Monday, February 28, 2011

Getting Conned by Bogus Investment Schemes—and Real Ones!

University at Buffalo sociologist, Lionel S Lewis, author of four articles in the journal Society about Madoff investors, explains how the Ponzi scheme works. He says:

To understand how confused thinking is, you need to understand how a con game works and the fact that it requires a “mark” willing to suspend his or her judgment.

First, the “roper”, who could be a brother-in-law, approaches the “mark” and says, “Listen, Bernie can make you a lot of money—a 16 or 20 percent return”. Now this is a far greater return than the standard investment produces, but the “mark” is greedy, like many people, and suspends reason in pursuit of easy cash. Remember, the “mark” is always a willing participant in pursuit of an unlikely outcome.

The con man—Madoff in this case—takes the “mark”’s money and spends it. He doesn’t invest it. He doesn’t realize a “return” on an investment. He just pays millions of dollars in finder’s fees to the “ropers”, gets them to pull in more “marks”, and uses that cash to pay off any of the “marks” who pull out of the scheme early, and spends the rest on estates, cars, vacations and yachts until the money is used up. Eventually the scheme collapses. The “marks” lose their money. In con terms, they’re “trimmed”. At this point, it is the job of the roper and other inside men in the con to “cool the mark out”—calm the waters to protect those perpetrating the con.

They do this, Lewis says, by pointing out to the mark that “he knew he was taking a risk (‘16 percent return? What were you thinking?’) and could have lost more, then sends him off, embarrassed, with his tail between his legs, but with a little cash, glad he’s not living on the street in a refrigerator carton”. The well cooled mark, according to Lewis, recognizes his part in the con. He’s not happy but he doesn’t call the cops, grouse about his losses on TV or blow up Madoff’s house.

Lewis is saying that people are voluntarily conned. They take a silly risk with their own money, knowing it looks fishy, but are so greedy, they do not accept a quick profit themselves from the scam, and get out while they are in the black. Instead, they hang on and on, reaping in the ill-gotten gains, maybe investing some of it anew, until the scheme inevitably falls apart. It is a pyramid selling scheme. It is illegal, and no one is justifying Madoff. He is in jail where he belongs, but the victims are still beefing, though it was a case of caveat emptor. They were buying a share in the scam, and were getting paid as long as new “marks” were being found. Now, they say they are victims of an investment con, that there were proper investments and they did not get their proper share. But there never were any proper investments! Lewis says:

Despite the fact that Madoff never ran an investment fund, no money was “made” on their behalf and there are no profits to return to them.

The scheme got so big and collapsed so swiftly that the “marks” were never cooled out:

So we find them posturing loudly as enraged victims online and off—in the papers, on television and radio—demanding “profits” they apparently think actually exist—they do not—and are owed to them—which is not legally the case.

Lewis focused on 167 people who invested with Madoff. He collected oral and written testimony, including lengthy interviews, from 42 of them and used other written material. Some investors, however angry and ashamed they are, and regardless of how much money they lost, have not sued and made a fuss. A lot of those people won’t talk to anybody. Lewis says:

Some who lost a lot were grateful they hadn’t invested more or glad to get back even a tiny percentage of what they lost, while others who lost less want everything they were “promised”—the 16 or 20 percent profit. They won’t accept that the “promise”, along with their gullibility, was part of the con, that they never could have won at this game, and still can’t, no matter how many attorneys they hire or how often they get on television.

What is sad is that many of those “trimmed” in the scam had worked hard to put together some cash, then greed got the better of them, they thought they could join the ruling class, and make buckets of money, and opted for Bernie Madoff’s shortcut to riches. They were gambling with their life’s savings, and gamblers know that they should only play on their gains, and should cut their losses. Of course, any pyramid scheme ends up with far more losers than winners, but the few winners can make fortunes out of all the little steers who are roped in.

The answer with any gambling—investing, if you prefer to call it that—is not to invest more than you can afford to lose. The trouble these days, is that the ruling caste are forcing the small guy into risky investments because the return at interest has been cut to zero. We can leave our life savings in the banks earning nothing, but eroding away by inflation and bankers’ bonuses, so we have to put the cash into something riskier.

