Gary Dessler - Chapter 1 - Managing Human Resource Resource Today - Tài liệu tham khảo | Đại học Hoa Sen
Gary Dessler - Chapter 1 - Managing Human Resource Resource Today - Tài liệu tham khảo | Đại học Hoa Senvà thông tin bổ ích giúp sinh viên tham khảo, ôn luyện và phục vụ nhu cầu học tập của mình cụ thể là có định hướng, ôn tập, nắm vững kiến thức môn học và làm bài tốt trong những bài kiểm tra, bài tiểu luận, bài tập kết thúc học phần, từ đó học tập tốt và có kết quả cao cũng như có thể vận dụng tốt những kiến thức mình đã học.
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PART INTRODUCTION 1 Managing Human 1Resources Today OVERVIEW:
In this chapter, we will cover . . . ■
■ THE TRENDS SHAPING HUMAN RESOURCE MANAGEMENT
■ CONSEQUENCES FOR TODAY’S HUMAN RE SOURC E MANAGERS ■ THE PLAN OF THIS BOOK LEARNING OBJECTIVES MyManagementLab®
When you finish studying this chapter, you should be able to: Improve Your Grade!
When you see th is icon, visit
1. Answer the questions, “What is human resource
www.mymanagementlab.com for
management?” and “Why is knowing HR management
activities that are applied, personalized,
concepts and techniques important to any supervisor and offer immediate feedback. or manager?”
2. Describe with examples what trends are influencing human resource management.
3. Discuss at least five consequences today’s trends have for human resource management.
4. Outline the plan of this book. Learn It
If your professor has chosen to assign this, go to www.mymanagementlab.com
to see what you should particularly focus on and to take the Chapter 1 Warm Up. 33 34 PART 1 • INTR ODU CTIO N INTRODUCTION
It was her first week working as an Executive Team Leader
(assistant manager) in charge of the sales floor at the
new Target store, and Tori was excited to be supervis
ing about 40 employees. As was usual, the store had its
own human resource team, but Tori was still surprised at
how much time she spent on “HR”. These tasks included
personally interviewing prospective sales associates, and
then making sure that each was properly trained, evalu
ated, and awarded pay hikes. She mentioned this to a
friend who worked at another chain, and who said,
“No, that’s pretty much par for the course—I spend
about a third of my time on tasks like that too.” S ource: John Gress/Corbis. LEARNING OBJECTIVE 1
WHAT IS HUMAN RESOURCE MANAGEMENT? Answer the questions,
To understand what human resource management is, we should first review what “What is human resource
managers d o. The new Target store is an organization. An organ ization co nsists of people management?” and
(in th is case, people like sales and maintenance employees) with formally assigned rol es “Why is knowing HR
who work together to achieve the organization’s goals. A manager is someone who is management concepts
responsi ble for accomplishing the organization’s goals, and who does so by managing the and techniques important
efforts of th e organization’s people. to any supervisor or
Most writers agree that manag ing involves performing five basic functions: plan manager?”
ning, organizing, sta ffing, leading, and controlling. In total, these functions represent the
management process. Some of t he specific activities invo lved in each function include:
• Planning. Establishing goals and standards; developing rules and procedures; developing plans and forecasts organization
• O rganizing. Giving each subor dinate a specific task; esta blishing departments; A group consisting of people
delegating authority to subord inates; establishing channels of authority and
with formally assigned roles who
communication; coordinating the work of subor dinate s work together to achieve the
• Staffing. Determining w hat type of people shou ld be hired; recruiting prospect ive em organization’s goals.
ployees; selecting emp loyees; setting perf ormance standards; compensating employees;
evaluating performance; counseling employees; trainin g and developing empl oyees manager •
Someone who is responsible for
Leading. Getting oth ers to get the j ob done; maintaining moral e; motivating
accomplishing the or gan ization’s subordinates goals, and who does so by
• Controllin g. Setting standards such as sales quotas, qualit y standards, or managing the efforts of the
production levels; checking to see how actual performance compares with these organization’s people.
standards; taking corrective action as needed managing
In this book, we will focus on one of these functions—the staffing , personnel manage
To perform five basic functions:
ment, or human resource management (HRM function. Human resource management
planning, organizing , staff ing,
is the process of acquiring, training , appraising, and compensating employees, and of leading, and controlling .
attending to their labor relations, health and safet y, and fairness concerns. The topics management process
we’ll discuss should therefore provide you wit h the concepts and techniques you’ll need
The five bas ic fu nct ions of
to perform the “people” or personnel aspects of manag ement. These include:
planning, organizing, staff ing, leading, and controlling .
