An Aging Nation: U.S. Census Interactive Graphic

Last year, the U.S. Census issued an excellent report, An Aging Nation: The Older Population in
the United States – Population Estimates and Projections and as you might guess, the findings are nothing short of alarming. Why? Because the findings in the report have a number of significant implications connected with aging in general and all its added responsibilities such as health care and social security. What’s more, the very large baby boom cohort (the report uses the traditional timespan of those born from 1946-1964) has for some time represented such a significant part of the work force, but now its rotation out of the workforce is adding to the weight of what the report labels, “older population” (defined as those above 65 years of age). Combine this with the extrapolation of the older Generation X cohort in the next few decades, plus overall mortality projections showing increased life expectancies and you have a mind boggling number of people not only meeting the definition of older, but in excess of 85 years of age.

Historical Look Using an Interactive Graphic

Below is an interactive graphic from the Census Bureau that can be used in two ways. Slide the year along the bottom for a view of the population breakdown by age at a given point in time in the last ten to fifteen years. Going back fifteen years to the year 2000, you see a very large cohort in their thirties to early fifties. As you slide the year to the right (toward the present), you see the rising age, which is somewhat self-obviating given the starting point. But then as you reach the near present, you see a surprising trend of a new cohort, now in their early twenties to early thirties, representing a significant part of the population.

Implications of the Elderly

According to the projections in the Census report:

Between 2012 and 2050, the U.S. population is projected to grow from 314 million in 2012 to 400 million in 2050, an increase of 27 percent…By 2030, more than 20 percent of U.S. residents are projected to be aged 65 and over, compared with 13 percent in 2010 and 9.8 percent in 1970.

The report identifies mortality rates as the driver of trends:

The size and composition of the older population in 2050 will be largely determined by two factors: the size and composition of the population 27 years and over in 2012 and the future course of mortality for that population. While past fertility rates were the main driver shaping the size of these cohorts to date, mortality will influence the pace at which that population declines at the older ages.

…The mortality assumptions for these population projections are guided by past trends and current levels of mortality observed in the United States and in other developed nations. Trends in health-related conditions such as smoking and obesity were also assessed.

Survivorship rates have shown improvement for many decades. In the United States, life expectancy at age 65 was 15.2 years in 1972 and rose to 19.1 years in 2010—a net gain of 3.9 years. The survival gains for those turning 85 have also been impressive. In 1972, the average time to live for someone turning 85 was 5.5 years. By 2010, this had risen to 6.5 years—a net gain of 1 year. Similar trends have been observed in almost all developed nations. For example, life expectancy at age 65 in Sweden increased from 15.7 years in 1972 to 19.8 years in 2010. Life expectancy at age 85 in Sweden increased from 4.9 years in 1972 to 6.2 years in 2010.8

There is a little bit of irony in these trends. On the one hand, you have things like the reduction of smoking that is practically guaranteed to reduce health risks and increase life span in most people. But on the other:

The incidence of obesity increased dramatically between 1980 and 2008, doubling for adults and tripling for children (National Center for Chronic Disease Prevention and Health Promotion, 2011)…The direct effect of obesity on survival is less than that for smoking, and there is evidence that the trend is leveling off. The longer-term implications are yet unknown, but could dampen continued improvements in survivorship in future years.

These trends may simply point to the advancements of medicine and technology, but as the above quote points out, the long-term implications of this fairly recent trend are yet unknown. Where is this all leading? As mentioned previously, there are significant implications for Social Security and Medicare, but these are only two examples (although the largest by far) as there are many pension and health care systems throughout the different states and regions of the U.S. There is also the continuous discussion of potential growth in the overall economy. The idea that traditional growth of 4% is not currently realistic (or possible) given the number of workers from the boomer cohort reducing labor participation rates and thus reducing spending, is a common assumption. On the other hand, the very large cohort representing a younger population as well as those in their prime working ages cannot be ignored. While it’s true that availability of workers does not produce jobs, if a number of fundamentals change in the next few years, there could be expansion that we have not seen in years. How might this match off against the implications of an aging population? One thing is certain, in the traditional sense of employment, we have not yet figured out (cumulatively) how to best utilize this large, younger cohort. And we have still not yet adjusted to a post industrial era.

The Marginally Attached – A Look at the Five Largest States

The U.S. Bureau of Labor Statistics (BLS) defines marginally attached in simple, straightforward language:

Marginally attached workers
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

Discouraged workers
Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

For the purpose of illustration, the FRED graph below has the top five states  selected (which accounts for more than a third of the nation’s population), showing the trend of marginally attached workers for more than a decade.

