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CEO Recruitment

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5 Myths about Income Inequality Debunked

5 Myths about Income Inequality Debunked

It’s important to have a healthy skeptic’s attitude.

The issue of economic inequality is all the rage these days. It encompasses numerous arguments about a wide range of topics. Let us review and rebut several common ones.

At first glance, this claim may seem to be supported by a graph like this one, taken from the Federal Reserve FRED data source.

The peak reached in 1999 wasn’t surpassed until 2016. This would seem to indicate significant stagnation of incomes.

The problem is that this is household data, which doesn’t control for the number of people per household. The scientific method has taught us that we need to hold independent variables constant, if possible, to do more accurate and convincing research. So, instead, we should use per capita data, which means one person and always means one person.

What exactly does the inflation-adjusted per capita data on various measures of standard of living say?

Real gross domestic product per capitareal disposable personal income per capitareal personal consumption expenditures per capitaand real total compensation per hour all point to a drastic and sustained improvement in the standard of living over time in the US, business cycles notwithstanding. This government data provides a strong counter-argument to the idea that the typical person in the US hasn’t gained ground in living standards since the 70s or 80s.

The argument falls apart when you consider two things: income mobility and the fact that all households saw increases over time.

This isn’t so much an outright fallacy as it has to do with incomplete knowledge and misunderstanding of statistics. The argument falls apart when you consider two things: income mobility and the fact that all households saw increases over time.

The data comes from the Panel Study of Income Dynamics at the University of Michigan. This longitudinal study started in 1968 and has been ongoing ever since.

The reason this data is important is that it follows people over time instead of statistical bins. This is maybe, at first, a subtle point, but it is crucial. Many arguments involving inequality follow statistical bins over time instead of people over time who move through the bins. I might not be as concerned about the bin of the bottom 20 percent between 1970 and 2018 if the people who made up the bottom quintile in 1970 have moved into other higher bins by 2018.

Data showing all households gaining. Table 2 page 8

Data showing 84 percent of Americans exceed their parent’s family income Figure 1 page 4

You may have seen this argument made by the Economic Policy Institute.The first chart (below) shows a disconnect between productivity and pay starting around the year 1973 and continuing into the present day.

There are two basic problems with this chart.

The first problem is that it only considers wages. When all compensation is considered, which includes wages and non-wage benefits like health insurance, maternity leave, and life insurance among others, total compensation more closely tracks productivity.

The second problem is that this chart arguably uses an inappropriate measure of inflation, the CPI, which shows a very small increase in wages. The CPI is a measure of inflation more suited to the consumer market. Labor is a factor of production and, thus, a measure of inflation in the factors market is more appropriate, like the Implicit Price Deflator. Chart 6 (below) gives a comparison of the relevant measures of inflation and taking into account total compensation.

Once you take these factors into account, compensation has tracked the increase in productivity to the tune of 77 percent, a far cry from the 7 percent decline that the CPI shows for only wages.

This is akin to wanting to know about the typical university student but only taking a survey at Harvard, a very non-typical school.

The problem with this line of argumentation is that this data is taken from a non-representative sample of CEOs, usually Fortune 100 companies. This is akin to wanting to know about the typical university student but only taking a survey at Harvard, a very non-typical school. Instead, when we take a truly representative survey of CEOs, we find that they make a median of $183,000 a year, about 4-7 times the typical worker.

Statistical analysis of this subject might, at first glance, lead to exactly the conclusion that discrimination is the primary culprit in income disparities between minorities and gender. There are two problems with this.

First, it relies on faulty statistical interpretation. When scholars do a regression analysis—a statistical method where outputs like income can be predicted by independent variables—there is often a residual disparity leftover. This leftover unexplained disparity is taken as proof of discrimination. In reality, this unexplained disparity is the upper limit of all other unaccounted for variables plus discrimination, if any. To automatically assume the remaining disparity is discrimination is a miscarriage of statistical interpretations of regression analyses.

Second, when we talk about a theory in science, we may have several competing theories trying to explain the same phenomenon. The best theories are often the ones that explain the most-observed phenomenon accurately, that make predictions, and that can be tested and verified repeatedly. The theory discrimination in income disparities suffers from not being able to explain as many observed phenomena. It cannot make accurate predictions, and most importantly, it cannot be measured, tested, and verified. It is thus a theory that needs to be discarded when a superior one exists.