Stockmarket crashes suit banks and financial speculators because it is the small investor who loses by bad timing and their inability to swing markets with sheer volume of investment, or influence, by buying stocks, talking them up with rumours of takeovers and such like, then selling at a profit while the stock is high. Joe and Jane will read the rumours and buy in too late when the stock has started to rise, then find the stock crashing again when the big man sells out. They lose! These are not strictly scams because it is all legal since Reagan had his bonfire of the regulations, a reason for much closer new regulation of the money markets. But Republican propaganda has it that regulation is a bad thing. Yes, it is bad for the crooks at the top, but just fine for the rest of us.

Powers of Persuasion—Marketing by Metaphor

Lera Boroditsky, an assistant professor of psychology at Stanford, says:

We can’t talk about any complex situation—like crime—without using metaphors. Metaphors aren’t just used for flowery speech. They shape the conversation for things we’re trying to explain and figure out. And they have consequences for determining what we decide is the right approach to solving problems.

Test subjects were asked to read short paragraphs about crime rates in the fictional city of Addison, including some startling figures about how much crime had risen, and then were asked to answer questions about the city. The researchers wanted to know how people answered when crime was described as a beast compared with when it was described as a virus. The subjects’ response depended on the metaphor used. 71 percent of participants called for more enforcement when they read:

Crime is a beast ravaging the city of Addison.

But only 54 percent wanted more enforcement when they read:

Crime is a virus ravaging the city of Addison.

Asked to say what part of the report had influenced them most in their decision, only 15 of 485 participants said the metaphor. Most of the rest else said it was the figures. Boroditsky said:

People want to believe they’re logical. They like to think they’re objective and making decisions based on numbers, but really they’re being swayed by metaphors.

As expected Republican participants were 10 percent more likely to suggest enforcement, but reading that crime was a beast swayed 20 percent more to suggest enforcement than reading that crime was a virus, whatever their political persuasion.

It explains why right wing politicians and their supporters like to be so doom laden and aggressive. When we are faced with Godless commies who eat babies, the poor dupes called the public are more ready to send their sons to fight foreign wars, and cut the unemployment roll. When we are faced with evil Moslem terrorists who want to destroy our civilization, we are again ready to send half educated country boys and black urban youths in uniform to fight for western freedom and Christianity.

These powers of persuasion are very well known in our capitalist society which uses them daily to mould our tastes, and influence the brands we prefer, and the places we go. It’s called marketing. Vance Packard wrote The Hidden Persuaders warning us against it half a century ago. By now, Joe and Jane Public ought to know all about it so that they are not so easily duped, but that is not what our leaders want. We are meant to be easily duped. The ruling caste would rather dupe us into fighting each other than fighting them, the real enemy!

Sunday, February 27, 2011

What Makes Working People Happier? Labor Unions!

In the UK the latest fraudster to head the government is keen to find out what makes us happy, while doing his utmost to make us unhappy by destroying the services we treasure like the National Health Service, free schooling, and a fairly neutral but certainly professional civil service. Maybe David Cameron wants to know what makes people happy so that he can all the more effectively make them miserable.

An associated project which he laughingly calls the “Big Society” while dramatically making society considerably smaller, for many of us at least, would be more appropriated called “Yet Another Big Lie” (YABL), Cameron doing his utmost, it seems, to out-Blair the Great Liar Himself, Tony Blair.

Social Psychologists know a lot about social happiness, but Cameron pretends no one knows anything about it, in an attempt to give himself kudos. One thing is certain, and that is that happiness is a relative emotion. It is popularly said that “money cannot bring you happiness, but it helps”, and that is about the gist of it.

People can be unhappy because they yearn for something, and may feel ecstatic to get it, but the pleasure quite quickly wears off, and lack of some new object or experience kicks in to make people again feel unhappy. Being wealthy removes a lot of the fears that the poor have to endure through lack of sufficient cash, but having it just leaves people open to a new desire and new unhappiness. The greedy rich simply set themselves new targets of wealth. If a media mogul owns two newspapers, he will not be happy till he has three and a TV station. Then he wants Three TV stations, and so on.

These very rich people will unquestionably be very unhappy that the ordinary Joe and Jane often want to organize into trades unions to try to safeguard the pay and conditions that they have. Good pay and conditions cost money to the corporation boss, so they are much happier, for a while, when the unions are weak, or in their pocket, or when their lackeys in Washington and London are bringing in anti-union laws. That has been the situiation recently in Wisconsin where Governor Walker suddenly realized he meant to campaign over union power, but conveniently forgot while he conned the voters, so he has just reminded himself and the electorate that he aims to trash the unions as much as he can.

