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The retraining of the unemployed has the potential to become one of the greatest business opportunities of our time.

Our society can never recover the loss we experience each day that a person who wants to work cannot find employment.

There are approximately 30 million adults in the U.S. who want work but can't find it. Unemployment and the economy are shaping up to be the major two issues in the upcoming 2012 election.

In the 1992 Presidential election, "It's the economy, stupid" was a phrase used by Democrats to unseat a sitting U.S. president. But today, when it comes to unemployment, "it's not the economy." This economy is doing fine, thank you. Gross Domestic Product, retail sales, and virtually all leading economic indicators except employment are up--except they are up without the participation of 30 million Americans who desperately want to participate.

Both political parties are misguided in their solutions for unemployment. Democrats generally follow the ideas of economist John Maynard Keynes who recommended deficit spending to pay for entitlements until the economic cycle recovered. Republicans generally follow the ideas of the Austrian economist Friedrick Hayek who believed that any government intervention in the economy is disastrous and counterproductive.

Although I'm generally known as an "Austrian school" economist, I believe that most of the 30 million U.S. unemployed will not find employment without affirmative government action. That's because most of the unemployed today are unemployed because:

(1)  They lack specific skills needed today by employers;

(2)  They have health issues (like drug abuse or psychological problems) that make them difficult to manage in the workplace; or

(3)  The employment market is inefficient in matching their skills with specific opportunities;

Good managers and entrepreneurs know how to solve these problems when they hire new employees or guide an employee through a difficult time. But we cannot expect businesspeople to spend their own private funds to fix a problem they did not create--especially when they can hire people or more technology without these problems.

Here are some potential solutions we should consider now to get the unemployed back to work.

(1)  Subsidize Employers to Hire Those Receiving Unemployment Benefits - Subsidize jobs and/or internships with "reverse payroll withholding"-the longer the time the new hire was unemployed, the higher the employer subsidy for hiring them. This should be structured to be cost-neutral so that the employer subsidy for hiring someone on unemployment does not exceed the expected future government pay out in benefits if they had remained unemployed.

(2)  Mandatory Retraining after 90 Days of Benefits - Anyone receiving unemployment benefits past 90 days should be required to enroll in training and/or internship programs sponsored by local schools or employers-with the local employers who participate being held financially accountable for overall employee success in getting permanent jobs.

(3)  Drug Testing - Unemployment benefits should not be paid past 30 days without mandatory drug testing similar to what potential employers now require in their hiring. This will weed out the unemployed who, through their own behavior, are not ready, willing and able to work.

(4)  Needs Tested Benefits - No unemployment benefits paid if household income exceeds $100,000 or net worth exceeds $1 million - similar to Medicaid and other safety net programs. Incredibly, this is not the case today. Since 2009, thousands of millionaires keep getting their unemployment benefits extended again and again.

(5)  Employment Malls - Government assisted programs and local "employment malls" to match employees with employers and reduce what economists call "frictional unemployment".

(6)  Extend Public Education to Adults - Many of the unemployed are among the sixty (60) million adult Americans without a high school diploma, yet government programs don't exist for high school students over age 19.

When it comes to unemployment, I've been influenced by the novelist Ayn Rand ("The Fountainhead") along with Lord Keynes and Professor Hayek.  Rand believed that most entitlements were evil incarnate because they robbed people of their dignity.

We can, and should, find solutions for unemployment, provided we first recognize that human dignity and self-esteem are more important than economic success. As someone much wiser said about 2000 years ago: "For what is a man profited, if he shall gain the whole world, and lose his own soul?"

Although the economy is recovering and salaries for top-earners are rising, long-term unemployment is soaring. This bifurcation in the labor market is also happening in the “first job market” for newly-minted college graduates.

 

Please share this with your friends who are in college.

 

It’s college graduation season again. Last year, at the height of the recession, I was hoping to hire some top new college graduates at a bargain price. As explained in my blog entry on The Class of 2009, I was surprised to find that salaries for the very top college graduates actually rose at the height of the worst recession since The Great Depression.

 

While most students couldn’t find any first job, the demand for the very top students—those with both great writing skills and great technical (e.g., HTML, Web design) skills—soared as companies sought to cut costs and increase productivity.

 

Prior to 2009, a Fortune 500 company might have needed 1,000 newly-minted college graduates each year to fill entry-level positions in sales and customer service. Today, thanks to the Internet, SMS texting, and automated call centers, this same company might only need 105 newly-minted college graduates for such positions: 100 "normal" graduates for traditional positions, plus 5 superstar top graduates to design the systems and to write text for the websites, the SMS texting programs, and scripts for the call centers.

