In the early 1900s, the Democrats began to shift from the party of farmer to the party of labor. In 1800, only 20 percent of the workforce was employed by someone else; by 2000, over 90 percent were. [1] The modern corporation was defined in the mid-1800s. As its employees grew in number, so did their political influence.
When the Democratic Party was first defined by Jefferson, it was the farmer’s party. As farmers fell as a percentage of the workforce, the Republican Party emerged – and dominated – as the capitalists’ party. But those successful capitalists who were creating new factories were hiring labor that often found itself at odds with the owners. As the Democratic Party shifted its identity from the farmers’ party to the labor party, it dominated American politics from 1933 to 1969.
In 1972, labor and politics changed. At the 1972 Democratic National Convention, the party had quotas for women, young people, and minorities but none for union labor. At that point, labor began its split into two camps: the blue-collar labor on factory lines that was both at odds with and dependent on the capitalists who built the factories and made the investments in industrial capital that made them productive; and the white-collar labor in cubicles wearing pocket protectors and increasingly reliant on the novel technology of computers. By appealing to the blue-collar workers reliant on industrial capital, Republicans like Nixon and Reagan won over a group the Democrats had long had. By appealing to the white-collar workers, Democrats were helping to create a new economy but were floundering as a national party.
Without understanding how Kamala Harris represents knowledge workers and this new economy, it is hard to understand how she is different from Joe Biden, how she is a different kind of Democrat.
California has led before. Blue jeans, Hollywood, and Silicon Valley began here. So did the Republican resurgence that ended Democrats’ long dominance in DC. Between 1933 and 1969, Democrats had control of the White House and Congress 72% of the time. In 1968, 1972, 1980 and 1984, two Californians – Nixon and Reagan - won the presidency in landslide victories, marking an end to Democratic dominance. What Nixon and Reagan represented was the Republican Party gaining the blue-collar workers who had for so long identified as Democrats.
As blue-collar workers rose in prominence a century ago, they changed politics. White-collar workers are now rising prominence and they, too, are changing politics. Today one of the simplest predictors of whether someone will vote Democratic is the question of whether they have a college degree. A recent – and typical – poll showed that only 39% of whites without a college degree would vote for Biden but 64% of those with a degree would, a stunning shift of 25 points.[2]
Harris represents a very different kind of labor than did her fellow Californians Nixon and Reagan from an earlier generation.
Trump won Joe Biden’s home state of Pennsylvania with 48% of the vote. In the California counties where Harris spent her childhood, he won only 17%. In California, Trump’s campaign promises sounded like threats. Trade wars with China? A wall to keep immigrants out? It is connection to and not protection from the rest of the world that has helped California to thrive. A regional Hollywood is a playhouse. A regional Google search engine is the yellow pages. Silicon Valley is capital of the worldwide – not the nationwide - web.
Harris’s parents met as grad students at UC Berkeley in the 1960s. While the Midwest was enjoying its time of manufacturing dominance, the Bay Area was placing its bets on a new economy, one Harris’s parents were part of. It is not a stretch to say that Harris is a product of Clark Kerr's vision of a knowledge economy that helped to define the UC Berkeley that brought her parents together from such distant places.
In 1960, California governor Pat Brown signed legislation that made California the only state in the nation to offer free education from kindergarten through grad school. Clark Kerr – who headed the committee that drafted the plan Brown turned into law – was head of the University of California and had a theory about economic progress. In the same way that the railroad in the late 1800s and the automobile in the early 1900s had reshaped the economy, he thought that the late 1900s would be transformed by a knowledge economy.
In the decades after it began investing in Kerr’s vision, California became home to Silicon Valley. Intel was founded in 1968, Apple in 1976, and Google in 1998. California’s early investment in education paid off with millions of high-paying jobs and trillions of dollars in new wealth.