University of Notre Dame political scientist, Benjamin Radcliff, calls it “a perennial ideological debate in American politics—whether labor unions are good or bad for society”. You don’t need to be a professor of poliutics to know that effective unions are good for the members and bad for the members’ employers.

Are they good for society, though? Well, if, ultimately, the unions disappeared and bargaining was entirely at the whim of the boss, most people would be far worse off, and bosses would be therefore better off, at least initially. Unfortunately for the bosses, and this is something that oddly doesn’t make many of them unhappy, when the people do not have much cash to spend, they cannot buy things and industry collapses. That ought to make the bosses very unhappy one would imagine, but too few of them are intelligent enough to realize. Only the intelligent bosses do realize this, and they are very unpopular in their own circles for being wishy washy liberals or even hard nosed socialists.

Anyway, the general upper crust view is that Joe and Jane get too much, and should have less, so that is the message of the right wing media and the right wing puppets called politicians. Most academics too go along with the popular orthodoxy, however insane it is, but not all. Some academics warned against the 2008 crash, not many, but a few, but the rest, the bosses and the politicos, ignored them as Weary Willys.

Now, according to a study co-authored by Radcliff, people who live in countries with strong labor unions were happier, regardless of whether or not they belonged to a labor union themselves. Data from several European countries as well as Japan, Australia and the US, showed that happiness in life meant happiness at work. And the dominating factor that made people happier at work was the security they felt through having a strong union to help them. Happiness relates to the density of unions in a given country. Denmark ranks near the top in both categories, but the US ranks near the bottom for happiness in all the countries studied.

Radcliff found there was a direct effect and an indirect effect of strong labor unions. Members have obvious benefits—job security, fair wages, benefits and decent hours. But for those who are not members, there is the “indirect effect”.

People who have unionized jobs like their jobs better. And that puts pressure on other employers to extend the same benefits and wages to compete with the union shops.

Not surprisngly, lower paid labor union members found more contentment through organized labor than union members on the highest salaries. It’s no coincidence that American workers have never been more dissatisfied with their jobs.

Clever employers, those interested in long term stability rather than short term greed, would encourage trades union membership. They might have to lose some excessive short term profits, but would enjoy the benefits of stability over the long term. As it is, they should look on the Middle East in fear, and wonder what they might be stirring up at home by their unshackled greed, unjust treatment of the ordinary person, and bogus democracy. That goes in the UK for Cameron’s Conservative and Liberal democratic (or ConDem) coalition. People will only put up with so much, notably when they can see that the system is blatantly unfair.

Radcliff specializes in comparative and American politics. He is one of the world’s leading authorities on the study of politics and happiness, having published articles on it in scholarly journals including the American Political Science Review, Perspectives on Politics, Social Forces, and the Journal of Politics. He is author of the book Happiness, Economics and Politics.

Saturday, February 26, 2011

A Better Presidential Electoral System than the US Electoral College

Americans do not elect a president. They elect representatives of their state to an electoral college totalling 538 of them distributed to each state according to the size of states’ congressional delegation, reflecting the population of each state. California has 54, New York has 33, the seven least populated states have 3 each. The District of Columbia also has 3. It is a uniquely American institution which then elects the vice president and president.

Isn’t this undemocratic? Why not have a direct election? The political controversy surrounding the Electoral College is as old as the republic. In 1969, Congress started to think so. Nixon had defeated Hubert Humphrey with a popular margin of less than 1 percent. Unlike the crookery of the hanging chads of 2000, the House of Representatives was so shocked that a successful candidate could actually be denied the Presidency that it moved a constitutional amendment to abolish the electoral college. The Senate also inclined to support the amendment, and lawyers of the American Bar Association said the US electoral system was…

…archaic, undemocratic, complex, ambiguous, indirect, and dangerous.

Electing the president by direct popular vote would be simpler and fairer. But the issue lost momentum. In 1976, Jimmy Carter’s narrow victory over Gerald Ford resurrected it. The League of Women Voters and a majority of Americans, according to pollsters, thought the electoral college should be abolished. In the Senate, although the bill had majority support, it died for lack of the two thirds majority needed to pass it.

