Category Archives: Business and Economy

More companies hiring through internal referrals, online applications carry a stigma

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This might help explain why the ranks of long-term unemployed have risen: more companies are finding new employees through referrals from current employees.

The trend, experts say, has been amplified since the end of the recession by a tight job market and by employee networks on LinkedIn and Facebook, which can help employers find candidates more quickly and bypass reams of applications from job search sites like Monster.com.

Some, like Ernst & Young, the accounting firm, have set ambitious internal goals to increase the proportion of hirings that come from internal referrals. As a result, employee recommendations now account for 45 percent of nonentry-level placements at the firm, up from 28 percent in 2010…

The company’s goal is 50 percent. Others, such as Deloitte and Enterprise Rent-A-Car, have begun offering prizes like iPads and large-screen TVs in addition to traditional cash incentives for employees who refer new hires.

This sounds like a sort of Granovetter social network job hunt run amok: companies are looking for ways to minimize bad hires but in doing so, they are relying more and more on their current employees which freezes out people outside these social networks. But, it also suggests a job hunting strategy beyond Internet sites: people looking for work should look to impress their contacts who are currently working. This could be helpful to a lot of job searchers as it would cut down on online applications, cover letters, and the “black hole” (as it is called in the article) where applicants get very little feedback.

Here is a little bit about the advantages of companies hiring referred employees:

Referral programs carry important benefits for big companies. Besides avoiding hefty payouts to recruiters, referred employees are 15 percent less likely to quit, according to Giorgio Topa, one of the authors of the Federal Reserve Bank of New York study.

Social networks improve business efficiency…but might also leave certain people out in the cold.

More evidence for Canadian housing bubble?

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I wrote just over a week ago about a possible Canadian housing bubble and here is more evidence: Canadian housing is over-valued.

The distinction between higher prices and bubbly prices isn’t as subjective as it might sound. Like any other financial asset, there should be a fairly steady relationship between the price of housing and the stream of income — rent — it produces. Should be. The chart below, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter.
 HousingPrices.png…
Canada is quietly trying to deflate its bubble without any eye-catching headlines. And that means keeping interest rates low while making mortgages harder to get. Now, raising rates to pop a bubble sounds like the kind of hard-hearted long view central bankers pride themselves on, but it’s more hard-headed. Higher rates don’t just make housing (or any other asset bought with borrowed money) less affordable for new buyers; they make them less affordable for old buyers with adjustable-rate loans too. That sends prices spiraling down and savings racing up, as heavily indebted households, which Canada has no shortage of, try to rebuild their net worths. Higher desired savings outpaces desired investment — in other words, the economy collapses — and subsequently cutting rates, even to zero, won’t do much to reverse this, as houses and businesses are mostly indifferent to lower borrowing costs while they focus on paying down existing debts. It’s what economist Richard Koo calls a “balance sheet recession,” and it’s a good description of how an economy can get stuck in a liquidity trap.
But by keeping rates where they are and slowly tightening mortgage requirements, Canada hopes to engineer a more gradual price decline that won’t set off a vicious circle. In the best case, prices wouldn’t fall, except below the rate of inflation, so that real prices decline without hitting household net worths. This strategy is hardly unique — China has done the same the past few years — but it has the very Canadian name of “macroprudential regulation”.

This is something worth watching. I haven’t seen yet any speculation of how a downturn in the Canadian housing market might affect the United States. I don’t know how much connection there is between the Canadian and American housing markets. The Canadian market is certainly smaller than the US market; there was a big drop in Canadian housing starts from 2008 to 2009, a drop from 211,056 to 149,081, but housing starts in 2012 were back to 2008 levels at 214,827. In contrast, the US had 954,000 private housing starts in December 2012 alone. But, if a housing crash in Canada had a broader impact on the Canadian economy, then it may influence the American economy after all.

A hard look at Washington, DC’s economic boom

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In light of the recent fiscal cliff showdown, Annie Lowery at the New York Times writes a long profile on “Washington’s Economic Boom, Financed by You“:

Billions in federal spending, largely a result of two foreign wars, were pouring into the local economy by the early 2000s. Then came the housing bubble. But after it burst, a remarkable inversion occurred: as the country withered, Washington bloomed. Since 2007, the regional economy has expanded about three times as much as the overall country’s. By some measures, the Washington area has become the richest region in the country. It is now home to the three highest-income counties in the United States, and seven out of the Top 10.

The growth has arrived in something like concentric circles. Increased government spending has bumped up the region’s human capital, drawing other businesses, from technology to medicine to hospitality. Restaurants and bars and yoga studios have cropped up to feed and clothe and stretch all those workers, and people like [developer] Jim Abdo have been there to provide the population — which grew by 650,000 between 2000 and 2010 — with two-bedrooms with Wolf ranges.

