What we know and don’t know about future labor markets

Are our markets efficient?

Gee, I have been so buried in writing proposals, I no longer have any idea of which day or week it is.  Rather literally.  But it is in writing proposals that we realize just how inefficient the market economy is.  All these people marketing, selling, bidding, cajoling.  Do we really increase the value of the economy this way?  Isn’t this time wasting much like the perennial security guard at every doorway in a third world country.  Doing nothing, going nowhere?  Don’t you get incensed at the waste of your time?  Let me explain further why it affects everyone.  You, me.  Our sons. Our daughters.

Flexible labor markets

You all know the concept of a “flexible labor market“, don’t you?  If not follow the link to a clearly written A level crib sheet.

Good markets

Flexible labor markets are based on the idea that a good market  “clears”.  A market is good if I can bring my tomatoes and customers come and buy them.

The price is not determined in advance. The price is allowed to change with supply (number of people selling) and demand (number of people buying).  And as we all know, at the end of the day, the price can drop significantly as sellers contemplate no sale.  Equally, the best stuff will sell at a higher price early in the morning.

Good labor markets

When we come to labor markets, the idea is that you and I, sellers of labor can go to the market and sell our goods, that is, our time and expertise.  If there is a good market, we will be bought, when we want to be bought; and buyers will find someone to buy, when they want someone to buy.

Labor markets that you and I know

Of course, labor markets are not 100% flexible.  We are blocked in by contracts.  The employer guarantees to give you work and to pay you on time.  You guarantee to do work and have to give notice if you want to change employers.

Rigid labor markets

Some labor markets are very inflexible.  I believe in the UK, 30 years ago, if we wanted to move a telephone in a student dormitory, it would be a nightmare.  Why? A telephone technician wasn’t be allowed to screw the device onto the wall.  That was the carpenter’s job.  If this story is not 100% accurate, then it was similar.

Not everything has changed

The “defined benefit” pension scheme also adds rigidity to the markets.

A defined benefit (DB) scheme means we pay in a fixed % of a our salary today for the right to draw a pension at a given age (usually 65) at 66% of our average of last three year’s salary (or similar calculation).

The importance to this calculation to what I am saying today is not the pension, much as it is on everyone’s minds, but that the 66% was based on an assumption of working for 40 years out of 60 for one employer (starting in your early twenties).

Here you can see the legacy of rigid labor markets that we haven’t sorted out, even in theory.

Why do systems like defined benefit pensions distort the labor market?

Implicit in your monthly donation of a fixed %, is that you will stay for 40 years.  If you leave before then, you will pay a heavy financial penalty.

So most people stay.  Every year, some people retire and we can replace those with 20 year olds while everyone moves up a notch.  Neat?

Yes it is, BUT

.  .  . this model doesn’t allow for radical changes in skill.  And it only works when people do retire – which they haven’t been the case with the bulge of the baby boomers.  Of course now the boomers are approaching retirement, organizations running this model will suddenly need to take on a lot of young people, some of whom will not be able to get the experience they need quickly enough to replace people who are leaving.

Equally, if you have to take people on for 40 years, as an employer you may think twice.   It is much more convenient to be able to ask someone to leave when you have no work for them or cannot afford to may them.

Why employers like a flexible labor market?

So employers like a “flexible” labor market.  They want it to be easy to ask people to leave.

What is the payoff for us?

And the payoff for us is that

  • young people are more likely to get “starter” jobs
  • we should be able to move employers more easily
  • the economy should be more vibrant with a better match of skills to changing conditions.

But what a muddle

The downside is that we haven’t thought this through.

Pensions and in the States, health insurance, are tied to employment.  So employees are unable to move.

If employers don’t provide these benefits, an underclass of employees develops.  In the trade this is aptly called the secondary labor market – cheap and disposable.

And where does this leave employees – people of working age

My biggest concern is that when a labor market is massively flexible, how do employees – that is you and me – the sellers of labour, see far enough ahead to know what to invest in?

Of course this is an issue in all business.  How do farmers know how many tomatoes to plant?  How does Warren Buffet know what stocks & shares to buy on the stock market?

They do it in three ways:

  • They form institutions – trade associations or their own firms – to do research on markets and to influence markets through lobbying and marketing.
  • They make long term contracts – e.g., agree to sell to TESCO’s at a pre-determined price
  • They get better real time information on markets.

Think of third world farmers contracting with FairTrade to sell you coffee.  They are doing it less for the price and more the stability of the contract.

Think of third world farmers who adopt mobile phones at the speed of light because they can find out prices readily in local and international markets.