The trend lines show the inherent headwinds since the beginning of economic recovery in June 2009. The still “on the grid” numbers of the marginally attached and discouraged workers has hung on much longer than a decade ago. What’s more, six years into recovery, not one of these states has returned to its pre-recession level of the marginally attached:

Marginally Attached-Pre-Recession

This could be due in part to an aging population as well as population shifts and growth in general. This also illustrates why for so many, the recovery has not felt like a recovery. The reality is, jobs are being added as illustrated by the decreased levels of the marginally attached from the corresponding peak levels by state (peak levels were between July 2010 and October 2011):

Marginally Attached Percentage Below Peak Levels

PBS American Experience: Silicon Valley – The History, Sociology, Timing and Sometimes Luck that Started a Revolution

If you think the history of the silicon chip is a cure for insomnia, think again. Two quotes (or as close as I can remember) say it all, the first, regarding breakthroughs. “Breakthroughs historically do not just happen. They are a product of when the time is right, and the time has come for such a thing.” So on the one hand, we can strive for excellence and push for a culture of creativity and this will certainly produce positive results. But especially in the case of a radical and essential breakthrough, one that we would look back on as disruptive to a system, technology, culture or business, the convergence of events is just as important as the components driving the change.

From the PBS Introduction:

Led by physicist Robert Noyce, Fairchild Semiconductor began as a start-up company whose radical innovations would help make the United States a leader in both space exploration and the personal computer revolution, changing the way the world works, plays, and communicates. Noyce’s invention of the microchip ultimately re-shaped the future, launching the world into the Information Age.

The next quote, regarding timing and demand as they relate to the brilliance behind groundbreaking change. “Brilliant people exist all the time. It’s matching up a brilliant person in the right place, at the right time when people want what that brilliant person has to offer.” We can push and push for change or a breakthrough idea, but ultimately, the timing of that change must correspond with demand in order to harness the brilliance that will fuel the progress.

Your Brain on That LED Screen

So many great things have come to us thanks to breakthrough innovation, technology and an avalanche of accompanying information. When evaluating the effects of all of this on culture, the biggest challenge does not seem to be determining the inherent good or bad of a shiny object or service delivered by it, but our management of it. It’s simply human nature, we are given to a lack of self control. Fortunately, an area of study that has continued in recent years in both breadth and depth, is neuroscience, and how our brains interact and interface with many aspects of life. It is no surprise then when we hear from both medicine and science that staring at shiny objects before bed actually has [potentially significant] negative implications on how well we function.

Reference: Business Insider – produced by Justin Gmoser.

A Discussion of Digital and Physical Retail Trends

Over at Barry Ritholtz blog I saw this video by Scott Galloway (at the Digital-Life-Design Conference) titled, The Four Horsemen – Amazon/Apple/Facebook & Google – Who Wins/Loses. Mr. Galloway is Professor of Marketing at NYU Stern School of Business where he teaches Brand Strategy and Digital Marketing NYU Stern School of Business, see his background here. In this presentation he packs a terribly insightful discussion into just fifteen minutes where he covers what he believes will be the advances and declines among the big four (“Four Horsemen”) of digital (and the convergence of retail) sales. Professor Galloway is quick to disclaim that any decline among these companies in no way means insignificant but rather, a shift in market share between four companies that hold a titanic share of the retail market.

A few high points from the discussion:

Amazon’s “race to the bottom” strategy where they then wait out the competition has an Achilles heel: shipping costs. The solution (or the future)? Fractional employment among the ranks of flexible employees such as Uber and

The trend of existing brick and mortar retail stores edging into the completion through the transformation of their retail locations into flexible warehouse fulfillment centers.

A few harsh words, matched off against some significant compliments for Facebook.

Key to Apple? It’s “self-expressive benefit.”

Finally, there was an unfortunate takeaway. The trend of Macy’s illustrates the further reduction of the middle class in America – “$40-60k jobs are giving way to $20-40k per year jobs” related to factory and fulfillment functions. So mid level service jobs are giving way to lower level service jobs, illustrating the point that even where there is job growth, no job is irreplaceable, which puts even more pressure on the individual to contribute value and if possible, make themselves indispensable.


Dated Policies and the Obsolescence of Command and Control

When you look around, what tips you off that policy may be out of date?

Dated Policy

The case has been made in recent years of the obsolescence of the average human resources department and its policies. But is the problem human resources or an overall approach? An article in Forbes by an industry expert makes the following assessment:

The traditional “Human Resources” programs which were designed in the early 1900s are rapidly falling away. Are they becoming out of date? The answer is yes.

If your HR and Learning programs are focused on building customer centric teams, empowering managers and people to make decisions, encouraging a culture of learning, teaching managers to coach and develop others – then you have moved to the Agile Model for HR. If your HR programs are still focused heavily on enforcing the rules, formalizing structure and centers of power, and putting leaders on a pedestal, then your HR and employee programs are probably holding your company back.