In spite of recent contentious elections that raised the controversy to new heights, the debate is unlikely to reach a resolution given the compelling political considerations on both sides. But rarely if ever does the public debate on this subject take into account objective, mathematical considerations. Nevertheless, statisticians can make an important contribution to the debate, for mathematicians have made statistical calculations on voting issues since the 18th century, when the Marquis de Condorcet, a French philosopher and mathematician, applied probability theory to voting. In the 1990s, Will Hively, reported that a physicist, Alan Natapoff, had proved the electoral college is better than a simple, direct election, and indeed the success of US democracy depends on it:

Everybody gets this wrong. Everybody. Because we were taught incorrectly.
Alan Napatoff

But more recently, UC Berkeley’s Elchanan Mossel, an associate professor in the departments of Statistics and Computer Science and an expert in probability theory, begs to differ. He believes this system of electing the president is more likely to result in an erroneous election outcome compared to the simple majority voting system. Mossel’s analysis compares the Electoral College system with the simple majority voting system to test how prone to error the electoral system and whether it can change the outcome.

Originally the electoral college did not have to choose the winner of the popular vote. In 1888, Grover Cleveland got 48.6 percent of the popular vote and Benjamin Harrison 47.9 percent. Cleveland won by 100,456 votes. The college chose Harrison by 233 to 168. The representatives to the electoral college did not have to vote for Cleveland. They chose Harrison, so he was the winner. In 1824, Andrew Jackson beat his rival, John Quincy Adams, by more popular and more electoral votes—99 to 84. But 78 went to other candidates, so the House of Representatives picked the winner. They did not select Jackson.

In 1876, Samuel J Tilden lost to Rutherford B Hayes by one electoral vote, though he received 50.9 percent of the popular vote to Hayes’s 47.9 percent. An extraordinary commission awarded 20 disputed electoral votes to Hayes. In 1960, John F. Kennedy narrowly beat Richard Nixon in the popular voting, 49.7 percent to 49.5 percent, but Nixon won 26 more states to 24 for Kennedy and others. But Kennedy had won big states, and won the electoral ballot, 303 to 219. A close popular majority had turned into a big electoral college majority.

James Madison, chief architect of the US’s electoral college, wanted to protect the people against the tyranny of the majority—a built in majority for some bloc destroying tolerance so that minorities were no longer free. Madison explained in The Federalist Papers X that a well constructed union must break and control the violence of factionalism especially the force of an overbearing majority. J S Mill explicitly warned of the same thing in his later essay On Liberty.

In any democracy, a majority’s power threatens minorities. It threatens their rights, their property, and sometimes their lives. Madison and his colleagues, having won the war of independence, wanted an electoral college to avoid internal revolutions, so built a system which made representatives of each state intermediary voters. The representatives, they expected, would be responsible middle class people, like themselves, who would vote for a president like themselves, and so stability would be guaranteed. They were aiming to stifle the “popular will”—they distrusted the mob.

Nowadays, whoever wins the popular vote in any state (except in Maine) wins all the electoral votes in that state automatically, so whole states become blue or red ones, and the large states carry more weight. The representatives to the electoral college have no independence. They must vote according to their state’s popular vote. It means that the popular vote in a few states can overwhelm many others who might dissent. Actual representatives are superfluous. Each state gets a weighted vote for the presidency based on its weighting and the popular vote in it. If the Madisonian system had any original merit by requiring candidates to win states on the way to winning the nation, it has now been neutralized into a series of popular votes, many of which matter only when the large states balance themselves out. So, the votes in small states and states which go against the trend can only matter on the odd occasions when by chance the large states neutralize each other’s votes.

Natapoff looked into the math, and convinced himself, the US electoral system increases voters’ power. The same logic that governs our electoral system, he saw, also applies to many sports—which Americans intuitively understand. In baseball’s World Series, the team that scores the most runs overall does not get to be champion. To do that, a team has to win the most games. In 1960, the New York Yankees scored more than twice as many total runs as the Pittsburgh Pirates, 55 to 27. Yet the Yankees lost the series, four games to three. The Yankees won three massively (16-3, 10-0, 12-0), but lost four close games. Napatoff says:

Nobody walked away saying it was unfair.