What the theorists haven’t delivered

So why then do we assume

  • Employees (you and me) don’t need information on future prices to decide how much to invest in skills today?
  • Employees don’t need sane coherent contracts that allow us to complete a season.  A season may be 6 months to a year for a farmer.  Our investment in a 3 year degree is repayable over what period with what certainty?
  • Employees (you and me) shouldn’t band together to form trade associations to research and influence markets.  I know that is what unions do, sort of. I know that is what good professional associations do.

My question to you

My question today, and I hope some people can answer it, as I am a noobe in this part of the world, is

which political parties have an explicit agenda to make sure each and every person has sufficient information to make informed decisions about the investment in skill.

I don’t think governement has to make decisions about our investments for us.  But it does need to make sure there is an environment in which institutions who repesent us emerge (and do their job well).

Where does a young person in the UK and the USA find out this information?

Check my facts on Opportunity UK

Employment opportunities in the UK

Today, Twitterers are retweeting BBC’s report that TUC says 60 people are chasing every job in the south, and elsewhere in UK, each job is chased by 10 people.  Is this true?  And if it true, is it unusual?

I wonder if Andy at SironConsulting a leading recruitment agency would make a comment?

Talk facts not negative emotions

I’m a positive psychologist and I hail from Zimbabwe so I know a fair bit about living in an economic crisis.

  • Bad news outweighs good.  People reading the BBC report on their way to work today will need 3 times as much positive information of greater weight just to think straight!  They will need 5 times as much positive information to be creative and to find solutions to challenges of the day.  Be prepared for a rough day at work and stop to take a walk in the park, listen to the birds and admire the daffodils.  You may need it!
  • Even those of use who are good at maths find it difficult to keep track of numbers with lots of zero’s in them.  I don’t undertand why it is so difficult but generally we need to pull out pen and paper and lay out the arithmetic neatly.  Don’t assume journalists have done this.  They are as dazzled as the rest of us!
  • We need information to guide action not to encourage excitable chatter.  We need facts and figures presented, in context, in a way that supports the purpose of the reader.

I find it hard to find facts and figures about the British economy, so I am going to collect them here.  But do check my numbers.  I do know from living in Zimbabwe that we are prone to make errors when lots of zero’s are involved.  Maybe I’ll add an error from time to time to see if you are doublechecking!

And I am also going to relate the facts I find to the issue at the top of our minds: making a living joyfully in the UK!

Here are my two facts for today and my take on the BBC report.

1   We live and work in the 5th largest economy in the world

Wikipedia figures for GDP by country seem to be 2008 and are probably in USD.  In the last year, the pound has weakened and our economy will be smaller now nominal terms. We have also contracted about 1.5%.  A year ago, India was expected to overtake us in size and I imagine this has happened.

So we are probably not 5th any more.  Maybe we are tenth?  Who knows?

We are still massive by any account.

2   We have 4% of the world’s economy and 1% of the world’s population

We have a disproportionate share of the world’s production and services. Yes, we do.  We are well off.

The world’s GDP is around 50 trillion (million millions or 10^6 x 10^6).  Our GDP in the UK is between 2 to 3 trillion USD.  I’ve taken the lower figure to arrive at 4%.

The world has 6 to 7 billion people (thousand millions or 10^3 x 10^6).  In the UK, have 60 million people.  So 1% of the world live here.

We have 4 x our share of the world economy!

Of course, the USA, with GDP of 15 trillion has 30% of the world economy and a population of 300 million, 5% of the world’s population.  So they have 6x their share of the world’s economy and one-and-a-half times our already disproportionate share.  Pareto’s law in action.  A few people command a disproportion share of resources.

A share in the UK economy

Once, we have remembered that we are quite rich, then we can turn to the issue exercising the TUC – the ability of people to take part in the economy.

Our opinions on this matter provide the underlying tension in western politics and seem to go something like this.  Rich people think they should continue to be rich even if they have just lost billions through bad decisions.  People who seek to make a living through employment believe employment should always be available.

It seems a sterile debate to me.  Looking at the UK from the outside, people quarrelling in a rich economy look like governors of the workhouse in the film Oliver stuffing their faces while the boys ate gruel.

It is quite hard for someone who has lost their job, and who is shocked and frightened, to imagine they are in a psychological state similar to  someone who has lost millions or even billions.   Anyway they are in too much shock to care.

Negative emotions are overwhelming, and psychologsits are pretty confident we need 3-5 moderate positive emotions to outweigh 1 mild negative emotion.  A shock like redundancy needs heaps of positive, which is hard when you’ve just lost the social support system of work and you are short of money too.

