Why Academics Shouldn't Influence Your Business Decisions...

Here's a tip for anyone in business.  Rely on academics for macro-research, but leave the business decisions to those who have to live with the results.  Need proof?  Check out this sloppomatic assumption from deep thinker Leonard Burman (Urban Institute) via the Washington Post:

"Right now, employer-paid health insurance is entirely tax-free -- a break that will cost the Treasury about $250 billion this year. If an employer pays $12,000 for health insurance, that money is not counted as income, whereas the same $12,000 paid as cash wages is subject to income, Social Security and Medicare taxes. The more generous the insurance policy, the bigger the tax savings.

Health experts criticize this arrangement because it encourages employers to provide health insurance plans that cover everything; this, in turn, contributes to overspending on health care by workers who have no incentive to pay attention to costs.

More important, in the long run, a cap could help union workers. For one thing, it would require employers to reveal what they pay for health insurance. If machinists earning $50,000 a year knew that their employers were paying $20,000 for their health insurance, many would ask them to find a cheaper plan (such as an HMO) and boost wages."

Hey Leonard: Here's the question you should ask the folks who represent union workers at the bargaining table: "Would you rather have a) benefits that cover everything, or b) higher wages, or c) more jobs at the plant?".

The answer in the real world?  Ask that question and the answer you'll get back is "Yes! We'd like some of all of that".  Unions aren't in the business of forcing choice (benefit levels vs. wages) or creating jobs at the expense of their current members - that's not the way it works, and union leaders know that won't sell on the street - that's not what they sold their members on when they organized the group.  What they sell is this - we're going to protect you and make sure you get more of everything, or at the very least, maintain what you have.

That's why you don't let academics make your business decisions for you.  Markets aren't always rational, and emotions and positioning are items that have to be factored in.  So read the macro research to understand the trends, but factor in your street knowledge as well.

Now where's my sign-on to the Urban Institute?  I need some help with an attendance issue...

<Captialist Note - to be fair, there's good research at the Urban Institute and Burman's columnn in the post is worth reading in it's entirety - just don't take all the macro assumptions to the street, because you'll get nailed...>

Comments

[rlcolem]

"If machinists earning $50,000 a year knew that their employers were paying $20,000 for their health insurance, many would ask them to find a cheaper plan..."

We TRY to find cheaper plans, but all it takes is a few serious claims to turn your company into something no insurance company will touch, at least not for a lot of money. Ours didn't get that way by employees running off to the doctor for every little ache and pain.

I wonder if the same hypothetical machinists would gang up on their fellow employees to quit smoking, lose weight and exercise on their breaks to enable their company to bargain for something cheaper. I doubt it.

[Chris]

This is also why you shouldn't let consultants, "gurus", or other companies make decisions for you.

Unfortunately businesses in general, and HR in particular, fall prey to someone else's great idea far too often without asking important questions like: Is this relevant to my company? And could it work in my company?