Harris’s father was an economics professor at Stanford, her mother a researcher at UC Berkeley. Median household income in the two Bay Area counties where Harris spent her childhood is now about $119,000 a year. Joe Biden was born in Scranton, Pennsylvania where median household income is now about $39,000. Biden comes from a generation of labor that needed protection from capitalists. Harris comes from a generation of labor who are the capitalists. The Bay Area is defined by returns to intellectual – not industrial - capital. On two campuses six miles apart – Google and Facebook – median employee pay is $200, 000 and $240,000. Billionaires get a lot of attention but stock options have made multi-millionaires out of thousands of west coast employees. To not understand how labor changed from the early to late 1900s is to not understand the Democratic Party that now champions the information economy dependent on global markets, immigrants, and big investments in education and research.
In 1969, per capita personal income in Santa Clara County was 24% higher than the national average. By 2018, it was double. Clark Kerr was right about the importance of the knowledge economy and while the Bay Area and Scranton are in the same country, they are in different worlds. In Harris’s two childhood counties[3], 77% of people over 25 have a Bachelors degree. In the county that is home to Scranton, only 22% do. In Harris’s counties, minorities and immigrants make up 45% and 28% of the population; in Biden’s home county they are only 27% and 10%.[4] The Bay Area’s highly-educated, diverse and cosmopolitan population thrives in the global economy while Scranton struggles.
When the US was founded, it was a nation of farmers. 80 to 90% of the workforce was in agriculture. In the late 1800s and early 1900s, the workforce moved from farms to factories and investments in industrial capital made regions prosper. By the late 1900s, it was investments in creating intellectual capital that made regions prosper.
In 2010, Harris won her first state-wide election in California. In 2020, she could share a victory with Biden in the nation’s most defining election. If knowledge workers represent the future of the American economy, Kamala Harris could represent the future of Democratic Party: educated and cosmopolitan.
California was one of the early investors in Kerr’s vision of an economy dependent on knowledge workers but it is not the only one. States that enjoy a return to investments in education lead the nation in income. Biden and Harris will win the eight states with the highest per capita income. Trump will probably win all but one of the eight states with the lowest per capita income. This has nothing to do with the people in these states and everything to do with past decisions about whether to heavily invest in industrial or intellectual capital. It is the states that made relatively heavier investments in the intellectual capital that now lead in incomes.
Biden will likely bring compassion to communities like Scranton that are struggling to transition out of an old economy dependent on industrial capital. Harris will likely bring a vision of what is possible if communities place their bets on the information economy.
Biden’s compassion promises to alleviate poverty; Harris’s Bay Area experience promises to enhance prosperity. It is the latter that could define the Democratic Party for the next generation.
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R World (Ron Davison muses aloud)
Showing posts with label labor. Show all posts
Showing posts with label labor. Show all posts
06 August 2020
How to Explain Why Stock Markets Do So Much Better Under Democrats
"If Biden is elected, markets will fall," Trump has warned. "Socialism!" Trump friends have posted.
In 1989, working class whites and white college graduates had about the same share of the country's net worth: 45 and 46 percent.
By 2016, that had dramatically changed; the share held by the white working class had dropped to 22 percent and the share held by white college graduates was at 67 percent. (See figures 4 and 5.) The two groups had gone from equals to a 3 to 1 difference.
The post-FDR Democratic Party had shifted from the party of farmers to the party of labor. Post-JFK, they had increasingly been aligned with a particular kind of labor, with knowledge workers who have college degrees. In a recent Quinnipiac poll, there was a stark contrast between whites with and without college degrees. Trump led by 3 points among the white working class and trailed Biden by 33 points among white college graduates. White college graduates aren't exactly socialists; they actually are the ones with an increasing share of capital.
Trump warns of market collapse and for the white working class, that actually resonates. The truth is, though, that the stock market first made significant by Republican policy in the 1800s now seems to do best when a Democrat is president. (I'd be remiss if I didn't point out that people like Daryl - who are smarter than me - point out that seeing a correlation between who is president and how the market does is akin to seeing a face in piece of toast; there are simply too many variables at play to claim such a simplistic link, they say.) One big reason markets do better under Democrats is because the are more likely to push for Keynesian policies that accelerate recoveries and mitigate busts. A more subtle reason is that Democrats are the ones whose pro-education and research policies are more obviously assisting the information economy dependent on knowledge workers. One can argue that stock market performance is too complex to trace to something as simple as who is president and that market movement has little to do with that. That is certainly the rational thing to argue. I argue instead that at different points in economic development, different policies are better aligned with current and emerging realities. The important reality of the 20th century is that labor led progress in the same way that capital led progress in the 19th century. The party advocating for labor was the Democratic Party and so the market did better under their leadership.
