Tag Archives: Incentives Matter

New Trends In Hiring

Incentives drive behavior.  I firmly believe this.  Because I believe this I would look to see the number of additional Facebook accounts increase:

SEATTLE — When Justin Bassett interviewed for a new job, he expected the usual questions about experience and references. So he was astonished when the interviewer asked for something else: his Facebook username and password.

Since the rise of social networking, it has become common for managers to review publically available Facebook profiles, Twitter accounts and other sites to learn more about job candidates. But many users, especially on Facebook, have their profiles set to private, making them available only to selected people or certain networks.

Companies that don’t ask for passwords have taken other steps — such as asking applicants to friend human resource managers or to log in to a company computer during an interview. Once employed, some workers have been required to sign non-disparagement agreements that ban them from talking negatively about an employer on social media.

Not sure how I’d handle this if I was out of work for an extended period of time or if my current employer asked me to for the same information.  However, now that I see this growing trend, I may just create a duplicate Facebook account that I keep for just such occasions.

Ugh.

Unemployment Benefits: Incentives Matter

I’ve argued time and time again that incentives matter.  And why people think this wouldn’t apply to the incentive not to work is beyond me.  But now there is evidence of just how strong that incentive is: via Dan Mitchell

The extension of UI [unemployment insurance] is found to have a positive and significant impact on the national unemployment rate…. The UI benefit extensions that have occurred between the summer of 2008 and the end of 2010 are estimated to have had a cumulative effect of raising the unemployment rate by .77 to 1.54 percentage points.

That seems pretty significant to me.

Minnesota Metro Transit Bus Drivers: Pay And Overtime

A recent analysis of bus drivers for the Minnesota Metro Transit system provided some interesting data:

  • Base pay for drivers is nearly $50,000 a year.
  • The top earner in the system made $120,000 a year.
    • He did this by working, on average, 74 hours a week.
  • Overtime in the system has jumped by 52 percent from 2008 to 2010.
  • A driver on overtime – paid at time and a half – saves Metro Transit $4 an hour on average.
    • This due to the fact that the agency would have to pay for training, additional benefits and pension.
  • A union agreement says that no more than 24 percent of Metro Transit’s workforce can be part time – prompting the agency to turn to overtime.
  • In October, 89 percent of weekday overtime assignments were during rush hour and lasted less than three hours.

The incentives are undeniable.  For a system that demands flexibility; traffic doesn’t occur in neat 8 hour blocks, the rules prohibit the proper response.  Further, regulations surrounding benefits, those benefits that include vacation, retirement and health care, make it more cost effective to work an already employed person than to hire someone else.  And lastly, being a Metro Transit driver isn’t all that bad; 50 large is a good deal of money.

Finally I’d like to point out that for at least one of these drivers, the overtime is a feature and not a bug.  And it’s a feature because of decisions HE’S made in HIS life:

Lance Wallace is happy to drive a few extra hours if it means his wife can stay home with their four children – all younger than 5.

The New Hope man is among the top 5 percent of overtime earners at Metro Transit. Picking up extra shifts and working nearly every day, he averages 60 to 70 hours a week. The $37,700 in overtime he earned last year pushed his total earnings to $86,400.

“I don’t really want to work overtime,” Wallace said. “But I do it to make up the income.”

The extra work doesn’t make him “overly tired,” Wallace said. In fact, after working two jobs before, he “feels good” to now work where he can dictate his own hours.

Mr. Wallace is a father.  A father of FOUR.  A father of FOUR in a family that has the mother stay home.  And of those FOUR kids, all are younger than 5.  And this father of four young children is happy that he’s able to work the hours he does in order to prevent having to carry two jobs.

My point?  Incentives matter.  Raising the cost of hiring means that you will see less hiring.  Wage earners will enjoy working more hours if it benefits them, not the other way around.  Government union work pays well.  People who have 4 kids in 4 years time have a more limited ability to dictate their time.

Extending Unemployment Benefits: Incentive Not To Work

I often remark on the powerful effect of incentives.  Lately it’s been with creating an incentive to cross a busy freeway.  My point being that the government can cause perverse incentives.

In the past I’ve mentioned that unemployment benefits create the same condition.  By the nature of paying someone not to work, you create an incentive NOT to work.  At lest on some level.  Further, if the benefit is large enough, the individual is going to create an internal value proposition and will only return to work when that value proposition reaches an inflection point that benefits him.  In other words, no one is going to work for 40 hours for $320 when he can not work for 40 hours and make $335.