Despite its recent success, however, the article suggests that “Peak Washington” is already here, that there is nowhere to go but down:

And yet there is a sense that the capital is headed for a slowdown. Among the Pentagon’s plans to cut nearly $500 billion over the next decade could be reductions not only in materiel but also to all manner of support staff. The homeland-security budgets look certain to see significant reductions, too. One recent estimate noted that more than two million jobs would be at stake if the sequester comes into effect.

Lowery suggests that a tempering of expectations in metro DC would, on balance, be a good thing:

There’s something unsavory about having a capital city doing outrageously well while the rest of the country is limping along — especially when its economy is premised in part on capturing wealth rather than creating it.

To the extent that DC’s economy is indeed “premised in part on capturing wealth rather than creating it,” I agree.  Nevertheless, Lowery cites plenty of evidence that “creative” (as opposed to “capturing”) work is being done in metro DC (“Google has opened an outpost….LivingSocial owns a huge, hiply decorated space….Audi, Intelsat, Hilton Worldwide and dozens of other firms have opened up offices or moved their headquarters to the region”).  Presumably, every urban area “captures” some of its wealth and “creates” some.  How much “capture” is too much, thus making a whole region “unsavory”?

Along these lines, I’m also intrigued by the quote from Virginia Congressman Jim Moran (D), who observes that “Maryland got the life sciences [centered around the National Institutes of Health in Bethesda, MD], and Virginia got the death sciences [centered around the Pentagon in Arlington, VA]….Of course, NoVa [Northern Virginia], given the two wars, it’s done even better than suburban Maryland.”  Does this suggest that DC’s Maryland suburbs are less “unsavory” than DC’s Virginia suburbs?  Or does it only matter that the National Institutes of Health and the Pentagon both spend tax revenue, making them equally offending because they “capture” the country’s wealth?

Fighting over the most expensive Christmas tree lot in New York City

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Prices are higher in New York City. This even extends to the cost of renting Christmas tree lots which has led to a battle between two New York City Christmas tree entrepreneurs:

“SoHo Square,” says Scott Lechner, who pays the New York City Department of Parks and Recreation close to $50,000 a year to sell trees here, “is the most expensive site in the world.” He doesn’t sound proud of it.

But Lechner must bid high to stay ahead of his onetime protégé, George P. Smith, who has been on something of a spending spree since he outbid Lechner and took over his Washington Market space in 2007. Smith has also made waves with a huge takeover bid for the Marine Parkway spot in Brooklyn, and has tried to do the same in SoHo and elsewhere.

Smith now has seven locations; Lechner has nine. The two are bitter enemies. Lechner calls Smith an “unsavory individual,” who was “fired by my organization for malfeasance and dishonorable conduct.” (“He hates my guts,” Smith says.)…

The contested Washington Market space — one of 21 the parks department has auctioned off to vendors for the month — was the site, in 1851, of the first urban tree lot in the United States, for which a Catskill woodsman named Mark Carr paid a silver dollar in rent. Today, Smith says he plays close to $30,000 a year for a mere 33 days of sales.

Even in the nation’s most expensive ZIP codes, these rents are, for the moment, somewhat unusual. Rents for many other tree sales sites in the city remain in the low thousands. In 2011, a space on Central Park West was $1,150. DeWitt Clinton Park on West 44th St. was $2,500. Essex Playground, $3,960.

The rest of the story notes that this has been a good thing for the city’s parks department whose is raising more revenue in the competitive bidding for these lots. With many cities facing fiscal issues, I’m sure New York City is happy to have this extra money. Of course, this has repercussions: people buying trees at these lots now pay higher prices.

This could lead to an interesting discussion about whether Christmas trees should be treated more like public goods that shouldn’t be so expensive. For a resident of Manhattan who has no individual vehicle, acquiring a Christmas tree, real or fake, could be a difficult task. This sounds like a more limited market where the consumer is already behind and may not be able to comparison shop much. The average suburbanite, on the other hand, has more options.

This also reminds me of sociologist Mitchell Duneier’s ethnography Sidewalk. Toward the end of the book, Duneier discusses how a family who comes to the city for a month each year to sell Christmas trees is treated much differently than the homeless black men who are street vendors in the community all year long. The contrast is striking: because the tree vendors are white and respectable, local residents interact with them regularly while having more antagonistic relations with the black street vendors. Apparently, getting into the Christmas tree game in New York City takes some major money and this limits who can can sell such goods and participate in community life.