• Conducting job anal yses (determining the nature of each employ ee’s job).
• Planning labor needs and recruitin g job candidates. human resource • Selecting job candidates. management (HRM)
• Orienting and training new employees.
The process of acquiring, training, • appraising, and compensating
Managing wages and salaries (compensating employees). •
employees, and of attending to
Providing incentives and benefits .
their labor relations, health and • Appraising performance . safety, and fairness concerns.
• Communicating (interviewing, counseling, disciplining). CHAPTER 1
MANAGING H UMAN R SOURC ES TODAY 35
• Training emp lo yees, and developing managers.
• B uild ing employee relations and engagement.
And what a manager should know about:
• Equal opportunity and affirmative action.
• Employee health and safety.
• Handling grievances and labor relations.
Why Is Human Resource Management Important to All Managers?
Why are the concepts and techniques in this book important to all manag ers? Perhaps
it’s easier to answer th is b y l isting some of th e personnel mistakes you don’t want to make
while manag ing. For example, you don’t want
• To h ave your empl oyees not doing their best.
• To h ire the wrong person for the j ob.
• To experience h igh turnover.
• To h ave your company in court due to your d iscriminatory actions.
• To have your company cited for unsafe practices.
• To let a lack of training undermine your department’s effectiveness .
• To commit any unfair l abor practices.
Carefully stud ying th is book can help you avoid mistakes like these. More impor
tant, it can help ensure that you get results—through people Remember that you could d o
everyth ing else rig ht as a manager—lay brilliant pl ans, draw clear organization charts, set
up modern assembly lines, and use sophisticated accounting controls—but still fail, for in
stance, b y h iring the wrong people or by not motivating subordinates. On the other hand ,
many manag ers—from g enerals to presidents to supervisors—have been successful even
without adequate plans, organizations, or contro ls. Th ey were successful because th ey had
the knack f or hiring the right people for t he right jobs and then motivating, appraising, and
developing them. Remember as you read this book that getting results is the bottom line of
managing and that, as a manager, you will have to get th ese results through people. This fact
hasn’t changed from the dawn of management. As one company president summed it up:
For many years it has been said that capital is the bottleneck for a developing
industry. I don’t think th is any l onger h olds true. I th ink it’s the workforce and th e
company’s inability to recruit and maintain a good workforce t hat d oes constitute
the bottleneck for production. I don’t know of any maj or proj ect backed by g ood
ideas, vig or, and enthusiasm that has been stopped by a shortage of cash. I do know
of in dustries whose growt h has been partly stopped or h ampered because they can’t
maintain an efficient and enthusiastic l abor force, and I think this will hold true even more in th e future.2
At no time in our history has that statement been more true than it is today. As we’ll
see in a moment, intensif ied g lobal competition, tech nol ogical ad vances, and economic
uph eaval h ave triggered competitive turmoil. In this environment, th e future b elongs to
those managers who can improve performance while managing change; but doing so
requires getting results through engage d and committed employees. Human resource
management practices an d pol icies pl ay a big rol e in hel ping managers do this .
Here is another reason to study this book: you mi ght spend time as a human resource
manager. For example, about a thir d of large U.S. businesses surveyed appointed non-HR
managers to be their top human resource executives. Thus, Pearson Corporation (which
publish es this b ook) promoted the h ead of one of its publishing divisions to chief human
resource executive at its corporate headquarters. Why? Some think these people may be
better equipped to integrate the firm’s human resource activities (such as pay policies) with
the company’s strategic needs (such as by tying executives’ incentives to corporate goals).3
However most top human resource executives do have prior human resource experi
ence. About 80% of those in one survey worked their way up within HR. About 17% had
the HR Certification Institute’s Senior Prof essional in Human Resources (SPHR) desig
nation, and 13% were certified Professional in Human Resources (PHR). The Society 36 PART 1 • INTR ODU CTION
for Human Resource Management (SHRM) offers a brochure descri bing a lternative
career paths wit hin human resource management. 4 Find it at www.shrm.org.
