms willing to pay so much for that? How does it help firm productivity enough to pay for its huge costs?

My guess: frequent detailed emotional info helps political coalitions, even if not firms. Being able to read detailed loyalty signals is central to maintaining political coalitions. The strongest coalitions take over firms and push policies that help them resist their rivals. If a firm part adopted local policies that weakened the abilities of locals to play politics, that part would be taken over by coalitions from other parts of the firm, who would then push for policies that help them. A lack of telecommuting is only one of a long list of examples of inefficient firm policies than can be reasonably be attributed to coalition politics.

Some people hope that very high resolution telepresence could finally give enough detailed emotional info to make telecommuting workable. And that might indeed give enough info to build strong mutual trust and loyalty. But it is hard to make very high resolution telepresence feel natural, and we still far from having enough bandwidth to cheaply send that much info.

Furthermore, by the time we do we may also have powerful robust ways to fake that info. That is, we might have software that takes outgoing video and audio feeds and edits them to remove signs of disloyalty, to make people seem more trusting and trustworthy than they actually are. And if we all know this is possible, we won’t trust what we see in telepresence.

So, for telepresence to actually foster enough loyalty and trust to make telecommuting viable, not only does it need to feel comfortable and natural and give very high bandwidth info, but the process would need to be controlled by some trusted party, who ensures that people aren’t faking their appearances in ways that make it hard to read real feelings. Setting up a system like that would be much more challenging that just distributing something like Skype software.

Of course eventually humans might have chips under their skin to manipulate their sight and sound in real physical meetings. And then they might want ways to assure others aren’t using those. But that is probably much further off. (And of course ems might always “fake” their physical appearance.)

Again, I have hopes, but only weak hopes, for telepresence allowing for mass human telecommuting.

Added 3July: Perhaps I could have been clearer. The individual telecommuter could clearly be at a political disadvantage by not being part of informal gossip and political conversation. He would have fewer useful allies, and they would thus prefer that he or she not telecommute.

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Days Of Our Lives

Oedipus famously answered this riddle:

What goes on four feet in the morning, two feet at noon, and three feet in the evening?

The answer: people crawl when babies, walk as adults, and use a cane when old. It seems natural to divide lives into three parts: young, middle, and old. But where exactly should the boundaries fall? One tempting approach comes from the facts that in the US today lifespans average about 29000 days, and people typically marry and have kids at about 10000 days. So maybe we should split life into the first, second, and third 10000 days.

If we split life into 5000 days units, we get:

  • 0 days; 0 years – Birth
  • 5000 days; 13.7 years – Mid-puberty
  • 10000 days; 27.4 years – First marriage & kids
  • 15000 days; 41.1 years – Start to notice body decline
  • 20000 days; 54.8 years – Near kids’ first marriage & kids, own peak of relative income, productivity, 90% still alive
  • 25000 days; 68.5 years – Near when most retire, 75% still alive
  • 30000 days; 82.1 years – Typical death age, 42% still alive
  • 35000 days; 95.8 years – Only 4% still alive

Note that 5000 days is near the doubling time of the world economy.

In my life, I married at 10250, had my first kid at 11500, started grad school again at 12400, started at GMU at 14600, and was tenured at 16540. And today I am 20,000 days old, within a few days of all my kids being employed college graduates. So a lot happened to me in that third 5000 days, and I now enter the last third of a typical lifespan, with expected declining (but hardly zero) relative productivity. Of course if cryonics works I might live lots longer.

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SciCast Pays Out Big!

When I announced SciCast in January, I said we couldn’t pay participants. Alas, many associated folks are skeptical of paying because they’ve heard that “extrinsic” motives just don’t work well relative to “intrinsic” motives. No need to pay folks since what really matters is if they feel involved. This view is quite widespread in academia and government.

But, SciCast will finally do a test:

SciCast is running a special! For four weeks, you can win prizes on some days of the week:
• On Wednesdays, win a badge for your profile.
• On Fridays, win a $25 Amazon Gift Card.
• On Tuesdays, win both a badge and a $25 Amazon Gift Card.
On each prize day 60 valid forecasts and comments made that day will be randomly selected to win (limit of $575 per person).
Be sure to use SciCast from May 26 to June 20!