 

In today’s technological world, top college graduates are not worth twice the price of an average student—they are worth ten times the price.

 

Top new college graduates are now getting multiple job offers at starting salaries of $60,000-$120,000, while most students with average skills are being left out in the cold.

 

Last week I received an email from a college president asking: “When you hire a newly-minted college graduate, what do you most look for?

 

I answered: “Writing ability.” Most newly-minted college graduates lack good writing skills. Good writing requires clear, logical thinking a knowledge of grammar, and the ability to spell.

 

Sometimes, in the middle of a job interview with a student prospect, I ask the student to sit down at a computer (not connected to the Web) in the next room and write 300-600 words about our interview. Far too often, I am both shocked and dismayed to discover that  few of them can write a clear paragraph.

 

Good writing skills used to be what distinguished Ivy League graduates from the rest—because most Ivy League students came from prep schools that taught writing. This is no longer so.

 

Just last week a graduating senior from an Ivy League college blew an interview that I had set up for her because her email mixed homophones like “their” and “there” and contained misspelled words (which, apparently, were not corrected by her spell checker). 

 

Earlier this year I spent weeks helping a college senior get interviews with a top private equity firm. In the e-mail that the student sent to the firm’s senior partner confirming the initial interview he wrote “higher” instead of “hire.”After canceling the scheduled day of interviews, the partner sent me a note saying “this guy would get laughed out of here for writing like this.”

 

The real blame here is with the teachers. Students in cases like this have no idea why they are failing in the job market. They simply do not know what they don’t know about their own shortcomings.

 

Our nation needs to develop a post-bachelor’s, standardized writing test, to be administered to all U.S. graduating seniors and all job applicants. Such a test would enable employers to discern the qualified applicants, would enable students to discern their own shortcomings, and would help educators teach what they should be teaching to most help their students.

 

"While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness. I feel today like an arms manufacturer on December 7, 1941."
                                                                                         Paul Zane Pilzer, March 23, 2010

Note: Zane Benefits has posted a technical article summarizing the impact of health care reform on insurance agents, employers, and employees, including which changes take place in 2010, 2011, and 2014.

On March 23, 2010 President Obama signed into law H.R. 3590 - the Patient Protection and Affordable Care Act (the "Senate Bill") which mandates sweeping changes in U.S. health care and health insurance. The U.S. Senate is currently debating the Health Care and Education Reconciliation Act H.R. 4872 (the "Reconciliation Bill") which makes modifications to the Senate Bill as described herein.

Here's how this already-passed legislation will impact small (2-50), medium (51-200), and large (>200) size employers and their employees.

Changes in the Individual / Family ("Personal") Health Insurance Market
First and foremost, new insurance regulations prevent health insurers from denying coverage to individuals or charging more based on their health status or gender. These regulations also mandate that health plans provide a very generous list of services (i.e. a federal government formulary), cap annual out-of-pocket spending for participants, impose no annual or lifetime limits on coverage, and, beginning September 23, 2010, offer preventive (wellness) services with no copays or deductibles.

These new mandates, while laudable in their intent for consumers, will significantly increase the cost of health insurance (before federal subsidies) for the majority of U.S. taxpayers. If you are among the 25% of U.S. households earning more than $88,250 a year, your current cost for health care will potentially double. Below $88,250 a year in income, the new legislation caps your health care cost at 2% - 9.5% of your income for premiums and $0 - $5,950/person/year for out-of-pocket expenses.

The net effect of these federal subsidies for employers is that when you switch from group to personal policies the federal government is insuring that each of your employees can afford health insurance at widely varying cost based on their income.

Small Employers (2-50 employees)
Small employers in the U.S. employ more than 50% of American workers and are responsible for the overwhelming majority of new jobs. More than 55% of small employers today do not offer health insurance-because of cost. Both the Senate Bill and the Reconciliation Bill impose no penalties or mandates on small employers to offer health insurance. Congress seemed to recognize that any increase in employer mandates would cause small employers to hire less workers and/or substitute more technology for labor in the workplace.

Most importantly for this sector, health care reform is dramatically accelerating the switch of small employers from group to personal (individual or family) health insurance. While personal health insurance has grown from covering 12 million people in 2002 to 35 million people in 2009, the reason 45% of small employers still offer group plans is because, in 45 states, employees with pre-existing medical conditions were unable to obtain personal insurance.

This is no longer the case. Beginning 2014, insurance carriers must accept all applicants at the same price regardless of health status, and beginning 2010, there is a new federal "risk pool" to guarantee coverage to people who do not have health insurance and cannot medically qualify or are charged more for traditional medically-underwritten personal policies.