HR for S mall Businesses
And here is one final reason to study this book:y ou may well end up as your own human
resource manager. More than half the people working in the United States today work for
small firms. Small businesses as a group also account for most of the 600,000 or so new
businesses created every year.5 Statistically speaking, therefore, most people graduating
from college in the next few years either will work for small businesses or will create
new small businesses of their own. If you are managing your own small firm with no h u
man resource manager, you’ll probably have to handle HR on your own. To do that, you
must be able to recruit, select, train, appraise, an d reward employees. There are special
HR Tools for Line Managers and Small Businesses features in most chapters. T hese show
small business owners how to improve their human resource management practices. Line and Staff Aspects of HRM
All managers are, in a sense, human resource managers, because they all get involved in ac
tivities such as recruiting, interviewing, selecting, and training. Yet most f irms al so h ave a
separate human resource department with its own human resource manager. How do the du-
ties of this d epartmental HR manager and h is or her staff rel ate to l ine managers’ h uman re
source duties? Let’s answer this by starting with short definitions of line versus staff authority. Line versus Staff Authority authority
Authority is the right to make decisions, to direct the work of others, and to give orders.
The right to make decisions, direct
In management, we usually distin guish between line authority and staff authority. Line
others’ work, and give orders.
auth ority gives managers the rig ht (or authority) to issue orders to ot her managers or
employees. It creates a superior–subordinate relationship. Staff authority g ives a man
ager the rig ht (authority) to advise other manag ers or employees. It creates an advisory line manager
relations hi p. Line managers h ave l ine authority. Th ey are auth orized to give ord ers. Staff
A manager who is authorized to
managers h ave staff authority. They are authorized to assist and advise line managers.
direct the work of subordinates
Human resource managers are staff managers. They assist and advise line managers in
and is responsible for accomplish
areas li ke recruiting, hiring, and compensation .
ing the organization’s tasks.
In practice, HR and line managers sh are responsibi lity for most human resource staff manager
activities. For example, human resource and line managers in about two-thirds of the
A manager who assists and advises
firms in one survey shared responsibi lity for skills training.6 (Thus, the supervisor mi ght line managers.
describe what training she thinks the new employee nee ds, HR might design the train
ing, and the supervisors might t hen ensure t hat the training is having the desired effect.)
Line Managers’ Human Resource Management Responsibilities
The direct handling of people always has been an integral part of ever y line manager’s
responsibility, from presi dent down to the first- line supervisor. For examp le, one company
outlines its line supervisors’ responsibilities for e ffective human resource management
under t he following general headings:
1. Placing the right person in the rig ht jo b
2. Starting new emplo yees in the or ganization (orientation)
3. Training employees for jobs that are new to them
4. Improving t he job performance of each person
5. Gaining creative cooperation an d developing smoot h working relationships
6. Interpreting the company’s policies and procedures
7. Controlling labor costs
8. Developing the abilities of each person
9. Creating and maintaining departmental morale
10. Protecting employees’ health and physical conditions
In small organizations, line managers may carr y out all these personnel duties
unassisted. But as the organization grows, line manag ers need the assistance, specialized
knowledge, and advice of a separate human resource staff. CHAPTER 1
MANAGING HUMAN R SOURC ES TODAY 37 The Human Resource Department
In l arger f irms, the human resource department provid es such sp ecial ized assistance.
Fig ure 1.1 sh ows human resource manag ement j obs in one org anization. Typical p ositions
include compensation and benefits manager, empl oyment and recruiting s upervisor,
training specialist, and employee relations executive. Examples of job duties include:
Recruiters: Maintain contacts within the community and perhaps travel extensively
to search for qualified job applicants.
