naked capitalism

Lune says:

I’m all for finance guys taking their lumps like everyone else in the American economy these days. But there is a broader issue to be concerned about:

Macro-economically speaking, the typical way to boost productivity is to become more educated (not necessarily college, but I include job training, experience, etc.) so that you can do more complicated tasks. But the byproduct of this process is that people become more narrowly specialized. And the byproduct of that is that their ability to find work outside their narrow niche declines as they invest more and more effort to becoming good at their current job.

So far, this is not necessarily a bad thing. As people become better at what they do, the economy as a whole benefits. But this process runs into a roadblock when job insecurity increases. That is, a rational economic being will not invest 30 years of job training for a job from which he might be fired in a year.

We’re seeing this conflict frequently now. Many corporations find that they can’t get their employees to develop very narrow, specific skills that the company may need. The employees would rather spend time learning broadly applicable skills that would be of help when the next round of layoffs come around. Even in manufacturing, companies are finding it hard to attract employees because no one wants to spend a year learning how to operate a piece of machinery only to be fired in a year with no marketable skills when the dollar rebounds and the factory gets shipped to China again.

To take another example, this country needs brain surgeons. Generally speaking, knowing how to operate on a brain qualifies you to do little else. Now if you had a job market where the average brain surgeon was fired every 2-3 years, no one in their right mind would invest the 15+ years of training after high school needed to become one. It’s only the assurance of a reasonably secure lifetime career (even if you change practices, you’ll still be able to find a job as a brain surgeon in the future) that gives people the confidence to start the training course. Without that, you wouldn’t have any brain surgeons (or you’d have to pay them $10mil dollars a year so that they could recoup their lifetime earnings in a few years before being fired).

I would assert that the amount of job insecurity in American labor markets these days is a serious impediment to incentivizing people to develop the ever more esoteric and narrow (not to mention more difficult) skillsets that people need to develop if American productivity is going to continue to increase and stay one step ahead of the emerging economies. Without further steps to assure job security, no one is going to waste time developing themselves in anything but the most generic, broad way possible. I’m always amused when people blithely say something like “the average American will change careers 5 times in his lifetime”. Sounds like a country of jack of all trades, master of none, which will be utter disaster for our country’s ability to compete with emerging countries and still provide a superior standard of living.

Peripheral Visionary says:

I think initial projections of reduction of the finance industry by 20% were overly optimistic. The finance industry is still far too big by any historic measure, and has a long way to go before getting down to size. The volume and velocity of money meant that there was plenty of money to skim off the top (and finance being an unproductive activity, it in effect is a money-skimming operation), but as the real money supply contracts and the economy slows, there will be far less money to take off the top.

Trends always overshoot, and I think this one will be no exception. When deflationary expectations set in, people will resort to direct savings, which will further reduce the pool of money available for the financial industry to extract its earnings from.

The first wave hit the real estate finance industry, and the impact has been dramatic. It’s rapidly becoming clear that there were far too many real estate related financial professionals making way too much money for what they actually contributed to society. When the supply of real estate sales contracted, a bloated pool of financial professionals competed for an ever-shrinking supply of customers, with the result being that everyone lost, part or all of their income. I see that as a direct harbinger for what is to come for the financial industry as a whole.

And I disagree to a certain extent with Lune. True specialists will typically have some job opportunities somewhere; even COBOL programmers can consistently find work. The people who are the first to lose jobs are the people who are *not* specialists in their fields, and the finance industry over the last few years has acquired more than its fair share. The problem is not that the financial professionals were too specialized, it was that too many of them had no idea what they were doing.

Peripheral Visionary says:

Yves,

Interesting thoughts. I can’t let the recruiting side of the business world off on this one; I do think there are problems in the hiring process. You are correct in that companies tailor job descriptions to find candidates who have done *exactly* what the job entails; in their minds, that reduces the risk of a bad hire. But it leads to all sorts of unforseen problems, primarily inflexibility in the face of change (because no one has ever done anything other than exactly what they are currently doing) and a lack of creativity (ditto.) Also, it tends to make industries as a whole more “ingrown”, to where they lose touch with the outside world and are blindsided by macro developments, something which has been a major factor in this crisis.