Runs must be grouped in a way that wins games, just as popular votes must be grouped in a way that wins states. In sports, we accept that a true champion should be more consistent than the 1960 Yankees. A presidential candidate worthy of office, by the same logic, should have broad appeal across the whole nation, and not just play strongly on a single issue to isolated blocs of voters.

Napatoff argued that under a tyranny, everyone’s voting power is equal to zero. Equality of the vote is not enough. Mossel agrees:

Statistically, the most robust system in the world is a dictatorship. Under such a system, the results never depend on how people vote.

But since most people would prefer an alternative to dictatorship, the question is which democratic voting system will produce accurate results. To that end, Mossel compared different voting systems, including simple majority voting and the Electoral College system, both of which offer voters two alternatives to pick from.

A well designed electoral system might include obstacles to thwart an overbearing majority. But direct, national voting has none. In a democracy, as a nation gets larger, everyone’s voting power shrinks. So, the immense size of the US electorate means everyone’s individual vote is of negligible weight, and only counts a little more when the voting in the big states turns out to be tight. In large democracies, with massive electorates, each person’s voting power in direct elections is virtually zero!

Napatoff says people are less vulnerable to tyranny when their voting power increases, and individual voting power is higher when funneled through districts—such as states—than when pooled in one large, national, direct election. Anyone's vote has more chance to determine the outcome locally, in one's state, and thereby anyone has more chance to change the outcome of the electoral college, than when one's your vote is among the many more of a direct federal election. He concludes a voter has more power under the current US electoral system.

Under raw voting in a divided society, a candidate wants to woo a bloc large enough to be the majority. In a two person or two party situation, where each party represents blocs on the right and left respectively, given that neither can expect an overall majority only from its core supporters, then both have to woo the floating voter caught between the two, usually those in the center. Some think this makes for constancy and stability, but it makes for a lot of frustration on both wings., and that is being felt today as the US polarises.

The probability that anyone’s vote will turn the election is the probability that all the other votes balance out. In a small town with 135 citizens, the probability any vote will be decisive because the others are in balance can be calculated as 6.9 percent. The 1960 presidential race between Kennedy and Nixon was one of the closest ever. A deadlock would have been 34,167,371 votes for Kennedy and for Nixon. Kennedy got 34,227,096 to Nixon’s 34,107,646. The chance of one vote being decisive is minuscule.

Unfortunately, in such a case, the electoral college system has little or no advantage. Districting never boosts voting power in close elections, the time when you hope it might. It does not help any electorate of any size when the contest is perfectly even. Doing the math shows it slightly reduces individual power. Abolition of the electoral college as it now operates would improve democracy when the votes are close.

When one party or candidate has a landslide, the electoral college, Natapoff says, strengthens the individual vote a little. For a town of 135, the notional crossover point for voting power is about a 55-45 percent split in voter preference between two candidates. In any contest closer than this, voters would have more power in a simple, direct election. In any contest more lopsided than this, district voting will give individual voters more power—but it matters less, because the result is so lopsided it cannot be affected by one vote anyway! In that town of 135 citizens, when voter preference for one candidate is 55 percent, the probability of deadlock, and of anyone's vote turning the election, falls below 0.4 percent. The probability that one vote will matter keeps on falling, as a candidate pulls further ahead. For all that math, there is less chance of changing the outcome. Natapoff says:

If candidate A has a 1 percent edge on every vote, in 100,000 votes he’s almost sure to win. And that’s bad for the individual voter, whose vote then doesn’t make any difference in the outcome.

One can imagine an extreme case of district voting where every voter is in a district of their own. Plainly the district voting model becomes the same as a direct election. So extreme districting is no different from direct election, whether the voting is lopsided or close—districting cannot help when the election is heavily skewed, and, as we saw, it is no advantage when the election is close.

So, when one candidate gains an edge over another, a 1 or 2 percent change in the electoral college system hugely reduces anyone’s chance of changing an election with their solitary vote, and candidates have less incentive to keep the losers happy. We have what Madison wanted to avoid. The larger the electorate, the more telling a candidate’s lead becomes, so the best idea is not to allow large elections. That is an advantage of dividing the national election into smaller, state contests, but today the states themselves are mainly far too big for this to matter.

The United States is not a perfectly districted nation. States vary enormously in size. The more lopsided the contest, the smaller each district, or state, needs to be to give individual voters the best chance of a local deadlock. So in close elections, voters in larger states would have more power, in lopsided elections, voters in smaller states would.