Sears hopes Moneyball addition to its board can help revive the company

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Here is an odd mixing of the data, sports, and business worlds: Sears recently named Paul Podesta to its board.

Paul DePodesta, one of the heroes of Michael Lewis’ “Moneyball: The Art of Winning an Unfair Game,” a great 2003 baseball book (and later a movie) about the 2002 A’s that’s more about business and epistemology than baseball, has been named to the board of Hoffman Estates-based Sears Holdings Corp.

To be sure, he’s an unconventional choice for the parent of Sears and Kmart. But Chairman Edward Lampert is thinking outside the box score, welcoming the New York Mets’ vice president of player development and amateur scouting into his clubhouse…

“What Paul DePodesta … did to bring analytics into the world of baseball is absolutely parallel to what needs to happen — and is happening — in retail,” said Greg Girard, program director of merchandising strategies and retail analytics for Framingham, Mass.-based IDC Retail Insights.

“It’s a big cultural change, but that’s something a board member can effect,” Girard said. “And he’s got street cred to take it down to the line of business guys who need to change, who need to bring analytics and analysis into retail decisions.”…

“Analytics has been something folks in retail have talked about for quite some time, but they’re redoubling their efforts now,” Girard said. “Drowning in data and not knowing what data’s relevant, which data to retain and for how long, is the No. 1 challenge retailers are having as they move into what we call Big Data.”

Fascinating. People like Podesta are credited with starting a revolution in sports by developing new statistics and then using that information to outwit the market. For example, Podesta and a host of others before him (possibly with Bill James at the beginning), found that certain traits like on-base percentage were undervalued and teams, like the small-market Oakland Athletics, could build decent teams without overpaying for the biggest free agents. Of course, once other teams caught on to this idea, on-base percentage was no longer undervalued. The Boston Red Sox, one of the biggest spending baseball teams, picked up this idea and paid handsomely for such skills and went on to win two World Series championships. So teams now have to look at other undervalued areas. One recent area that Major League Baseball shut down was spending more on overseas talent and draft picks to build up a farm system quickly. These ideas are now spreading to other sports as some NBA teams are making use of such data and new precise data will soon be collected with soccer players while they are on the pitch.

The same thought process could apply to business. If so, the process might look like this: find new ways to measure retail activity or hone in on less understood data that is out there. Then maximize a response to these lesser-known concepts and move around competitors. When they start to catch on, keep innovating and stay ahead a step or two. Sears could use a lot of this moving forward as they have struggled in recent years. Even if Podesta is able to identify trends others have not, he would still have to convince a board and company to change course.

It will be interesting to see how Podesta comes out of this. If Sears continues to lose ground, how much of that will rub off on him? If there is a turnaround, how much credit would he get?

Mixing genres with Sears’ “Connecting Flight” commercial

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The Sears TV commercial running right now titled “Connecting Flights” turns a holiday romantic comedy trailer into an appliance advertisement. Watch here.

My Culture, Media, and Society class recently discussed genres and how they help structure narratives. If you have seen a holiday romantic comedy movie trailer or commercial, you have seen the opening part of this particular advertisement. Two people are trapped at an airport after their flights have been canceled. They meet and start enjoying each other’s company in the airport. Yet, when they finally find flights out, they realize they want to stay together and start running toward each other.

This is where the genre falls apart. Instead of running the arms of the other, each crashes into a stainless steel refrigerator. And it turns into a clear advertisement for Sears. On one hand, it is a smart use of an existing type of cultural work. On the other hand, the ending is so different than the beginning that I wonder how many people like Sears at the end. It is a bait and switch: what happened to the cheesy, feel-good romantic comedy?

In the end, Sears uses an existing narrative form to try to provide a new perspective on appliances, one of the few things Sears now has going for it. But, the contrast in genres, switching so abruptly from holiday romantic comedy to selling home appliances, is jarring.

Argument: cities could find more revenue by taxing people who commute in

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Michael Pagano details the tax revenue issues facing American big cities and proposes a solution: tax commuters for the city services they use.

Over the past several decades, municipal tax systems have changed in many ways to try and capture the revenues needed to support essential services. But most cities continue to base their tax systems on dated notions of how local economies work and what drives income growth and wealth. Cities must be given the ability to develop tax and revenue systems that match the unique characteristics of their local economies, and that allow them to diversify revenues in ways that protect them from fiscal crises.How might that request be accommodated? Tax structures should be created that link cities to their underlying engines of growth or to income and wealth, similar in design to what the property tax attempted to accomplish two centuries ago. In Ohio for example, cities tax earnings at the place of employment and the place of residence. By taxing at the place of employment, users of city services (that is, employees who physically work at a site) contribute to the resource base for service provision.