Since we’ve averaged fewer than 60 of these activities per day, rewarding 60 random activities is huge! Either activity levels will stay the same and pretty much every action on those days will get a big reward, or we’ll get lots more activities on those days. Either you or science will win! :)

So if you or someone you know might be motivated by a relevant extrinsic or intrinsic reward, tell them about our SciCast special, and have them come be active on matching days of the week. We now have 473 questions on science and technology, and you can make conditional forecasts on most of them. Come!

Added 21May: SciCast is mentioned in this Nature article.

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Should You Kiss Ass?

Consider two possible work strategies. One strategy is just to try to do a good job. The other is to try to kiss ass and please your boss any way you can. Of course you can try either strategy, both, or neither. Which makes four different kinds of workers. Now ask yourself, of these four kinds of workers, which ones do you think achieve the most career success? Which ones have the most job and life satisfaction?

I came across a fascinating paper (ungated here) from 1994 that asked exactly this question. Looking at 500 ex students of industrial relations, they compared the effect of ass-kissing to doing a good job on success and job satisfaction.

Supervisor-focused tactics … include: agree with your immediate supervisor’s ideas; praise your immediate supervisor on his or her accomplishments; agree with your supervisor’s major opinions outwardly even when you disagree inwardly. Job-focused tactics … include: make others aware of your accomplishments in your job; try to take responsibility for positive events even when you are not solely responsible; arrive at work early in order to look good in front of others.

The result: workers who try to please their boss are more successful in their careers, and workers who try to seem good at their jobs are less successful. Boss-pleasers are also more satisfied with their job and life, while good-jobbers aren’t any more or less satisfied.

The only other thing that predicted satisfaction: being married. Other things that predicted job success: being married, being on the job many years, working more hours per week, and not having a PhD.

We like to act like we just want to do a good job, and would rather not have bosses breathing down our necks. But what if, we actually like kissing ass?

Please speak up if you know of any more recent that might confirm or disconfirm these results.

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More Broken Evals

Back in January I quoted:

In 1980, economists … observed that salaries in companies were more strongly related to age and organizational tenure than they were to job performance. Ensuing research has confirmed and extended their findings, both in the United States and elsewhere. … One meta-analysis of chief executive compensation found that firm size accounted for more than 40 percent of the variation in pay while performance accounted for less than 5 percent. (more)

Part of the reason may be that employee performance evaluations are often political. From an ’87 paper:

Our research approach involved in-depth, semi-structured interviews with 60 executives. … from seven large organizations and represented 11 functional areas. As a group, they averaged more than 20 years of work experience and more than 13 years of managerial experience. ..

Executives admitted that political considerations nearly always were part of the [employee] evaluation process. One vice-president summarized the view these executives shared regarding the politics of appraisal:

As a manager, I will use the review process to do what is best for my people and the division. … I’ve got a lot of leeway – call it discretion – to use the process in that manner. … I’ve used it to get my people better raises in lean years, to kick a guy in the pants if he really needed it, to pick up a guy when he was down or even to tell him that he was no longer welcome here. It is a tool that the manager should use to help him do why it takes to get the job done. I believe most of us here at —- Operate this way regarding appraisals. … Accurately describing an employee’s performance is really not as important as generating ratings that keep things cooking.

Executives suggested several reasons why politics were so pervasive and why accuracy was not their primary concern. First, executives realized that they must live with subordinates in a day-to-day relationship. Second, they were also very cognizant of the permanence of the written document. .. Perhaps the most widespread reason … was that the formal appraisal was linked to compensation, career, and advancement in the organization. …

Executives generally believed the appraisal process became more political and subjective as one moved up the organizational ladder:

The higher you rise in this organization the more weird things get with regard to how they evaluate you. … The process becomes more political and less objective and it seems like the rating process focuses on who you are as opposed to what you’ve actually accomplished … As the stakes get higher, things get more and more political. ..

Although not frequently reported, a few executives admitted to giving a higher rating to a problem employee to the get employee promoted “up and out” of the department. …

A deliberately deflated rating was sometimes used to teach a rebellious subordinate a lesson. … Deflated ratings were also used as part of a termination procedure. First, a strongly negative rating could be used to send and indirect message to a subordinate that he or she should consider quitting. …. Second, once the decision has bee made that the situation was unsalvageable, negative ratings could then be used to build a strongly documented case against the marginal or poor performer.

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Who Gains From Grit?