The stock market has done well under Trump. The average of S&P 500, NASDAQ and the Dow in his 3.5 years in office have gone up 57%, so better than it had at this point under Carter, about the same as under Clinton and not as well as under Obama. Since Carter, though, the differences through the first 3.5 years of the presidency have been 2 to 1 in favor of Democrats. On average for Democratic presidencies 3.5 years in, the market was up 53% and the average for Republican presidencies was up 26%.
The differences in market returns since 1900 have been stark. Imagine two families, each with $100,000 at the start of Teddy Roosevelt's presidency in 1901. One puts all their money under a mattress each time a Democrat is in the Oval Office and puts it all in a Dow index fund each time a Republican is in office. The other family does the opposite, going all in on the Dow each time a Democrat is in office and under the mattress when a Republican is president. How would the two families have done since 1901? The Republican family would now have $700k. The Democratic family would have $5.9 million.
The curious thing is, while the folks who still identify as members of the industrial economy obviously consider themselves part of capitalism, it is actually knowledge workers who are a new kind of capitalist. It is not the companies who manipulate things that account for the rise in stock prices; it is the companies who manipulate symbols. Not General Motors but Microsoft, not US Steel but Google are now the world's most valuable companies.
In 1989, working class whites and white college graduates had about the same share of the country's net worth: 45 and 46 percent.
By 2016, that had dramatically changed; the share held by the white working class had dropped to 22 percent and the share held by white college graduates was at 67 percent. (See figures 4 and 5.) The two groups had gone from equals to a 3 to 1 difference.
The post-FDR Democratic Party had shifted from the party of farmers to the party of labor. Post-JFK, they had increasingly been aligned with a particular kind of labor, with knowledge workers who have college degrees. In a recent Quinnipiac poll, there was a stark contrast between whites with and without college degrees. Trump led by 3 points among the white working class and trailed Biden by 33 points among white college graduates. White college graduates aren't exactly socialists; they actually are the ones with an increasing share of capital.
Trump warns of market collapse and for the white working class, that actually resonates. The truth is, though, that the stock market first made significant by Republican policy in the 1800s now seems to do best when a Democrat is president. (I'd be remiss if I didn't point out that people like Daryl - who are smarter than me - point out that seeing a correlation between who is president and how the market does is akin to seeing a face in piece of toast; there are simply too many variables at play to claim such a simplistic link, they say.) One big reason markets do better under Democrats is because the are more likely to push for Keynesian policies that accelerate recoveries and mitigate busts. A more subtle reason is that Democrats are the ones whose pro-education and research policies are more obviously assisting the information economy dependent on knowledge workers. One can argue that stock market performance is too complex to trace to something as simple as who is president and that market movement has little to do with that. That is certainly the rational thing to argue. I argue instead that at different points in economic development, different policies are better aligned with current and emerging realities. The important reality of the 20th century is that labor led progress in the same way that capital led progress in the 19th century. The party advocating for labor was the Democratic Party and so the market did better under their leadership.
The stock market has done well under Trump. The average of S&P 500, NASDAQ and the Dow in his 3.5 years in office have gone up 57%, so better than it had at this point under Carter, about the same as under Clinton and not as well as under Obama. Since Carter, though, the differences through the first 3.5 years of the presidency have been 2 to 1 in favor of Democrats. On average for Democratic presidencies 3.5 years in, the market was up 53% and the average for Republican presidencies was up 26%.
The differences in market returns since 1900 have been stark. Imagine two families, each with $100,000 at the start of Teddy Roosevelt's presidency in 1901. One puts all their money under a mattress each time a Democrat is in the Oval Office and puts it all in a Dow index fund each time a Republican is in office. The other family does the opposite, going all in on the Dow each time a Democrat is in office and under the mattress when a Republican is president. How would the two families have done since 1901? The Republican family would now have $700k. The Democratic family would have $5.9 million.
