Hours cuts at Olive Garden

Prediction: it might start taking longer to get your second helping from the endless salad bowl at Olive Garden.  The Orlando Sentinel reports that Olive Garden restaurants in four different markets (including central Florida) have cut back significantly on full-time schedules.  To be precise, they are doing their best to make sure no one works 30 hours or more.

At a new Olive Garden in Stillwater, Okla., former busboy Keaton Hasty said employees were routinely limited to 29 1/2 hours.

"It was 29 1/2, and they'd kick you out," said Hasty, a college student who now works at a pharmacy. "They'd always print off a little slip every day and say who was getting close."

Darden Restaurants, the parent company of Olive Garden, Red Lobster, and Longhorn Steakhouse (among others) openly admits that they are doing this to reduce expenses on health insurance under the Affordable Care Act of 2010 (also known as Obamacare):

In an emailed statement, Darden said staffing changes are "just one of the many things we are evaluating to help us address the cost implications health care reform will have on our business. There are still many unanswered questions regarding the health care regulations and we simply do not have enough information to make any decisions at this time."

ACA requirements kick in for employees who regularly work 30 hours or more a week.  So Darden avoids having to provide health insurance (or pay the $3k fine for failure to provide health insurance) by cutting back on hours.  Darden outlet managers had best be prepared to deal with this dilemma: on nights when there is a bigger-than-expected crowd: do you add personnel knowing it may lead to higher insurance costs or do you lose business from disappointed customers get tired of waiting longer for tables and service?  (I bet you there are some MBAs who are working as we speak on algorithms to deal with this issue.  Click here for info on their internship programs in marketing and finance.) 

Feds to Boeing: we'll tell you where to build new plants

Whenever the Presidency changes hands, so to does the composition of a wide range of regulatory agencies and boards.  Democrats now call the shots at the National Labor Relations Board, which has historically administered union elections and adjudicated claims of unfair labor practices by either companies or unions.  Section 8 of the National Labor Relations Act identifies these unfair practices by employers as follows:

Employer interference, restraint, or coercion directed against union or collective activity (Section 8(a)(1))
Employer domination of unions (Section 8(a)(2))
Employer discrimination against employees who take part in union or collective activities (Section 8(a)(3)
Employer retaliation for filing unfair-labor-practice charges or cooperating with the NLRB (Section 8(a)(4))
Employer refusal to bargain in good faith with union representatives (Section 8(a)(5))

What did Boeing do to get in trouble?  Fire union organizers? Refuse to negotiate a new contract?  Nope.  NYT and WSJ report that Boeing had the audacity to open a plant in South Carolina to produce three more 787 Dreamliner planes per month.  The Machinists union protested to the NLRB, which issued an unfair labor practice complaint this week that, if enforced, would require Boeing to move this new capacity back to Washington state.

Never before has the NLRB or, for that matter any federal agency that I am aware of, questioned a corporate plant location decision.  The NLRB claims the move to SC interferes with workers' right to strike.  Some inconvenient truths:

1. The Machinists union has full rights to organize the South Carolina workers once the plant opens; they can have the right to strike -- if they want it
2. Unionized Boeing employment in Washington state has actually increased by 2000 since the decision to open the new capacity in SC
3. Boeing endured a 58 day strike in 2008, leading them to shift new capacity to a different location
4. If the Machinists and NLRB get their way, Boeing will open its next new plant overseas and the US will lose one of the few key manufacturing industries where it still holds a comparative advantage

Boeing has hired 1000 new workers for the SC plant which is scheduled to open in July.   Boeing called the NLRB action "legally frivolous" and a "radical departure" from legal precedent.

Two reports on how labor markets are changing

From an employee perspective, not for the better. Although there is evidence that output grew in the third quarter, firms are in no hurry to start hiring again. There are a number of factors behind this: some firms will raise hours per person to economize on training costs and employee benefits; others will emphasize increased efficiency; many have concerns about the duration and strength of the upturn; and no small number are worried about the potential outcomes in Congress with respect to health insurance regulation (can we stop using the word reform here?) and cap-and-trade. A recent WSJ article reports on how various firms are responding; the good news locally is that Cree is adding 275 positions. The article also has some interesting ideas about service innovation at the Sheraton Maui.