The lean, dynamic, open source and autonomous approach as cited above was what I read about more than twenty years ago in my undergraduate studies, but saw very little of outside of the tech industry, some small companies and a few unusual examples (organizational and leadership). But this problem is not limited to human resources – it permeates many aspects of business operations. I regularly equate this to doing business the way we did fifty years ago, only now with a computer on the desk. And command and control mentality goes right along with this failure not only to understand a radical and essential cultural shift, but how to tap into a talented labor pool. I’ve had several discussions with a colleague regarding why our industry does not generally attract millennials. I’m not sure there is one precise reason but clearly, value system, culture and command structure is completely at odds with this cohort.

In a recent post, HR Is Obsolete, a number of relevant reasons are cited for why, in the author’s opinion HR (in its lack of response) is obsolete. Here are some ideas from the findings:

The era that current policy reflects: when an HR department that was “created for the post-industrial revolution era as opposed to the information age.”…failure to implement technology that could automate operational tasks such as tracking compliance, licensure, etc…HR acting as surrogate instead of actually managing, mentoring and developing staff…dereliction of duty on the part of leadership regarding the hard work in hiring (no short cuts to getting the right person in the right role).

In a discussion about how to motivate staff, I had a boss declare in full volume, “my philosophy of leadership is simple, GET THE [EXPLETIVE] WORK DONE!” Here’s a helpful rule of thumb: if your attitude toward staff would fit well in an episode of Mad Men, your thinking is probably obsolete. Dated policies and approach are no different.

Smoking Safety - Australian Road Safety Council poster- 1950s

Public Libraries Disrupting the Likes of Amazon

When you think of the modern iteration of your local public library, a couple things might spring to mind, such as the perverts sitting at the computers offending everyone around them in the name of free speech. But another might be the question, how long can this model of an institution last? Well chalk one up for another blow to the hard and fast rule of disruption. I have observed the growing catalogue in recent years of digital material available for check out, including audio as well as e-books. But in the age of streaming versus download, the for-profit sector has started rolling out its own version of subscription based reading, and they face headwinds of an unlikely competitor, as noted in the Wall Street Journal, Why the Public Library Beats Amazon—for Now:

A growing stack of companies would like you to pay a monthly fee to read e-books, just like you subscribe to Netflix to binge on movies and TV shows. Don’t bother. Go sign up for a public library card instead. Really, the public library? recently launched Kindle Unlimited, a $10-per-month service offering loans of 600,000 e-books. Startups called Oyster and Scribd offer something similar. It isn’t very often that a musty old institution can hold its own against tech disrupters. But it turns out librarians haven’t just been sitting around shushing people while the Internet drove them into irrelevance. More than 90% of American public libraries have amassed e-book collections you can read on your iPad, and often even on a Kindle. You don’t have to walk into a branch or risk an overdue fine. And they’re totally free. Though you still have to deal with due dates, hold lists and occasionally clumsy software, libraries, at least for now, have one killer feature that the others don’t: e-books you actually want to read.

E-books you want to read? That’s right. So instead of an all-you-can-read list of digital titles with the equivalent of Smokey and the Bandit III, you have access to many of the titles from Amazon’s top 20 Kindle best-sellers of 2013 list with the following impressive results:

Percentage of Top 20 Kindle Titles of 2013

See the full grid from the WSJ article here. The article goes on to explain an interesting history of this windfall for local libraries:

How did library e-book collections get such a leg up? Amazon is locked in a hate-hate relationship with many publishers, so none of the five largest will sell their whole collection to Amazon for its subscription service…Over at the library, the situation is different. All of the big five publishers sell their e-book collections for loans, usually on the same day they’re available for consumers to purchase. They haven’t always been so friendly with libraries, and still charge them a lot for e-books. Some library e-books are only allowed a set number of loans before “expiring.”

There are obvious limitations to free services, such as availability, wait lists and time span for checked out materials. But for now, this is a terrific example of a public institution in the local community showing itself able to respond to disruptive forces, and provide viable resources to a wider audience with limited resources. It is also an excellent example of how a business model can benefit from adapting to a model that helps a local community as “publishers have come to see libraries not only as a source of income, but also as a marketing vehicle…since the Internet has killed off so many bookstores, libraries have become de facto showrooms for discovering books.” See brief overview here:

Corporate Inversions – Do you think this is going to become an issue?

Corporate inversions are not a new issue, but it has had its run-ups over the years, as illustrated by Google’s Ngram Viewer:

What is a corporate inversion? From Investopedia, an inversion is simply,

Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.