I argue that the stock market has done better under Democratic presidents because financial capital now follows the development of intellectual capital and Democratic policies are more obviously pro-labor with its consequent intellectual capital. Smarter people than me look at this same data and say that this link between presidencies and stock market performance is random. Folks on talk radio look at this data and argue that it is clear evidence that Democrats are socialists and the market does better under Republicans. That last claim - that in spite of the data markets actually do better under Republicans - seems the hardest to believe.
05 August 2020
The 20th Century as the Century of Labor: the invention of retirement, knowledge work and the worker as capitalist
In the early 1900s, labor followed capital. Specifically, workers came off of the farm to work in factories. By the late 1900s, capital followed labor.
Workers used to need the industrial capital that increased their productivity; investors now need intellectual capital that increases their returns. Four companies are now worth more than a trillion dollars, making thousands - possibly hundreds of thousands - of investors rich. Those four - Apple, Microsoft, Amazon and Alphabet (Google) - have leveraged the efforts of knowledge workers via the design of software, processes, and processes.
In the same way that workers once brought their labor to factories that made things in places like Manchester or Detroit to enhance the return to their efforts, investors now bring their capital to these companies that manipulate the symbols of things to enhance the returns to their capital.
The Labour Party was founded in 1900 in the UK. At about that same time, the Democratic Party was struggling to reinvent itself from the farmers' party to a labor party. These changes in political realities followed from changes in economic realities.
The 20th century was the century of labor, which got its workweek reduced from 60 to 40 hours, gained safer working conditions, got children out of factories and into schools, and invented retirement, something made possible by extending life expectancy from 47 to 77 and making labor the new bourgeois, investors in their own and other companies' stocks as they built up retirement portfolios.
And this reality of making more and needing to prepare for a retirement also made financial capital more eager to invest in the companies that hired knowledge workers.
And this reality of making more and needing to prepare for a retirement also made financial capital more eager to invest in the companies that hired knowledge workers.
Employees at companies like IBM and Eastman Kodak in the 1960s began to buy stocks in their own companies as their salaries grew. They saw surprising returns from this and informed family and friends. Investing became more popular. In 4Q of 1969, mutual funds were worth $48 billion. By 4Q 2019, mutual funds were worth $17.7 trillion.
One of the reasons that financial capital is no longer scarce is because there are so many capitalists now. An increasing percentage of employees are also investors. This new abundance of capital has driven down its price; the returns to capital measured by the interest rates on bonds has moved close to zero. It's no wonder that everyone - even labor itself - is now placing bets on the returns to labor and entrepreneurship in the form of stock in the companies that employ the most iconic of today's knowledge workers.
The Self-Exploitation of Intellectual Capital: How Returns to Labor Have Eclipsed Returns to Capital
Social security only began keeping track of salaries over $50 million in 1997. (In 1990, the highest group it broke out were folks making more than $5 million.) In 1997, 13 people made more than $50 million in salary. By 2018, that had increased to 211.
In the last 50 years, arguably only the returns to entrepreneurship have grown more than the returns to elite labor. This huge gain in wages is easiest to see with CEOs and professional athletes.
In 1969, Willie Mays was the highest paid major league baseball player at $135,000. In 2019, Mike Trout was the highest paid player at $37.7 million. (Willie made about two-thirds what we paid Nixon to be president; Trout makes 94X as much as we pay Trump.)
In 1969, the ratio of CEO to average worker pay in the S&P 500 was 32. In 2019, it was 264. (Which means that S&P 500 CEOs make per day what their employees do per year.)
Median wages between 1990 and 2018 grew about $4,700. Meanwhile, wages for those in the top 1% grew about $114,000. (Both numbers are adjusted for inflation.) Folks making median wage had about $90 more per week; folks in the top 1% had an extra $2,200 per week.
The old models still suggest that capital is the source of income inequity. The new data suggests that it is increasingly returns to labor - unique skills and intellectual capital - that drive big differences in income.