Obama's chief economics advisor Larry Summers developed a theory of long term unemployment called hysteresis back in the days when he was a Harvard economics professor. In a nutshell, this theory says that the longer a person stays out of work, the lower the odds become that he/she will ever work again as skills become outdated and the work ethic deteriorates. Summers used this theory to explain the persistently high unemployment rates observed in most European countries in the 1990s. Could the US be looking at the same situation in the 2010s?

Another recent WSJ article reports on how the recession might have permanent effects on the relationships between employers and workers. We all know about firms (including state government) that have cut health benefits, reduced contributions to retirement plans, and eliminated other benefits such as employee education. Some companies and governments have reduced pay. In economic terms, employers appear to be taking steps to make labor more of a variable cost than a quasi-fixed cost. Hiring caution, benefit cuts, more contingent pay and lower salaries -- as one Unisys engineer was quoted "You've got to take care of yourself."

My take: the answer depends on the overall state of the labor market. If there is a robust recovery, then labor shortages will develop and employers will have to adjust. Remember -- employers instituted health, retirement and education benefits for two reasons: to attract and retain talent and to provide some tax-free compensation. But if the labor market gets a bad case of hysteresis, to paraphrase Bette Davis in All About Eve: "Fasten your seat belts, it's going to be a bumpy ride."

Choices in health insurance

Excellent article in today's NYT by David Leonhardt on employer-provided health insurance. Leonhardt makes an important point about how individual choice is always going to be curtailed when most people get their insurance from either their employer or the government. Some people are risk averse and want insurance with low deductibles and copays; others are more willing to take risks (or have more personal wealth to cover downside risk) and prefer very large deductibles. Regardless of risk aversion, all parties want to take advantage of the tax subsidy provided to employer-provided insurance. However, employers generally negotiate for one plan to cover everyone, and in our low-savings society the low deductible plan will win out in almost every case. Customer service also suffers since customers cannot threaten to take their business elsewhere.

The immediate advantage would be that people could choose a plan that fit their own preferences, rather than having to accept a plan chosen by human resources. You would be able to carry your plan from one job to the next — or hold onto it if you found yourself unemployed. You would never have to switch doctors because your employer switched insurance plans. The longer-term advantage would be that health insurance would become fully subject to the brutal and wonderful forces of the market. Insurers that offered better plans — plans that drew on places like the Mayo Clinic to offer good, lower-cost care — would win more customers. “That’s the way the rest of the economy works,” says William Lewis, former director of the McKinsey Global Institute.

Golden parachutes at state universities?

The Raleigh News and Observer had a long page one story two days ago headlined "Ex-University Brass Get Leaves, Payouts." The impetus for the story was no doubt the arrangements provided to NC State's former chancellor and provost after they resigned their positions earlier this year. In each case the former administrator was provided with six months to a year without teaching responsibilities, plus they were allowed to draw their administrative salary during that period. Sunday's story finds (I'm shocked, shocked) that this practice is very widespread in the UNC system.

If the newshounds at the N&O had done further investigation, they also would have found this to be a common practice at private universities and at public universities in other states. The reason for the teaching release is quite simple -- someone who has not taught for a number of years is likely to be well behind the state of knowledge in their field. This policy is in place to protect students! Also, because the overwhelming majority of universities have such a policy, the UNC system needs to have it to be competitive when filling high level administrative positions. If you pay below market, you cannot expect to attract the best and the brightest.

The current system could benefit from some tweaking. For instance someone who only serves as an administrator for a year or two should not need a year to retool. Also there are lots of issues about the salary level post-administration. Faculty salaries in research university are largely dictated by research productivity. It becomes difficult to attract faculty into administrative posts if they see do not see such posts as being at least revenue-neutral.