With respect to your associates having difficulty finding work, I can’t comment on any specific cases, but my general feeling is that expectations are far too high. To put it bluntly, not everyone can have a C-suite position. The tech bubble saw many people pick up prominent and important-sounding positions, only to lose them; having their expectations at that level, they became “unemployable” as they were unwilling to accept anything less. We will definitely see the same this time around. There just is not that much room for $200k/yr salary positions in a healthy economy, let alone $500k/yr positions in a struggling economy. But expectations have been set, and so we will be hearing many stories about “eminently qualified” people unable to find work; and as the pool grows, the competition will increase and the salaries will have to come down to where they should have been in the first place.

I don’t mean to denigrate your acquaintances; they sound very highly qualified. But there is an awful lot of competition out there for the good jobs, and it will only get worse. The one thought that comes to mind is that we could always use more entrepreneurs; and for those with the qualifications and who were careful about preserving their wealth, the next few years may be an excellent opportunity to open a new business and expand even as the rest of the business world is capital constrained.

Francois says:

"I would assert that the amount of job insecurity in American labor markets these days is a serious impediment to incentivizing people to develop the ever more esoteric and narrow (not to mention more difficult) skillsets that people need to develop if American productivity is going to continue to increase and stay one step ahead of the emerging economies. Without further steps to assure job security, no one is going to waste time developing themselves in anything but the most generic, broad way possible."

Bingo! Lune, your post clarify in a nice way, a feeling I had for quite a while now. That is, corporations are pushing harder and harder to have it both ways: very narrow skill set that fit EXACTLY with their need of the moment, while refusing to invest meaningfully in their employees, or to offer a career path that enhance more stable employment.

The software industry is notorious in that regard. No wonder they are so fond of cheating the immigration system of H1Bs. There are even law firms willing to offer seminars on How to cheat the system so they don't have to hire American workers.

http://www.youtube.com/watch?v=TCbFEgFajGU

http://www.youtube.com/watch?v=Fx–jNQYNgA&feature=related

L'Emmerdeur says:

A long time ago, we all lived as monkeys in trees, and life sucked.

The alpha males ruled the roost, so they had it a bit better, but everyone had to worry about their next meal, and whether they were going to be the next meal for some predator.

We built this civilization to prosper as communities and reduce such anxiety. Sure, there’s still the alpha males taking the lion’s share of the wealth, but there should still be enough to go around so everyone can have some sort of stability and quality of life.

Then, in the 1990s, a “new paradigm” was introduced. Now, everyone had to be an alpha, switching jobs like underwear, abandoning the desk job or factory for some post-industrial cyberpunk HUD-based meta-corporation, closing deals while jamming to their iPods and emailing their android lover.

The alphas loved it.

The rest developed anxiety and helped create a multi-billion dollar pharma industry for anti-depressants and mood enhancers.

I’ve been saying this “new paradigm” is not for everyone, since the 1990s.

Sure, America is portrayed as having been settled by “pioneers” who risked everything to come here and start new lives. But we forget that most of those people fled their homelands to escape the lack of stability and the hopelessness so that they could come here, find a piece of land, and settle down and become farmers.

While we may like to think that most Americans come from alpha stock, we are for the most part just regular folks trying to achieve what those monkey ancestors could not imagine: a normal, safe and somewhat predictable life.

This message is brought to you by someone who most people would classify as an aggressive alpha male.

Richard Kline says:

As one of the few (accidental) working stiffs to regularly comment here, I will add that the ‘over-specification’ of hires is at least as endemic in the lower tiers of the economy as in the upper ones, if not more so. Jobs are incredibly narrowly defined unless they are mass turnover ’sales opportunities’ and the like. If you haven’t done exactly what they want done today, the recruiter doesn’t even interview. And that’s if you’re under 40. The idea that a firm would actually _train_ you to do the job their way isn’t even laughable, it’s completely outside of their box. “Train them? But we’re hoping to fire them in 2.5 years when X happens/is done.” You have to be ready today since firms literally have no tomorrow in mind for you.

And to Anon of 1:53: Regarding those marginally employed engineers and softwarians, one reason unions exist is because independent contractors are totally at the mercy of their hiring authorities unless they have known expertise that makes them hard to replace. The solution to the problem you identify is political organization. . . . Except we don’t ‘do’ political organization in the US this generation, unlike in France. We have this fantasy that it will be the other guy that get’s ‘done for’ until the Friday afternoon email comes for us, no?