As Daniel Markovits points out in The Meritocracy Trap, one of the fascinating things about this is that to be rich once meant you owned land and capital and could afford to be idle. Those assets worked for you. Increasingly, being rich means working more than the poor, not less. Bankers used to work 10 to 3; now investment bankers report working 17 hours a day. In 1962, elite lawyers were expected to bill about 1,300 hours a year; now they are asked to bill 2,400 hours a year, which means working long hours six days a week. To be rich now means having to put in the hours to get a return on the skills or intellectual capital you have created. The old, financial capitalist exploited the worker; the new, intellectual capitalist has to exploit him or herself.
In the last 50 years, arguably only the returns to entrepreneurship have grown more than the returns to elite labor. This huge gain in wages is easiest to see with CEOs and professional athletes.
In 1969, Willie Mays was the highest paid major league baseball player at $135,000. In 2019, Mike Trout was the highest paid player at $37.7 million. (Willie made about two-thirds what we paid Nixon to be president; Trout makes 94X as much as we pay Trump.)
In 1969, the ratio of CEO to average worker pay in the S&P 500 was 32. In 2019, it was 264. (Which means that S&P 500 CEOs make per day what their employees do per year.)
Median wages between 1990 and 2018 grew about $4,700. Meanwhile, wages for those in the top 1% grew about $114,000. (Both numbers are adjusted for inflation.) Folks making median wage had about $90 more per week; folks in the top 1% had an extra $2,200 per week.
The old models still suggest that capital is the source of income inequity. The new data suggests that it is increasingly returns to labor - unique skills and intellectual capital - that drive big differences in income.
As Daniel Markovits points out in The Meritocracy Trap, one of the fascinating things about this is that to be rich once meant you owned land and capital and could afford to be idle. Those assets worked for you. Increasingly, being rich means working more than the poor, not less. Bankers used to work 10 to 3; now investment bankers report working 17 hours a day. In 1962, elite lawyers were expected to bill about 1,300 hours a year; now they are asked to bill 2,400 hours a year, which means working long hours six days a week. To be rich now means having to put in the hours to get a return on the skills or intellectual capital you have created. The old, financial capitalist exploited the worker; the new, intellectual capitalist has to exploit him or herself.
Information on social security here.
Information on CEO to worker pay ratios here.
10 July 2019
What are the Odds? The Conservative's Unique Place in History
The women's soccer team is fighting for equal pay. A conservative friend thinks this is silly.
It's a curious thing. This friend is not a troglodyte. He does not support keeping women at home and out of the workplace like conservatives would have in, say, the 1960s. He also does not support efforts to get women equal pay now that they are in the workplace.
This is the belief of conservatives. Today, the natural evolution of "We deserve to be admitted to universities and corporate workplaces," to "and it makes no sense that we regularly make tens of percent less than men" gets the first part right and the second part wrong. In their eyes, conservatives who tried to keep women out of universities and the workplace were overly repressive decades ago and progressives who today would push for equal pay are overly progressive.
Think about the odds of this. For thousands of years before the current conservative became an adult, society was too repressive. Societies that have pushed further and now ask for equal pay for men and women have gone too far. Out of thousands of years of history and thousands of years of future, only the society they discovered at the time they became an adult got it just right. Progress had neatly deposited the conservative in just the right place in history and no further.
You would think that conservatives would be happier people. Had they been born even a generation earlier, they'd be outraged at the inequity of repressive conservatives around them not enlightened enough to give women equal opportunity. And had they been born even a generation later, they'd be outraged at the inequity of all the progressives who were stupid enough to insist on equal pay. There was only one generation in history to get it just right and it happened to be theirs. You'd think that would make them feel happy and proud.
"50 years before I was born, the world was in the Dark Ages. 50 years after I turned 18, the world had gone mad. What a joy that I found just the right time to live in, a glorious golden age in which the golden mean was achieved. What bliss. What luck. What perfect timing."
"A conservative is someone who stands athwart history, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it."
- William F. Buckley, Jr.
It's a curious thing. This friend is not a troglodyte. He does not support keeping women at home and out of the workplace like conservatives would have in, say, the 1960s. He also does not support efforts to get women equal pay now that they are in the workplace.
This is the belief of conservatives. Today, the natural evolution of "We deserve to be admitted to universities and corporate workplaces," to "and it makes no sense that we regularly make tens of percent less than men" gets the first part right and the second part wrong. In their eyes, conservatives who tried to keep women out of universities and the workplace were overly repressive decades ago and progressives who today would push for equal pay are overly progressive.