Human capital, according to economists, is the stock of knowledge, habits, and social and personal attributes, including creativity, embodied in the ability to perform labor to produce economic value.

The superior theory is that income is a function of human capital. Human capital, according to economists, is the stock of knowledge, habits, and social and personal attributes, including creativity, embodied in the ability to perform labor to produce economic value. The theory is well established in its framework and has evidence to back it up.

Although we covered only five topics, my purpose was to scratch the surface of inequality arguments and show the common logical breakdowns, fallacies, and statistical misinterpretations that abound in common media about this issue. Inequality arguments suffer from many of the same problems discussed here. My hope is that I have instilled an instinct to have a healthy skeptic’s attitude.

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Google Says The Best Managers Have These 10 Qualities

It’s called Project Oxygen.

Beginning in 2008, Google researchers wanted to understand what makes a manager great at Google.

Here’s what they found.

Project Oxygen

Google sought to identify the common threads among Google’s highest performing managers. Based on internal research, Google then applied its findings to its manager development programs.

Over time, Google found that by publicizing and training managers on these central principles, Google experienced improved team outcomes such as turnover, satisfaction and performance.

As Google has grown and evolved, the company also has incorporated employee feedback and refined the central behaviors that make a great manager.

The 10 Behaviors Of A Great Manager

So, here are the 10 behaviors that make a great manager at Google:

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1. Is a good coach

Great managers are not simply great performers. They invest the time and energy to coach others.

Great managers share best practices so that their teams can grow.

2. Empowers team and does not micromanage

It’s all about empowerment.

What are you doing to empower others on your team and across the organization?

Micromanagement is one of the great blunders of poor managers. Give your team space. Be flexible. Sometimes, you just need to get out of their way. No one likes a micromanager.

3. Creates an inclusive team environment, showing concern for success and well-being

Be inclusive. Embrace your team and make them part of the mission. Create an environment where anyone can ask a question, experiment and propose a new idea.

4. Is productive and results-oriented

Results matter, but you need to create a culture in which everyone can thrive to produce the desired results.

Show your team how to produce the results that you want. Don’t just set goals and then expect outcomes.

5. Is a good communicator — listens and shares information

Too many managers fail because they can’t communicate.

Communication is not top-down or unidirectional. It’s essential to be a good listener. Invest the time to get in the arena and listen to your team.

6. Supports career development and discusses performance

Don’t focus on what your team can do for you. Focus on what you can do for them – and how you can work with them to advance the goals and mission of the organization.

Career development is essential – give your team the tools they need to thrive.

Feedback (positive and constructive) is so important – make sure to get it right.

7. Has a clear vision/strategy for the team

If the manager doesn’t have a clear vision and strategy, how can the team thrive?

It starts with the manager to set the tone and lay the foundation and direction for the team.

8. Has key technical skills to help advise the team

Substance matters.

Managers don’t “check out” when they become managers. Rather, they get in the weeds.

Not only can you help achieve better outcomes, but also you can gain credibility with your team when you demonstrate your technical expertise.

9. Collaborates across Google

Your team is not an island.

You must collaborate across the organization. You have expertise that someone in another group can use. They too have skills that can benefit you.

The more everyone shares, the more the organization rises.

Collaboration leads to wonderful synergies.

10. Is a strong decision maker

Analysis is helpful. Strategy is important. Scenario testing provides focus.

However, there is no replacement for being a strong decision maker.

You can spend unlimited time analyzing, strategizing and scenario-testing.

It’s the action that matters.

These 10 behaviors make a great manager at Google. What makes a great manager in your organization?

Zack Friedman is Founder & CEO of Make Lemonade, a personal finance comparison site. Follow Zack on Twitter and Facebook. Read his Forbes columns. Contact Zack for speaking engagements.

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http://www.govrangers.com/leadership/x6383PoundTheRock.pdf

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What Are You Building?

What Are You Building?

 

Adapted from Born to Build (Gallup Press, May 2018).

People will ask you throughout your life, “Where do you work?” and “What do you do?” They never ask you, “What are you building?”

When conversations change to “What are you building?” you will change, and so will the world.

Well-meaning and important global institutions, scientists, academics and politicians have never fully understood the rare gift to build something — a God-given natural talent that many are born with — that to some degree, you yourself possess.