Moreover, recent federal legislation allows employers to pay for personal policies with pre-tax dollars, and new Treasury regulations allow employees to use pre-tax salary to reimburse themselves tax-free for personal policy premiums. These two changes have the practical effect of reducing by 20%-50% the after-tax cost of personal policies for employees and employers.

Thanks to health care reform, small employers with group plans in all states can now cancel their group plans and switch to giving each employee a pre-tax allowance to purchase their own personal policy-while being assured that all their employees can get and afford personal health insurance.

A company I founded, Zane Benefits, is the leading supplier of software administration platforms that allow employees to pay for their own personal health insurance with pre-tax employer and/or payroll-deducted funds. Thanks to health care reform, we have experienced a significant increase in business from employers (and their agents) seeking to switch employees from their group plan to personal policies, or at least offer employees the opportunity to save 20%-40% on health insurance by paying for their personal policies through pre-tax salary reductions.

Medium Employers (51-200 employees)
Medium-size employers were not as lucky as small employers when it comes to health care reform. For employers with 51-200 employees, the health care reform bill signed into law on March 23, 2010 mandates a $750 per employee annual penalty for employers that do not offer (and substantially pay for) health insurance. The Reconciliation Bill would raise this $750 per employee penalty to $2,000 per employee (less an exemption for the first 30 employees).

Most medium-size employers who currently do not offer health insurance will simply pay this penalty rather than increase their operating costs by approximately $10,000 per employee for health insurance. Medium-size employers who do currently offer health insurance face an expected doubling of their health insurance costs, from $5,000 to $10,000 per person per year, due to the new federal mandates on coverage.

This creates a choice for all medium-size employers of either paying the penalty or paying a much greater cost for health insurance. The penalty along with new health insurance mandates could have a devastating effect on new U.S. job creation and employment at a time our economy can least afford it. A $750-$2,000 per employee penalty, and/or a doubling of employer health insurance costs, will force many medium-size employers to move jobs overseas, create less new U.S. jobs, and/or substitute more technology for labor in the workplace.

Additionally, think about employers with 49-50 employees seeking to expand. The addition of a single employee could cause their company to incur a penalty of up to $100,000.

Large Employers (>200 employees)
Large employers fared the worst in health care reform. Those large employers who cannot  afford to offer health insurance face the same ($750-$2,000) per employee penalty as medium size employers. And those large employers who currently offer health insurance will face an expected doubling of their health care costs due to the new federal mandates on what must be covered and no lifetime limits on coverage.

Moreover, large employers are required to automatically enroll employees in their lowest cost health plan if the employee does not choose coverage or does not specifically opt out of coverage. For each employee who chooses to opt out of employer coverage, employers are charged a $3,000 annual fee up to a maximum penalty of $750 ($2,000 with the Reconciliation Bill) times their total number of employees.

Among the new federal mandates for coverage, I am troubled by the potential cost of the mandate requiring no lifetime limit on coverage. Prior to health care reform, most states already mandated a per-person minimum lifetime maximum on health insurance benefits ranging from $3 million in Texas to $6 million in California. States typically required insurers operating in their state to re-insure their catastrophic risks, and Wall Street practically required large employers to purchase re-insurance on their catastrophic risks. Re-insurers, such as Lloyds of London, were only able to re-insure carriers and large employers because there was a defined maximum amount of lifetime benefits. 

From a practical standpoint, very few people could ever come close today to utilizing $3 or $6 million of medical costs. The new federal mandate for no lifetime limit may cost Americans hundreds of billions for very little benefit, and may even be unobtainable in the re-insurance marketplace. The federal government should move now to either change lifetime maximum benefits to a practical $3-$6 million amount, or offer carriers and large employers the re-insurance they need to comply from the U.S. Treasury at minimal cost.

Summary
Health insurance reform is here to stay. I do not expect this legislation to be repealed, or successfully challenged in the courts.

Like most government programs of the past, health care reform will create enormous opportunities for entrepreneurs. I plan on exploring these opportunities in future articles and perhaps an entire book. As always with change, those entrepreneurs who get there first will reap the greatest rewards.

While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness.

As a businessperson, I feel today like an arms manufacturer on December 7, 1941. Only time will tell us as a nation whether health care reform was worth the financial cost. To quote Tiny Tim (Charles Dickens), "God bless us, every one!" 

While the U.S. economy is getting better on Wall Street, things are getting worse on Main Street. Unemployment benefits are running out and small businesses are just now dealing with their prior losses. 