Either the national electorate has to be divided into smaller sizes, preferably all nearer the same size, meaning large and intermediate states themselves have to be split into national voting districts about as big or smaller than the smallest states today, or the electorate must have a greater choice of responses. With a lot of small voting districts, the candidates have a lot more chance of losing and the voting pattern comes more into balance, and, of course, the votes count for more.

But a similar effect can be had in a single national vote by allowing voters to vote for more people, the list of candidates being opened up from just two, to several. By having an alternative vote or, better still, a single transferable vote, everyone can still vote for their preferred candidate, but they can also vote for the others in order of preference, their second and third choices, all the way down the list…or not, just as they wish. When no one has an absolute majority, the least popular candidate drops out and his second choices are redistributed, successively until there is an overall winner. The modern automatic telling machines now used in the USA makes transferable voting (STV) practicable, when once it would not have been.

Natapoff says, the point of districting is to reduce the death grip of blocs on the outcome. But small districts which the math says give a notionally better chance of a tie, so that the individual vote counts, also make it easier for a bloc of big enough size to form and dominate the election.

Mossel’s assumption is that any voting model is subject to error, meaning that the vote cast by a small number of voters in each election will end up being recorded differently from what those voters intended. This may be due to human error, hanging chads, or voting machines that flip some vote randomly.

In 1899, W F Sheppard found that majority voting has an error on a given vote of its square root. So, if the error—say a faulty voting machine—is 1 in 10,000, the chance that the result of the election will be changed is roughly the square root, or 1 in 100. In a landslide election such unfortunate occurrences make no statistical difference. But in a close election, such errors may wreak havoc, even without our knowledge. Mossel uses advanced mehtods like Gaussian analysis, and isoperimetric theory, but he finds that the answer is unequivocal:

We don’t have the best system. Isoperimetric theory tells us majority voting method is optimal. It is the most robust.

Put simply:

With Electoral College voting, in essence you’re doing majority twice. First you do majority in each state and then you do the majority of the majority, so you take the square root of the square root. So you take square root of 1/10,000 once and get 1/100, and then you take square root again and get 1/10.

The Electoral College appears to fail miserably based on the robustness to error criteria, and in comparison with direct elections. If the democratic ideal is for the outcome to reflect the intent of the voter as much as humanly possible, then the analysis suggests a change is needed. If Americans want the best electoral system, they should change the electoral college method to a direct election for president, and to try to achieve Madison's aims, should have multi candidate elections by alternative vote or preferably single transferable vote.

Tuesday, February 8, 2011

Immigrant Youth Soon Adopt US Levels of Social Violence

New immigrant youth in the United States commit significantly fewer acts of violence against their peers than people born here, but rapidly adopt US social norms that perpetuate aggressive behavior.

Joanna Almeida, associate research scientist at Northeastern’s Institute on Urban Health Research, analyzed data from the 2008 Boston Youth Survey, which was completed by more than 1,300 students in Boston public high schools in an effort to learn more about patterns of violence among Boston youth.

She found that patterns of violence perpetration did not differ by race or ethnicity among the recently immigrant youth. Nor did the recent immigrants use drugs or perform as badly in school as often as US students. But they were just as ready to be emotionally and verbally aggressive, and to spread lies or rumors about a peer.

Most significantly, US born youth with a foreign born parent and immigrants who have lived in the United States for more than four years were roughly twice as likely to commit acts of aggression against their peers, including hitting, punching, and kicking, as those who have lived in the United States for fewer than four years. Almeida disingenuously said:

It’s possible that there’s something about the social environment in this country that’s contributing to foreign born youth becoming violent so quickly. Perhaps it’s a way to cope with being bullied or discriminated against, a consequence of crime and violence in their new communities.

Sunday, February 6, 2011

Managers Make Staff Work Harder with Less Reward

Unless you are a banker, one might add!

King’s College London and law firm Speechly Bircham have surveyed 550 senior personnel of firms, with a combined workforce size of more than two million, to discover the state of human resources in the UK. It highlights the problems faced by employers, as they struggle to find ways to address gender pay inequality. They are unprepared for forthcoming changes to the retirement age, and are facing greater workplace unrest as austerity measures, longer working hours, stress and a skills shortage take their toll on the workforce. Richard Martin, Partner and Head of Employment at Speechly Bircham, said:

This sends a clear warning to employers. The combination of increased workplace conflict, longer hours and rising stress levels is a potent cocktail that could lead to a significant rise in tribunals and industrial action, if not properly addressed.