For evidence, I wanna share this editorialHat Tip Dan Mitchell

Last year the demand for our construction services, to our delight, was as they say “going through the roof” to a point where were turning down more work than we were accepting. Frustrated that we could not be available to the potential new clients that were calling on us, and simultaneously excited that this was happening to our company, since unemployment had broken the double digits marker. I decided we would grow, work to sign up as much as 40% more in total contracts, and hire up to 12 additional full time employees. Basically take advantage of our good fortune and get a small portion of our community back to work.

The plan was initiated, the additional contracts were signed up and then we set out to hire the employees. Little did I know that attempting to hire the employees needed, which I had thought to be the easiest part, would turn out to be a nightmare if not impossible. I’m sure that reading this you will be almost as surprised as I was directly experiencing it.

My experience: Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company’s orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn’t come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with. If this is not frustrating enough to those of us that provide jobs and pay taxes let me give you my last two attempts this year. Both times we advertised in various media at great expense. The first time only seven applicants came in, I set up personal interviews with two for potential hiring, neither of them even showed up. The second time with six applicants, I set up interviews with four, one called in to cancel the interview, one did not even show up, two actually came in, though one was late. To summarize (in case you missed the math) of the last six people that I called for interviews for potential full-time employment only two came with one being late. It is more than frustrating, it’s perverted.

If we are going to insist on providing unemployment benefits, at least reform the process so that the individual has to report to an office, perform community service when waiting for responses and allow for better monitoring.

Incentives: II

The other day I asked if we could incent people to cross a reasonably busy freeway by growing the financial reward for doing so?  For example, line 1000 people up on an interstate highway and place $5 on the other side.  Some number of people, maybe zero, will try to cross to claim that $5.

Now make it $500.  More people will try to cross for $500 than will try for $5.

We all agree.  We get it.

In short, we know that incentives matter.

Go back to the scenario.  Suppose that the financial reward for crossing the freeway became large enough that a relatively significant number of people made the attempt.  And one of them was struck by a car and perished as a result.

Who is to blame?

  1. The driver of the car?
  2. The the individual creating the incentive?
  3. The individual who attempted to cross the freeway?

Incentives

Assume:

  1. 1000 people on the North side of an East-West freeway.
  2. Someone on the South side of that same freeway with money to give away to anyone who crosses the freeway.
  3. An amount of traffic that would allow a pedestrian the chance of crossing with a reasonable danger level of being struck by a car.

Do we all agree that more people will cross the freeway as the amount of money on the other side increases?

 

Why Incentives Matter

One of the most powerful lessons I’ve taken away from all the reading, studying, arguing and debating I’ve done over the past 4 years of my “political awareness” has been that of incentives.  And how much they matter.  And until you can admit that people are driven by incentives, in general mind you, you will never be able to understand how laws and regulations shape our world.

Consider:

(AP) ONEONTA, Ala. – Potato farmer Keith Smith saw most of his immigrant workers leave after Alabama’s tough immigration law took effect, so he hired Americans. It hasn’t worked out: Most show up late, work slower than seasoned farm hands and are ready to call it a day after lunch or by midafternoon. Some quit after a single day.

Now listen, Alabama has an unemployment rate of 9.8%.

Nearly 1 in 10 Alabamians are out of work.  More I’m sure, if you count the folks who’ve given up.  And the numbers are worse if you add up those folks who are underemployed.  Yet farmers can’t keep help.

Too be sure, the value proposition is a tough one:

 It’s hot, the hours are long, the pay isn’t enough and it’s just plain hard.

At his farm, field workers get $2 for every 25-pound box of tomatoes they fill.

A crew of 25 Americans recently picked 200 boxes — giving them each $24 for the day.

That’s $3 an hour.  Hardly worth downsides of the job.

Finally, and here is the kicker, the government makes it too easy to say “no” to jobs:

It may make sense for some to sit on the couch. Unemployment benefits provide up to $265 a week while a minimum wage job, at $7.25 an hour for 40 hours, brings in $290.

Who in their right mind would choose to work back-breaking jobs in order to make an effective $25 a week?

No one.

There are jobs out there all right, just that we make it too easy to say no to ’em.

Another Example Of Good Ideas Gone Wrong

I have come to understand that many of the friends and colleagues I disagree with are not disagreeing with me because they want bad things to happen.  On the contrary, I feel that those folks are just as interested in the welfare of our country and the people in it as I am.

Rather than mean spirited, they are well intentioned.  It’s just that each have our own version of the path to those intentions.

But, when well intentioned people craft laws in the dead of night and don’t read those laws, bad things happen.

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