Equal employment opportunity (EEO) representatives or affirmative action
coord inators: Investigate and resolve EEO grievances, examine or ganizational
practices for potential violations, and compile and submit EEO reports.
J ob analysts: Collect and examine detailed information about j ob duties to prepare j ob descriptions.
Compensation managers: Develop compensation plans and handle the employee benefits program.
Training specialists: Plan, organize, and d irect training activities.
Labor relations special ists: Advise management on all aspects of union– management rel ations.
Many big employers are taking a new look at how they organize their human resource
funct ions.7 For example, J. Rand all MacDonald, IBM’s former senior vice presi dent of hu
man resources, saw that the traditional human resource organization divides HR activities
into separate “silos” (as in Figure 1.1) such as recruitment, training, and employee rela
tions. MacDonald took a diff erent approach. He split IBM’s 330,000 employees into th ree FIGURE 1.1
Human Resource Department Organization Chart Showing Ty pical HR Job Titles
Source: “Human resource development organization chart showing t ypical HR job titles,” www.co.pinellas.fl.us/persnl/pdf/orgchart.pdf.
Courtesy of Pinellas County Human Resources. Reprinted with permission. 38 PART 1 • INTR ODU CTION
segments for HR purposes: executive and technical, managers, and rank
and file. Now separate h uman resource management teams (consisting of
recruitment, training , and pay specialists, for instance) focus on each em
ployee segment. Each team ensures the employees in each segment get the
specialized testing, training, and rewards they require.8
One survey found that 44% of the large firms they surveyed planned
to change how they organize and deliver their HR services.9 Most plan to
use technology to institute more “shared services” or “transactional”
arrangements.10 These will establ ish centralized HR units whose employees
are shared by all the companies’ departments to obtain advice on mat
ters such as discipline problems. The shared services HR teams offer their
services through intranets or central ized ca ll centers; th ey aim to pro
vide managers and employees with specialize d support in day-to- day HR
activities (such as changing b enefits plans). You may also find specialize d
corporate HR teams within a company. These assist top manag ement in
top-level issues such as developing the personnel aspects of th e company’s
long-term strategic plan. Embedded HR teams have HR generalists (also
known as “relationship managers” or “HR business partners”) assigned
to functional departments like sales and production. They provide the
J. Randall MacDonald and IBM
selection and other assistance th e d epartments need . Centers of e xperti se
reorganized its human resource
are basically specia lized HR consulting firms within t he company. For
management group to focus
example, one center might provide specialized advice in areas such as
on the needs of specific groups
organizational change to all th e company’s various units. of IBM employees.
Small firms (say, those with less than 100 employ ees) g enerally don’t Sour ce : IBM.
have the critical mass required for a full-time human resource manager (let
alone an HR department).11 Th e owner and his or her oth er managers (and perhaps th e
firm’s office manager) handle tasks suc h as placing help-wante d ads and signing employ
ees on. Gaining a command of the techniques in this book should help you to manage a
small firm’s human resources more effectively. LEARNING OBJECTIVE 2 THE TRENDS SHAPING HUMAN Describe with examples RESOURCE MANAGEMENT what trends are
Working cooperatively with line managers, human resource managers have long helped influencing human
employers h ire and fire employees, administer benefits, and conduct appraisa ls. How resource management.
ever, changes are occurring in the environment of human resource management that are
requiring it to pl ay a more central ro le in org anizations. These trends include workforce
diversity trends, technological trends, and economic trends. Figure 1.2 sums up major
trend s that are changing how employers an d t heir HR managers do things. Workforce Diversity Trends
The composition of the workforce will continue to change over the next few years;
specifically, it will continue to become more diverse with more women, minority group
members, and older workers in the workforce.12 Table 1.1 offers a bird’s eye view.