I’ve often said that while foragers did what felt natural, farmer cultures used religion, conformity, self-control, and “grit,” to get farmers do less-natural-feeling things. But as we’ve become rich over the last few centuries, we’ve felt those pressures less, and revived forager-like attitudes. Today “conservatives” and “liberals” have farmer-like and forager-like attitudes, respectively. I think the following recent quotes support this view.

Tyler Cowen says workers today have less grit:

There is also a special problem for some young men, namely those with especially restless temperaments. They aren’t always well-suited to the new class of service jobs, like greeting customers or taking care of the aged, which require much discipline or sometimes even a subordination of will. (more)

There were two classes of workers fired in the great liquidity shortage of 2008-2010. The first were those revealed to be not very productive or bad for firm morale. They skew male rather than female, and young rather than old. … There really are a large number of workers who fall into the first category. (more)

Alfie Kohn says grit is overrated:

More than smarts, we’re told, what kids need to succeed is old-fashioned self-discipline and willpower, persistence and the ability to defer gratification. … The heart of what’s being disseminated is a notion drummed into us by Aesop’s fables, Benjamin Franklin’s aphorisms, Christian denunciations of sloth and the 19th-century chant, “If at first you don’t succeed, try, try again.” …

On closer inspection, the concept of grit turns out to be dubious, as does the evidence cited to support it. Persistence can actually backfire and distract from more important goals. Emphasizing grit is usually justified as a way to boost academic achievement, which sounds commendable. Indeed, research has found that more A’s are given to students who report that they put off doing what they enjoy until they finish their homework. Another pair of studies found that middle-schoolers who qualified for the National Spelling Bee performed better in that competition if they had more grit, “whereas spellers higher in openness to experience, defined as preferring using their imagination, playing with ideas, and otherwise enjoying a complex mental life,” did worse.

But what should we make of these findings? If enjoying a complex mental life interferes with performance in a contest to see who can spell the most obscure words correctly, is that really an argument for grit? And when kids persist and get good grades, are they just responding to the message that when they do what they’ve been told, they’ll be rewarded by those who told them to do it? Interestingly, separate research, including two studies Duckworth cites to argue that self-discipline predicts academic performance, showed that students with high grades tend to be more conformist than creative. That seems to undermine not only the case for grit but for using grades as markers of success…

Moreover, grit may adversely affect not only decisions but the people who make them. Following a year-long study of adolescents, Canadian researchers Gregory Miller and Carsten Wrosch concluded that those “who can disengage from unattainable goals enjoy better well-being . . . and experience fewer symptoms of everyday illness than do people who have difficulty disengaging from unattainable goals.” …

Finally, the concept isn’t just philosophically conservative in its premise but also politically conservative in its consequences. The more we focus on trying to instill grit, the less likely we’ll be to question larger policies and institutions. (more)

Yes, grit is conservative, and gritty people may not be as playful, open, relaxed, or creative. Grit just helps individuals to succeed, and societies to get ugly things done, like winning their competitions with other societies. But yes, you might be happier to play video games in your parent’s basement, leaving the support of society to someone else.

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Me On Fox Friday

Friday I’ll appear on The Independents, which airs on Fox Business TV at 9pm EST, discussing “The Rise Of The Machines.”

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Why Broken Evals?

This review article published 36 years ago shows that it was well known back then that teacher evaluations by college students are predictably influenced by time of day, class size, course level, course electively, and more. Thus one could get more reliable teacher evaluations by building a statistical model to predict student evaluations using these features plus who taught what, and then using each teacher coefficient as that teacher’s evaluation. Yet colleges almost never do this. Why?

Actually, most orgs also use known-to-be broken worker evaluation systems:

There is a lot of systematic evidence on the connections between job performance and career outcomes. … The data shows that performance doesn’t matter that much for what happens to most people in most organizations. That includes the effect of your accomplishments on those ubiquitous performance evaluations and even on your job tenure and promotion prospects. …

[For example,] supervisors who were actively involved in hiring people whom they favored rated those subordinates more highly on performance appraisals than they did those employees they inherited or the ones they did not initially support. In fact, whether or not the supervisor had been actively engaged in the selection process had an effect on people’s performance evaluations even when objective measures of job performance were statistically controlled. (more)

So why don’t firms correct employee evaluations for this who-hired-you bias? And it isn’t just this one bias; there are lots:

Extensive research on promotions in organizations, with advancement measured either by changes in position, increases in salary, or both, also reveals the modest contribution of job performance in accounting for the variation in what happens to people. In 1980, economists … observed that salaries in companies were more strongly related to age and organizational tenure than they were to job performance. Ensuing research has confirmed and extended their findings, both in the United States and elsewhere. … One meta-analysis of chief executive compensation found that firm size accounted for more than 40 percent of the variation in pay while performance accounted for less than 5 percent. (more)

An obvious explanation here is that coalition politics dominates worker evaluations. Coalitions like being able to ignore job performance to favor their allies and punish their rivals. Winning coalitions tend to be benefiting from the current broken rules. But, you might ask, why don’t people at the top put a stop to this? Doesn’t allowing politics such free reign hurt overall org performance? This story hints at an answer:

A few years ago, Bob, the CEO of a private, venture-backed human capital software company, invited me to serve on the board of directors as the company began a transition to a new product platform and sought to increase its growth rate and profitability. Not long after I joined the board, in the midst of an upgrading in management talent, the CEO hired a new chief financial officer, Chris. Chris was an ambitious, hardworking, articulate individual who had big plans for the company— and himself. Chris asked Bob to make him chief operating officer. Bob agreed. Chris asked to join the board of directors. Bob agreed. I could see what was coming next, so I called Bob and said, “Chris is after your job.” Bob’s reply was that he was only interested in what was best for the company, would not stoop to playing politics, and thought that the board had seen his level of competence and integrity and would do the right thing. You can guess how this story ended— Bob’s gone, Chris is the CEO. What was interesting was the conference call in which the board discussed the moves. Although there was much agreement that Chris’s behavior had been inappropriate and harmful to the company, there was little support for Bob. If he was not going to put up a fight, no one was going to pick up the cudgel on his behalf. (more)

People at the top play coalition politics as hard as anyone. Rules to limit politics at lower levels can hurt lower level allies of top people, and can set expectations that limit politics at higher levels. When mob bosses who are best at violence rise to the top of a competition for boss-hood, why should they and their allies favor non-violent criteria for how to pick bosses?

Some more data: Continue reading "Why Broken Evals?" »

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Boss Hypocrisy

In our culture, we are supposed to resent and dislike bosses. Bosses get paid too much, are mad with power, seek profits over people, etc. In fiction, we are mainly willing to see bosses as good when they run a noble work group, like a police, military, medicine, music, or sport group. In such rare cases, it is ok to submit to boss domination to achieve the noble cause. Or a boss can be good if he helps subordinates fight a higher bad boss. Otherwise, a good person resents and resists boss domination. For example:

The [TV trope of the] Benevolent Boss is that rarity in the Work [Sit]Com: a superior who is actually superior, a nice guy who listens to employee problems and really cares about the issues of those beneath him. … A character that is The Captain is likely, but not required, to be a Benevolent Boss.
Contrast with Bad Boss and Stupid Boss. Compare Reasonable Authority Figure. In more fantastic works, this character usually comes in the form of Big Good. On the other hand, an Affably Evil character can be a benevolent boss with his mooks, as well.
In The Army, he is often The Captain, Majorly Awesome, Colonel Badass, The Brigadier, or even the Four Star Badass and may be A Father to His Men.
For some lucky workers, this is Truth in Television. For a lot of other people, this is some sort of malicious fantasy. (more)

But here is a 2010 (& 2011) survey of 1000 workers (30% bosses, half blue collar):

Agree or completely agree with:

  • You respect your boss 91%
  • You think your boss trusts you 91%
  • You think your boss respects you 91%
  • You trust your boss 86%
  • If your job was on the line, your boss would go to bat for you 78%
  • You consider your boss a friend 61%
  • You would not change a thing about your boss 59%
  • Your boss has more education than you 53%
  • You think you are smarter than your boss 37%
  • You aspire to have the bosses job 30%
  • You work harder than your boss 28%
  • You feel pressure to conform to your bosses hobbies/interests in order to get ahead 20% (more; more; more)

In reality most people respect and trust their bosses, see them as a friend, and so on. Quite a different picture than the one from fiction.

Foragers had strong norms against domination, and bosses regularly violate such norms. We retain a weak allegiance to forager norms in fiction and when we talk politics. But we also have deeper more ancient mammalian instincts to submit to powers above us. And also, our competitive economy probably tends to make real bosses be functional and useful, and we spend enough time on our jobs to see that.

Many other of our cultural presumptions are probably similar. We give lip service to them in the far modes of fiction and politics, but we quickly reject them in the near mode of concrete decisions that matter to us.

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