Johann Hari and economic statistics

It\’s quite lovely to see Johann meeting some numbers he doesn\’t understand.

Perhaps we shouldn\’t be too hard on him for of course we all do this. Stray off the reservation of our own knowledge base and end up misunderstanding the technicalities of what the numbers mean. Not note or even realise that there are qualifications, hems and haws, well maybes but you\’ve not quite caught the subtlety of what is being said sorts of things.

An example:

Professor Peter Cappelli studied 122 companies and found that lay-offs most often shrank their future profitability, instead of swelling it.

Would be interesting to know how he dealt with causality there: a company that is shrinking in profitability will be laying off workers just as much as it is possible that one which lays off workers shrinks in profitability.

But much more importantly:

The facts backing this up are striking. The OECD has studied developed economies over a 20-year period, and it found labour productivity growth was much higher in the countries where it is hardest to fire people.

Hmm. Here are the OECD labour  productivity stats and here are the stats for changes in labour productivity. Make of them what you will. But the reason given:

The better you treat a workforce, the better they work.

That doesn\’t really pass the smell test. Are we really trying to say that some bureaucrat somewhere, absolutely and totally impossible to fire, is going to work harder and provide a better service than someone who at least has the possibility of being turfed out for, say, vomiting over the boss and then screwing his pooch?

OK, that\’s an extreme. So instead let\’s take as being true that countries where it is harder to fire a worker have both (yes, we\’ll be nice, and say both) higher productivity per worker and also have had stronger rises in that productivity.

They should therefore be vastly richer….you get more out of the labour you\’ve got available then you really ought to be richer. But this last bit doesn\’t seem to be true. Italy, where it\’s almost impossible to fire a worker doesn\’t seem to be richer than the US, where anyone and everyone (near enough, outside that tiny unionised part of the workforce) is on an at will employment contract and can thus be fired at lunchtime. Nor does Italy (or take any of the other such hard to fire labour markets) seem to be richer than Denmark which is similarly fire at will.

So there must be something wrong with this story: we cannot see the effects which should flow from it being hard to fire to the greater wealth that higher labour productivity should bring.

Why not?

So here\’s the caveat. We do note that those countries where it is hard to fire have higher unemployment rates than those where it is easy to do so. The usual story is that making it difficult to get rid of people makes it a much more serious decision to take someone on and that thus fewer people do get taken on.

Worse than that, we see labour markets in places like France and Spain (and to some extent here in Portugal as well) separating out into two very different levels. There\’s those who get the full time, protected job, and those left to the twilight world of short term contracts. It\’s not unusual for it to take into their mid 30s for someone in any of the three to get a \”real\” job. With all of the concommittant employers not training up workers because they\’re on short term contracts.

Anyway, what we do see is those higher unemployment levels where it is hard to fire people. So the reason that they\’ve got high labour productivity for those in work is that they\’ve got lots of people not working at all (yes, labour productivity is measured this way, it\’s from those working, not total labour force).

And, not surprisingly, employers hire those with higher productivity and leave those without much to rot on the dole.

So while we might indeed see higher labour productivity in those places where it\’s hard to fire people the mechanism isn\’t as described at all. It ain\’t that cuddly management gets more out of them: it\’s that realistic management never hires the unproductive if they know they can\’t get rid of them.

Now, me, I like the easy to hire, easy to fire system: it\’s the only way I\’ve ever managed to get a job at least. And yes, you can differ on which system you prefer.

But if you\’re going to start quoting economic statistics at people in a national newspaper then it really is incumbent upon you to understand the subleties of said statistics.

Otherwise we might just think you got the job because you\’re in one of those easy to hire, easy to fire, countries.