Between 1990 and 2020, the percent of the workforce that the U.S. Department of Labor
classifies as “white, non-Hispanic” will drop from 77.7% to 62.3%. At the same time, the
percent of t he workforce t hat it classifies as Asian will rise from 3.7% to 5.7%, and those
of Hispanic origin will rise from 8.5% to 18.6%. The percentages of younger work
ers will fall, while those over 55 years of age will leap from 11.9% of the workforce in
1990 to 25.2% in 2020.13 Many employers call “the aging workforce” a big problem. The
problem is that there aren’t enough young er workers to replace the projected number
of baby boom–era older workers (born roughly 1946–1964) retiring.14 Many emp loyers
are bring ing retirees back into the workforce (or just trying to keep them from leaving).
Demog raphic trends are also making finding and hiring of employees more challeng
ing. In the U.S., labor force growth is not expected to keep pace with job growth, with an
estimated shortfall of about 14 million college-educated workers by 2020.15 One study of
35 large g lobal companies’ senior human resource officers said “talent manag ement”—the CHAPTER 1
MANAGING HUMAN R SOURC ES TODAY 39 FIGURE 1.2 C onse quences for Huma n Important Trends and I mportant Tren ds Resource Mana g emen t Their Conseq uences for HR Management • Workforce Diversi y tTrends • HR and Performance • Technology and Wor f k orce • HR and Performance and Trend s Sustainabilit y • Globalization and Competition • HR and Employee Engagement Trend s • HR and the Manager’s HR • Economic Challenges Consequences for Philosoph y • Economic and Work force HR • HR and Strategy Projections M anagemen t • Sustainability and Strate g ic Human Resource Management • HR and Human Resource Com petencies • HR and The Manager’ Ss kills
• The HR Manager’s Competenci es • HR and Et hics • HRCI Certification
TABLE 1.1 Demographic Groups as a Percent of the Workforce, 1990–2020 Ag e, Race, a nd Ethnicity 1990 2000 20 10 2020 Age: 16–24 7.9% 15.8% 13.6% 11.2% 25–54 70.2 71.1 66.9 63.7 55 11.9 13.1 19.5 25.2 Wh ite, non-Hispanic 77.7 7 2.0 67.5 62.3 Black 10.9 11.5 11.6 12.0 Asian 3.7 4.4 4 .7 5.7 Hispanic orig in 8.5 11.7 14.8 18. 6
Source: U.S. Bureau of Labor Statistics Economic News Release 2/1/12. www.bls.gov/news.release/ ecopro.t01.htm
a cquisition, development and retention of tal ent to fill the companies’ empl oyment needs— ranked as their top concern.16
With overa ll proj ected workforce shortfalls, many employers are h iring foreig n
workers for U.S. jobs. The H-1B visa program lets U.S. employ ers recruit skilled for
eign professionals to work in the United States wh en they can’t find qualif ied American
workers. U.S. employers bring in about 181,000 foreign workers per y ear under these
programs. Particu larly with h igh unemploy ment, such programs face opposition.17
O th er firms are sh ifting to nontrad itional workers. Nontraditional workers are th ose
who hold multiple j obs, or who are “temporary” or part-time workers, or those work
ing in al ternative arrangements (such as a mother–daughter team sh aring one cl erical
job). Others serve as “independent contractors” for specific projects. Almost 10% of
American workers—13 million people—fit this nontraditional workforce categ ory.
Technology and Workforce Trends
Technological change will continue to shift employment growth from some occupations to
others, while continuing to contribute to a rise in productivity (albeit slower productivity
growth th an in past years).18 When someone thinks of “technology jobs,” the jobs at com
panies like Apple and Google come to mind, but actually technology affects all sorts of j obs.
At Alcoa Aluminum’s Davenport Works plant in Iowa, a computer stands at each work post
to help each employee control his or her machines or communicate data. Walk through the
typical automobile manufacturing plant today, and hundreds of robots are doing many of 40 PART 1 • INTR ODU CTION Technology chang ed
t he natu re of work a nd therefore the skills that workers must bring to their jobs. For example high-tech jobs often mean replacing manual labor with highly trained technicians.