This has created an immediate opportunity for those in the business of offering a business opportunity to the unemployed—an opportunity that could grow exponentially when Congress better understands the true nature of current unemployment. 

U.S. home foreclosures, personal bankruptcies, and debt defaults are rising. This is creating enormous pain for many but also opportunity for those in the business of purchasing and reselling assets (houses, cars) from those in distress, or offering the unemployed a business opportunity. 

"Dad," I asked my father when I was 12 years old, "What the difference between a recession and a depression?" 

"That's easy," he replied. "In a recession your neighbor loses his job. In a depression you lose your job." 

While my father's description was not technically accurate, it is very relevant for us today. Other than a few economist types like me, people generally care only about "their economy" vs "the economy." 

How many people do you personally know who have lost their home or their car during the past 12 months due to the economy? Your answer probably is “no one” or "not as many as I would have expected." Unfortunately, this may soon change. 

The Great Crash of 2008-2009 began on September 15, 2008 with the fall of Lehman Brothers—causing an immediate widespread panic in the banking system. But people didn't start getting laid off in large numbers until months later. Reported U.S. unemployment rose from 6.2% in September to 7% by December 2008, but then steadily climbed to about 10% today (about 16 million people). This is a level the U.S. has not seen since 1982, and before that not since the Great Depression. 

These dates are important because unemployment benefits (including extensions granted by federal stimulus money) typically last between 46 and 79 weeks. The majority of people laid off since September 2008 are still receiving unemployment benefits—benefits which begin terminating this month. As these benefits run out, the number of home foreclosures, debt defaults, and personal bankruptcy filings will increase. 

Moreover, the actual unemployment figures are much worse due to the way our government tracks and reports unemployment. 

The popular figure reported by the press is for U-3 unemployment—this is the number released each month by the BLS (Bureau of Labor Statistics). U-3 unemployment is basically the percent of the civilian labor force who are actively looking for work. U-3 understates the true unemployment picture because it excludes people the BLS artificially decides are not actively looking for a job, and people who are working part-time but want to work full-time. 

The more accurate number to watch is U-6 employment, which is basically the number of unemployed people who are ready, willing and able to work but can't find a full-time job. This figure rose from 10.6% (16 million people) of the labor force in September 2008 to 17% (26 million people) in September 2009. 

Thus, 26 million Americans, not 16 million, are currently unemployed, and their unemployment benefits are about to run out. 

Congress is now considering a second extension of the time period for unemployment benefits. While this seems fair and just, it is actually doing a great disservice to most of the currently unemployed who are never going to get their former job back. Their former job doesn't exist—it has been replaced by a new method or machine to accomplish their task, the product they used to make is no longer produced at all, or the product is no longer produced in the U.S. 

What Congress should be considering is tying extensions of unemployment benefits to mandatory education and retraining programs. To receive unemployment benefits past a certain time period, an unemployed person should be required to enroll in courses or internships where they learn new skills or improve themselves in areas in which they are vocationally deficient. When our government does this, whole industries will emerge offering training and development programs, and employers of all sizes will offer internships giving unemployed people a chance to try out new vocations. 

Separately from unemployment benefits running out, another area of grave concern today on Main Street is trade credit. Many small businesses stopped fully paying their suppliers around December 2008 when their sales declined. 

Normally, when a customer doesn't pay a supplier’s bill on time, the supplier stops shipping them new product until the customer brings their account current. But, over the past year, a majority of customers in some industries such as sporting goods, automobiles, and restaurants fell behind on their payables. Suppliers were unable to get tough since they themselves would have gone out of business if they had cut off supplying all customers who couldn't fully pay for their supplies. 

This de facto extension of trade credit has led to an enormous number of small businesses that simply cannot now pay their suppliers, and an enormous number of suppliers who don't have either the management or financial capability to deal with their growing accounts receivable. In my anecdotal survey of local suppliers and friends who own small businesses, I find that businesspeople who typically earn only $100,000-$200,000 a year are behind on up to $1 million or more in trade credit that they have no idea how they will pay off. 

If you, or a friend, own a small business, you must carefully watch your accounts receivable everyday and be prepared for the most creditworthy of your customers to stop paying you at any moment. Congress and individual states may soon need bailout programs for small businesses, just as they provided such programs to our largest banks and automobile manufacturers. 

As more small businesses fail, even as the overall economy recovers, unemployment will grow beyond the 26 million Americans currently without a job. As I'll discuss in future articles, our largest industry may soon be the retraining of workers and the offering of pre-packaged business opportunities to those who can’t, or who no longer want to, work for someone else.