Imagine if users of city-government services actually were required to pay for the full cost of those services? Imagine household decisions on where to live that is based on their paying the full cost of services. Imagine the decision calculus by individuals who would be responsible for paying their fair share. It could be revolutionary.

I wonder if changing the tax structure in this way would only serve to push more organizations and firms to the suburbs. Take the example of Chicago cited by Pagano. In the last few years, several companies, like Motorola, have announced they are moving workers back into the city. Would changing the tax structure make them reconsider?

Shared cultural interests leads to hiring at elite firms

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A new sociological study argues having the right cultural interests or pursuing certain cultural activities can lead to getting a job at elite firms:

Big-time investment banks, law firms and management consulting companies choose new workers much as they would choose friends or dates, zeroing in on shared leisure activities, life experiences and personality styles, a new study finds…

As a result, evaluators described their own and others’ firms as having distinct personalities related to employees’ extracurricular interests and social styles. Companies ranged from “sporty” and “scrappy” to “egghead” and “country club.” One outfit even specialized in hiring people with drab personalities.

Top-ranked firms uniformly favored applicants who cited upper–middle class leisure pursuits such as rock climbing, playing the cello or enjoying film noir.

Picking employees from the same cultural basket may have pluses and minuses, Rivera adds. Hiring people with common traits and interests may create a cohesive work force. But shunning prospective employees with different life histories could also make firms susceptible to reaching decisions quickly without evaluating alternative ideas.

This challenges the American ideal of meritocracy where hard work should lead to a job. While the study suggests these cultural interests don’t matter as much when organizations are hiring for more technical jobs, it does matter for white-collar and upper-class jobs. This could also challenge the role of college courses: how many college classes are about developing a “scrappy” or “country club” approach to life? In contrast, the experience outside the classroom at some colleges (plus the applicants’ earlier life history) might contribute quite a bit to learning about and then developing these cultural skills.

It would also be interesting to look more at the personalities involved in hiring and branding that companies develop. Marketing today often involves selling a brand and image more so than focusing on the particulars of a product. Is this branding simply about marketing or does it bleed through the culture of the entire organization?

Republicans propose copyright reform

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Techdirt links to a remarkable Republican policy brief on copyright reform:

The purpose of copyright is to compensate the creator of the content: It’s a common misperception that the Constitution enables our current legal regime of copyright protection – in fact, it does not…[L]egislative discussions on copyright/patent reform should be based upon what promotes the maximum “progress of sciences and useful arts” instead of “deserving” financial compensation….

Today’s legal regime of copyright law is seen by many as a form of corporate welfare that hurts innovation and hurts the consumer. It is a system that picks winners and losers, and the losers are new industries that could generate new wealth and added value.

This has the potential to mark the beginning of a huge political shift on intellectual property issues. Heretofore, most copyright reform advocates have pursued a judicial strategy, trying to persuade courts to narrowly read (or overturn) sweeping statutory language. By and large, courts have declined to limit copyright laws in this fashion. If those laws were actually changed, however, that would compel different outcomes.

A policy brief is not even a bill, let alone a law. But the conversation has started.

Zara devotes its full marketing budget to leasing expensive retail space near high-status brands

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Here is a way retailers can take advantage of space: locate near high-status stores.

How about advertising? Basically, Zara doesn’t do it. There is no ad budget. Instead, the company spends ungodly amounts of money buying storefronts next to luxury brands to own the label of affordable luxury:

“The high street is really divided according to brand value,” says [Masoud Golsorkhi, the editor of Tank, a London magazine about culture and fashion], who is also a consultant for fashion brands. “Prada wants to be next to Gucci, Gucci wants to be next to Prada. The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Zara’s strategy is to get as close to them as possible.”…

Zara stores cozy up to the most famous brands in the world to sing their luxury ambitions even as they profit off a brilliant, cheap, short supply chain that delivers similar fashion at a much lower price.

In this case, proximity matters. By being located near prestigious brands, Zara is pulled up more to their level. Additionally, shoppers willing to wander into the really high-status stores might then also wander into Zara. This seems to be the strategy of the shopping mall as well: utilize several important anchor stores (or anchor facilities/restaurants in “lifestyle centers“) to help bring in more customers who will then also visit other stores along the way.

I wonder: are there any streets or malls where retailers have found ways to expressly disallow stores like Zara? Imagine a high-end outlet mall where there are only high-end retailers and no middle-brow stores or aspiring stores are allowed. Leasing prices is one way to do this but this article makes it sound like firms like Zara can do an end run by paying those big sums and then not spend money on traditional marketing.