Source: Konstantin Kokoshkin/Global Look/ Corbis.
th e manual job s th at workers used to do. One f ormer college student b ecame a team l eader
in a plant with automated machines. He and his team type commands into computerized
mach ines that create precision parts.19 Thanks to information technology, about 17 million
people now work from remote locations at least once per month. “Co-working sites” offer
freelance workers office space and access to Wi-Fi and office e quipment.20 Even hu man
resource managers work different ly. For example, they use LinkedIn an d Facebook
(and many others) to recruit job candidates (see for example USAirForceRecruiting on
Facebook.com21, and online testing services such as www.criteriacorp.com) to do pre-hire
testi ng.22 They also use (as we’ll see) a variety of other mobile and onl ine tools to he lp
manage employee training, appraisal, compensation, and sa fety. Service Jobs
At the same time, there has been an enormous shift from manufacturing jobs to service
jobs in North America and Western Europe. Tod ay over two-thirds of the U.S. work
force is employe d in producing and delivering services, not products. By 2020, service-
p roviding industries are expected to account for 131 million out of 150 million (87%) of
wage and salary j obs overall . So in th e next few y ears, al most all the new j obs added in
t he United States will be in services, not in goods-producing industries.23 Human Capital
For employers, one big consequence of t hese demographic and technological trends is a
growing emphasis on their companies’ “human capital,” in other words on their workers’
k nowl edge, education, training , sk ills, and expertise. Service job s l ik e consul tant and
l awyer always emphasized work er education and knowl ed ge more than d id trad itional
manufacturing jobs. And toda y’s proliferation of IT-related businesses like Goog le and
Faceboo k d emands hig h levels of employee innovation, and t herefore human capital. But
as we’ve seen, even “traditional” manufacturing jobs are increasingly technology–based.
And bank tellers, retail clerks, bill collectors, mortg ag e processors, and packag e deliver
ers today need a level of technologica l sophistication they wouldn’t have need ed a few
years ag o. In our increasing ly knowledg e-based economy, “. . the acquisition and devel
opment of superior human capital appears essential to firms’ profitability and success.”24
For managers, the challenge of relying on human capital is that they have to man
age such workers differently. For example, empowering workers to make more decisions
presumes that they are selected, trained, and rewarded to make more decisions them
selves. Employers need new human resource management practices to select, train, and
engage these employees .25 The accompanying HR as a Profit Center illustrates how one
employer took advantage of its human capital. CHAPTER 1
MANAGING HUMAN R SOURC ES TODAY 41 HR AS A PROFIT CENTER
Boosting Customer Service
A bank installed special software that made it easier for its customer service representatives
to handle customers’ inquiries. However, the bank did not otherwise change the service
reps’ jobs in any way. Here, the new software system did help the service reps handle more
c alls. But otherwise, this bank saw no big performance gains.26
A second bank installed the same software. But, seeking to capitalize on how the new
software freed up customer reps’ time, this bank also had its human resource team upgrade
the customer service representatives’ jobs. This bank taught them how to sell more of the
bank’s services, gave them more authority to make decisions, and raised their wages. Here,
the new computer system dramatically improved product sales and profitability, thanks to
the newly trained and empowered customer service reps. Value-added human resource
practices like these improve employee perf ormance and company profitability.27 Talk About It – 1
If your professor has chosen to assign this, go to w ww.mymanagementlab.com to
d iscuss the following: Discuss three more specific examples of what you believe this
s econd bank’s HR department could have done to improve the reps’ performance. Globalization and Competition
Globalization refers to companies extend ing their sal es, ownersh ip, and/or manufac
turing to new markets abroa d. Thus Toyota builds Camrys in Kentucky, while Apple
a ssembl es iPhones in China. Free trade areas—agreements that red uce tariffs and barri
e rs among trading partners—further encourage international trade. NAFTA (th e North
American Free Trade Ag reement) and the EU (European Union) are examples.
Global ization has boomed for the past 50 or so years. For exampl e, the total sum of
U.S. imports and exports rose from $47 billion in 1960, to $562 bill ion in 1980, to ab out
$4.7 trillion recently.28 C hanging economic and politica l philosoph ies drove this boom.