Despite our last survey showing that UK employers regarded employee engagement as their number one priority, reported levels of employee engagement have fallen. Skills shortages are worsening and the rigid cap on immigration means that employers are left with few tools with which to plug the skills gap. Only a small percentage of businesses have any measures in place to deal with pay inequality despite the Equality Act looming.

Perhaps most worrying is what can be read between the lines of the survey about employee wellbeing and engagement. At a time when employers should be focusing on re-engaging with staff and repairing the damage caused by the recession, staff are instead being made to work ever harder, without reward. An economic recovery built on working reduced workforces harder and harder is clearly not sustainable and could lead to major problems for employers—particularly in the public sector.

The gist of the report is:

  • More than 50 per cent of firms reported an increase in working hours, while pay rises and bonuses are being withheld. Longer working hours correlated with increased absence, sickness, stress-related problems, and more grievances. Increasing working hours causes workplace unrest and higher staff turnover.
  • 42 per cent of respondents employing non-EU workers reported that the immigration cap is affecting their business adversely. One in three businesses have an bigger skills shortage compared to last year when it was 22 per cent. Where there are skills shortages, staff turnover is increasing and more working days are being lost through sickness and absence.
  • Deteriorating employee relations, high stress levels and workforce disputes appear endemic, particularly in relation to bullying, harassment and relationships with line managers.
  • 46 per cent of respondents said that stress-related problems have gone up, while 30 per cent had seen grievances increase over the past year. Organisations that noted higher levels of stress showed a direct correlation with higher levels of sickness absence.
  • In 2011, 40 per cent of respondents expect worse employee relations, 42 per cent expect higher stress levels and 29 per cent see rises in employee grievances.
  • Most firms say they have equality of pay but admit they do not have any ways to check it. 84 per cent claimed no material gender pay inequality, but only a third had any means to monitor gender equality of pay.
  • Most businesses are unprepared for the scrapping by law of the compulsory retirement age from April 2011. 78 per cent of respondents still had a retirement age of 65, and another 5 per cent had some other compulsory retirement age. Only a third of organisations thought it was an issue.
  • Downsizing of workforces remains largely unchanged and flexible working continues to increase. 70 per cent were still having to make compulsory redundancies in 2010, hardly any improvement on the 72 per cent who downsized in 2009. Flexible working continues to be a popular workforce strategy in difficult conditions, with 36 per cent of respondents identifying an increase in the use of these arrangements.
  • Macho management remains the fashion, even though poor relations with staff are the biggest source of grievance, formal grievances arising from employee relations with senior/line managers for 40 per cent of firms.
  • Though job design, employee participation and procedural fairness have more impact on employment than supposedly more effective leadership and management, macho management continues to retain its appeal among management.

Stuart Woollard, Managing Director of King’s HRM Learning Board and co-author of the survey report, says the survey…

…should worry all business leaders and HR directors as the results question the sustainability of current strategies to keep workforces performing at the required level. Organisations must carefully consider the likelihood of erosion in employee productivity, work quality and performance as a consequence of lean workforces and additional working hours. With an apparent leadership/management disconnect with staff, firms may also not realise the nature and extent of the problems ahead.

Organisations that are able to understand and alleviate employee anxieties and provide effective ways to counter the impact of high pressure work environments will ensure that they retain more engaged and productive workers, making a route through the economic uncertainties far clearer. There is evidence in our survey that those firms who are able to implement effective HR strategies that drive higher levels of engagement may find that these initiatives will differentiate them in terms of organisational performance.

Anyone looking on with a critical eye cannot fail to wonder why bankers need huge bonuses to motivate them to work, but people doing something useful, making things we need in a factory, or distributing them, whether laborers or skilled technicians, need to be threatened and bullied according to the continuing fashion for macho management. The macho managers haven’t the wit to realize that cutting and cutting staff levels, and forcing people to do more for less, while refusing to train the staff in the skills they, and we, need is destroying our potential for surviving. Moreover, the more people have to work and the less they have to spend and the less leisure time in which to spend it, the less will be bought. It forces us into depression. In short, our governments and the management they represent could hardly do worse.