But based on the anecdotal evidence alone, this issue is going to heat up. The Wall Street Journal has hosted an excellent short take on how these inversion deals work:

Many observers intuitively consider this simply an unpatriotic exploitation of a broken tax code and one of its remarkable loopholes. One legal counsel’s comment pretty much says it all, “it’s just too good of an opportunity to waste.” Others consider the expatriation of tax revenue the result of disproportionate burden on businesses and corporations. Either way, there is a race to mergers as business leaders and legal strategists believe this run is coming to an end. The Wall Street Journal has recently published a flurry of articles and posts on this subject with one conspicuous standout, the pharmaceutical industry:

The race by companies to sidestep U.S. taxes reached a fever pitch as two drug firms unveiled foreign mergers that will help them slash their tax rates…[there is a]  growing craze for so-called inversions, in which a U.S. company buys a foreign target and adopts its lower tax rate or establishes a holding company in a country with a low tax rate.

The deals, mostly in the pharmaceutical industry but also cropping up in retail, consumer and manufacturing, have come fast and furious amid two trends: rebounding appetite for large, transformative mergers and acquisitions; and fear that the opportunity to use the cross-border tax strategy soon could disappear.

Pharmaceutical Industry Inversion (WSJ)

Regardless of the cause, the reality is that the U.S. government stands to lose significantly from this export of tax revenue. From an another WSJ article:

How much revenue does the U.S. Treasury stand to lose from corporate tax inversions? It is difficult to say precisely, but one estimate puts the figure at close to $20 billion.

A nonpartisan congressional research panel said the U.S. would receive an additional $19.46 billion over a decade if most new tax inversions were essentially halted with proposed changes to the tax code. The estimate, by researchers at the Joint Commission on Taxation, is based on estimates from previous inversions, in which U.S. companies make overseas acquisitions to gain tax advantages, and doesn’t take into account deals being made now…calculating how much the U.S. Treasury would lose is nearly impossible because of a dearth of reliable tax data from companies’ public filings and the variables in how companies can structure their businesses, tax experts say.

However this is resolved, I think we can all agree that when a corporate trend that generates the above results is being referred to as, “all the rage,” or, “too good an opportunity to waste,” one wonders how, as yet another Wall Street Journal article reports, Congress Is Split on Taxing of Corporate Inversions.

How Optimism Bias Changes Long-Term Projections

Weekend reading: IMF Working Paper, Growth: Now and Forever? by Giang Ho and Paolo Mauro. Those who do not follow the global market in general and the BRICs in particular (or other emerging economies), may not see a correlation to the U.S. market. In reviewing the paper, I would focus more on the psychological behavior of investors and the capital markets, rather than the particulars of emerging markets, their fundamentals, or the drivers in these markets, many of which are quite different from any of the G7. The premise is clearly stated in the abstract,

Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.

Just what do the authors mean by optimism bias? It’s frankly, little more than wish fulfillment. In the authors’ opinions, it is adding more weight to recent occurrences, then extrapolating those positive outcomes across the spectrum of events, where “forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth.” Again, this does not have a direct correlation to recent events in the U.S., as this economy has experienced forward yet modest growth in the last five years. But could this say anything about the continued expansion in the capital markets, which have little relation to economic events as they tend to affect the average person, employment and a service driven economy? In other words, although the markets seem to be pushing forward at dizzying heights, most would say there is nothing to indicate any kind of an eminent correction. Is the same bias at work in our capital markets? You decide. But the paper makes for an interesting case for why, in spite of argumentation for why global growth may in fact be slow in the coming years, forecasters continue to project strong growth, where predicting “economic growth into the medium term and beyond is notoriously difficult.” It would seem there are lessons to be learned here about bias from any perspective and how this bias has a tendency to affect the view of the future.

Ignorance is NOT Bliss

“The only real mistake is the one from which we learn nothing” – John Powell

Right now the overall job market is an undeniable difficulty for us as a country. Thinking about this reminds me of a few things from some years back. The above quote causes me to reflect on a few difficult times and painful past lessons – experiences which are now filtered with hindsight (and the advantage of 20/20 vision as it were). But I am thankful for the experience of many of these difficulties, though some have taken years to get to that point. After one painful business experience in particular, I was encouraged by a friend (at a different stage in life and much more experienced than I) to journal out what I had learned. I remember that at that time, I didn’t want to hear of it, and I certainly didn’t want to talk about it, even alone within the very safe pages of a journal. All I could think about was the frustration I was experiencing from my own decisions, some of them hasty. But learning is an ongoing, dynamic process.

Sometimes, I believe, we don’t feel quite ready to learn from what we are presently going through. Which is part of the reason I am determined to learn from decades past, because our current problems span way beyond few years of misguided choices. I am optimistic too, because I think for many, there is an honest inquiry into present difficulties, and why past approaches may no longer be relevant. Ultimately, I want to be a better learner, and a better practitioner of that knowledge and experience.