Governments dropped cross-border taxes or tariffs, formed economic free trade areas,
a nd took other steps to encourage the free flow of trade among countries. The funda
mental economic rational e was that by doing so, all countries would gain, an d indeed,
e conomies around the world d id grow quickly until recently.
At the same time, globalization vastly increased international competition. More global
ization meant more competition, and more competition meant more pressure to be “world
class”—to l ower costs, to make employees more prod uctive, and to d o things better and less
e xpensively. Many firms responded successfully while others failed. When Swedish furni
ture retailer IKEA built its first U.S. furniture superstore in New Jersey, its superior styles
a nd management systems grabbed market share from domestic competitors, driving many
out of business. Such global competition is a two-way street. IBM, Microsoft, Apple, Face
book, and countl ess smaller American firms have major market shares around th e world.
As multinational companies j ockey for position, many transfer operations abroad,
not just to seek cheaper labor but to tap into new markets. For example, Toyota
has thousands of sal es employees based in America, while GE has over 10,000 employ
e es in France. The search for g reater efficiencies prompts some empl oyers to offshore
(export jobs to lower-cost locations abroad, as when Dell offshored some call-center jobs
to India). Some employers offshore even highly skilled jobs such as lawy er.29 Managing
the “people” aspects of globalization is a big task for any company that expands abroad—
a nd for its HR managers. Due to rising costs abroad and customer pushback, many firms
today are bring ing jobs back.30 Economic Challenges
Although g lobalization and technology supported a g rowing g lobal economy, the past
few years were di fficult economicall y. As you can see in Figure 1.3, Gross National 42 PART 1 • INTR ODU CTION FIGURE 1.3 900
Gross National Prod uct, 800 rs ) 1940–2010 olla 700
Source: “Gross National Product 600 (GNP)” by FRED Economic llions ofD 500
Data/St. Louis Fed., from Federal Reserve Bank of St. Louis. go, Bi 400 ar Ae 300 Y 200 fr om ange 100 (Ch 0 –100 1 940 9 50 960 1970 980 990 2000 2010
Shad ed areas indicate U.S. recessio ns.
2009 research. stl ouisfed. org FIGURE 1.4 200 Case-Shiller Home 175
Price Indexes June 1988– 150 June 20 13 12 5
Source: S&P Dow Jones In dices LLC. Assessed September 30, 100 2013. 75 50 2 5 1 990 1995 2000 2005 20 10
Product (GNP)—a measure of the United States of America’s total output— boomed
between 2001 and 2007. During this period, home prices (see Figure 1.4) leaped as
much as 20% per year. Unemployment remaine d docile at about 4.7%.31 Then, around
2007–2008, all these measures fell off a cliff. GNP fell. Home prices dropped by 10% or
more (depending on city). Unemployment nationwide soon rose to more th an 10%.
Why did a ll this happen? It’s complicate d. Many governments strippe d away ru les and
regulations. For example, in America and Europe, the rules that prevente d commercial
banks from expanding into new businesses such as investment banking were relaxed. Giant,
multinational “financial supermarkets” such as Citibank emerged. With fewer regulations,
more businesses an d consumers were soon deep ly in debt. Home buyers bought homes
with little money down. Banks freely lent money to developers to build more homes. For
almost 20 years, U.S. consumers spent more than they earned. The United States became a
debtor nation. Its ba lance of pa yments (exports minus imports) went from a healthy posi
ti ve $3.5 billion in 1960, to a huge minus (imports exceeded exports) $497 b ill ion deficit
more recently.32 The only way the countr y could keep buying more from abroad than it
sold was by borrowing money. So, much of t he boom was bui lt on debt.
Around 2007, all those years of accumulatin g debt ran their course. Banks and
other financial institutions found themselves owning trillions of dollars of worthless
l oans. Governments stepped in to try to prevent th eir coll apse. Lending d ried up. Many
businesses and consumers stopped buy ing. The economy tanked.
Economic and Workforce Projections
Economic trends are pointing up toda y, and hopefully they will continue to do so. For
example, the unemployment rate had fa llen from a high o f more than 10% a few years
ago to around 6% in 2014, and economic activity was also picking up.