But reality and commonsense must also kick in here.  Certainly, claim redundancy money, sign on, and do sensible things.  But consider your basic game plan too.

Why are you waiting for other people?

While you are doing sensible things, do start taking charge of your own life.  Aim to come out of this ‘recession’ not only with your house intact and some savings in the bank, but less, less, LESS, dependent on other people for opportunity.

Can you create opportunity and look for another jobs at the same time?

You must.  Otherwise you are in a bizarre position of feeling poor in a country where we control FOUR TIMES our share of the world’s economy.

There are many simple systems.  Here are 4 suggestions.

  1. Buy British corporate poet, David Whyte‘s CD, MidLife and the Great Unknown and listen to it while you commute, or as you take a walk in a park or field in the gentle spring sun.
  2. Buy What Color is Your Parachute? and do the exercises.
  3. Listen to Dr Srikumar Rao talking at Googletalk (50 min) and follow his advice.
  4. Do my “new person and new url per day” exercise.

Absolutely commit yourself to taking charge of your life and join in unashamed abandon a chase to catch up with the US!

We would like 6 times our share of the world’s economy too!

Not for the sake of gluttony but because it is fun to be innovative and productive and when we trade fairly, people in other countries benefit too.

I would love to hear how you take charge of your life.

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What is your Vision of the Future?

Street fortune teller consults with client in Taichung, Taiwan

Image via Wikipedia

What do you expect from a futurologist?

I was disappointed by the Microsoft Visions of the Future event in London, though to be honest, we left before it was finished. We had heard, or partially heard three long rambling speeches. The visuals were on domestic-sized screens that only a handful of people could see, and the audience had started talking amongst themselves.

What I heard wasn’t very new either. I have been treated to at talk by a futurologist elsewhere and I was stunned then that there was little, if anything, new in the speech. Puzzled by this happening again, I shot off a question on LinkedIn: what do you expect from a talk by a futurologist?

The first few replies thought I meant “fortune teller” and some others thought “a waste of my time”. James Stuart replied more seriously. He suggested two features:

a) pointing to inter-relationships between events that aren’t immediately obvious

and

b) helping the audience understand that the future is made through their choices.

What do psychologists and futurologists have in common?

I thought that what James suggested resonated with a brilliant description of the practice of psychology that I found years ago. I am sorry I don’t have the reference still. If you recognize it, please do let me know.

All psychologists, whether we are clinical, educational or work/occupational, do three things:

a) We have models and ideas that we can put at our clients’ disposal.

b) We have experience of other people solving similar problems.

c) We stick with our client while they think through their predicament and experiment with a solution.

First, on the basis of published ideas, we know what questions to ask. Then we have some idea, from observing other people, what it is like to be faced with the dilemma facing our client. And importantly, we are loyal to our client while they are struggling with a problem that is intimidating.

  • It is important that we can observe patterns that are not obvious to other people.
  • And we understand the object of the exercise is action.

When I listen to a futurologist, I want to hear them point to interactions between emerging events that require data and models far deeper than I have available from public media.  And the information must help me see what action I must take. I must experience an “aha!’ and intense relief that I now know what to do. I still have to do it, but I need some clarity about what I want to do next.

Of course futurologists are probably talking about the macro-environment: politics, economics, social change and technological change.  Models of psychology are usually about ways individuals make sense of the world: hope, intimacy, vocation, & schooling.

My understanding of the future

In psychology, I find the 21st century so exciting that I find it hard to think ahead.

As a vision of the future, it is worth flicking through Jane McGonigle’s presentation at SXSW 2008.  Jane believes that eventually we will all be in the business of happiness.  And she can outline the psychological principles to engineer happiness.

Curriculum Illusione is a Dutch site that gives you an interactive time line to map the future, and, how you intend to interact with it.  It is quite challenging.
I would be interested in your opinion of both.

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Curriculumillusione

I’ve just found Curriculumillusione, a Dutch interface (pick the English top right).

Pick a user name, set your date of birth and the year you wish to die.  The programme prompts you to consider the most important thing you want to accomplish in life and corollary events.

And it won’t let you stay too long!  It sends you packing after a while and tells you to come back in 24 hours!

I look forward to your comments when you’ve had a chance to use it.

Hat tip to Everything 2.0.

 

UPDATE:  I’ve gone back a few times to CI.  It is tremendously difficult to do.  Few of us have really thought through the way the world is going and our place in it.

I think it is worth checking in once a quarter and asking ourselves ~ what do we need to know to fast forward the world.  And then doing some research.