Some refer to this gift as “entrepreneurship,” which it is, in part. But this human phenomenon is better characterized as “building.” Entrepreneurship has taken on many definitions, and it’s often confused with innovation. We need a lot of innovation, but building is a very distinct, separate phenomenon.

An innovation has no value until an ambitious builder creates a business model around it and turns it into a product or service that customers will buy.

An innovator is first and foremost a creator, an inventor — a problem solver with a deep passion for improving something. Innovators are thinkers.

builder is different from an innovator. A builder creates economic energy where none previously existed.

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We are all born to build. What are you going to build?
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Builders can start very young. When an 8-year-old puts a lemonade stand on a corner, they create new economic energy on that corner — goods and services are exchanged for the first time at that place.

Years ago, a 14-year-old could take on an existing newspaper delivery route with 25 papers and boom it to 100 papers. This young builder created economic energy that wasn’t on that route before. Believe it or not, U.S. GDP actually ticked up a little when that paper route quadrupled.

Builders also create goods and services that customers didn’t even know they wanted or had ever imagined. Builders create demand.

When Google or Apple was launched or the first commercial airplane took off in 1914, there was no inherent demand for any of their products or services. Nobody said, “Gee, I wish I had a device in my pocket on which I could search everything humans have recorded since the beginning of time instead of going to a library.”

Or, “It would be so cool to fly through the air in a metal tube at 400 mph rather than ride to my destination on my horse.”

Or, “I wish someone would invent plumbing and electricity rather than using candles and kerosene — and going to the toilet outside.”

Economists and well-meaning thinkers often look at a weak or declining economy and conclude, “We have a declining economy because demand is weak or because there is no demand at all.” A more insightful observation is, “There is no demand because there aren’t enough builders who create demand.” Without builders, there is no demand, no growing economy and hence, no good jobs.

There was never an inherent demand for cars, flight, TV, video, indoor plumbing, electricity or the internet, or Starbucks or Amazon — somebody had to take a good idea and build it into something big. And when people do that, they create economic energy that wasn’t there before — as well as new good jobs and all the things that build a growing economy.

Is it time for you to think about building something?

Maybe you could build a small or medium-sized business. Or build a huge business — one with $10 million or $10 billion in sales. They all count and add up to the sum total of the world economy. We need hundreds of thousands of small and medium-sized businesses. All societies need organizations of all kinds continuously starting up and booming — or they can’t develop.

You could also build a small, medium or jumbo nonprofit. Nonprofits create economic energy too. They boost GDP and create real jobs and real growth in cities and states.

Builders from Andrew Carnegie to J.P. Morgan to John D. Rockefeller to Henry Ford famously created historic economic energy through steel, electricity, trains and cars. They transformed America and the world because they created customers that didn’t previously exist. They had a gift to envision, create masses of customers and change how we live. They also made very big bets — they would sometimes bet everything they were worth. Extreme builders will, a few times in their life, bet it all.

Every institution in the world — even nonprofits, schools and churches — has customers. Builders are born with a gift to know how to create demand for those customers — market disruptions that offer a better way to live.

But creating a big booming enterprise or nonprofit organization won’t happen with just one gifted builder. There is a fragile ecosystem around effective builders.

Gallup has found that there are three key players in the development of any organization, whether it’s a new enterprise, a new division within a company or a nonprofit. We call them the “three alphas“: the alpha Rainmaker, the alpha Conductor and the alpha Expert. When this combination exists in an organization or on a team, the likelihood of it breaking out and booming grows exponentially.

An alpha Rainmaker has unusual drive and persistence — rare grit. Obstacles and failure actually increase a Rainmaker’s determination. An enterprise virtually never works without this player.

An alpha Conductor has management ability. This is the operations person or manager who knows how to get all players on the team — or in the “orchestra” — to work together seamlessly. This person holds the whole organization together.

An alpha Expert provides differentiating expertise to the core product or service. Whether it is an analytic services startup’s brilliant statistician, a new restaurant’s star chef or a software firm’s best programmer, virtually every successful startup has an alpha expert who highly distinguishes it from the crowd.

Born to Build — which Gallup is releasing today — and the assessment included with it were created to help you decide how building plays into your life and career. They will help you answer the question “Am I an alpha builder?”

You were born to do this. Whether you are an alpha Rainmaker, an alpha Conductor or an alpha Expert, there are no limits to what you can build.