Think about the odds of this. For thousands of years before the current conservative became an adult, society was too repressive. Societies that have pushed further and now ask for equal pay for men and women have gone too far. Out of thousands of years of history and thousands of years of future, only the society they discovered at the time they became an adult got it just right. Progress had neatly deposited the conservative in just the right place in history and no further.
You would think that conservatives would be happier people. Had they been born even a generation earlier, they'd be outraged at the inequity of repressive conservatives around them not enlightened enough to give women equal opportunity. And had they been born even a generation later, they'd be outraged at the inequity of all the progressives who were stupid enough to insist on equal pay. There was only one generation in history to get it just right and it happened to be theirs. You'd think that would make them feel happy and proud.
"50 years before I was born, the world was in the Dark Ages. 50 years after I turned 18, the world had gone mad. What a joy that I found just the right time to live in, a glorious golden age in which the golden mean was achieved. What bliss. What luck. What perfect timing."
"A conservative is someone who stands athwart history, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it."
- William F. Buckley, Jr.
03 May 2019
What a Shrinking Labor Force Means for the Job Market & the Economy
Since December, the labor force has shrunk by 770,000. This is one reason that the unemployment rate hit its lowest in this century in March. (It's been half a century since unemployment was at 3.6%.) This fall in labor force could be random variation but it may be a sign of a trend.
As you can see in this graph, the rate of growth in the labor force has been steadily falling in the last 5 decades.
Baby boomers and immigrants drove a big rise in the labor force. LBJ's Immigration and Nationality Act in 1965 ended the fairly racist quotas for immigration and increased the number of immigrants about the same time that baby boomers entered the job market. The birthrate for a stable population is about 2.1 births per woman. In 1960, the US had a birthrate of 3.65 and in 1973 it fell below 2, where it has stayed since.
The number of kids coming of age and the number of immigrants coming to our country have both steadily dropped since the 1970s. It is conceivable that in the 2020s, the labor force will actually stop growing.
This is good news for workers. Sort of. It should be mean strong wage growth for the millennials whose careers started out in the midst of the Great Recession. Workers will have more power in negotiations with companies who are competing for a shrinking pool of workers. They deserve it and it could be good for their pocketbooks. This also suggests that house prices will increase at a slower rate as demand for housing eases.
The news is not as good for the economy for at least two reasons.
The most obvious is that the ratio of retired to those working will go up. That suggests more poverty among the retired than we'd otherwise have. (Baby boomers might care about this.) Elder care will be more expensive as wages rise.
Less obvious is what fewer workers mean for an economy.
Just today the New York Times published a story on how Hungary's economy is now limited by workers. Prime Minister Viktor Orban is, like Trump, an anti-immigrant nationalist. Hungary is not the only European country experiencing lower birthrates, though. Demand for workers is up throughout much of Europe. Because of this, Hungarian workers are leaving for better paying jobs in big European cities. So Hungary's labor shortage is driven by two things: its own people emigrating to other countries and other people not immigrating into Hungary. As a result, businesses are turning away orders because they cannot fill them.
How are we i the US doing with immigration as birthrates fall?
Foreign student enrollment in American universities has fallen two years in a row - essentially since Trump has taken office. The immigrants we should most want - those able to get into our universities - are choosing to go elsewhere, raising the probability they will go work elsewhere.
There is something else going on here that rarely gets mentioned. As population increases, so does per capita GDP. More people stimulate more ideas, more creativity, more products, more technologies, and more businesses. This is a big reason why productivity and wages are so much higher in cities than in rural areas. Our creativity is stimulated by interactions with people; and the more diverse that group, the more creative our response.
The good news about diminishing growth in the labor force is that it will mean that workers will likely get more of the pie, be able to negotiate higher wages this year. The bad news is that there will be less pie, less creativity, innovation and entrepreneurship than we'd have with a larger, more diverse population and wages - while taking a higher percentage of corporate revenue - could actually be lower than they otherwise would be. (And that, of course, suggests company earnings would be smaller for two reasons: smaller portion of revenues going to profit and smaller revenues.)
As birthrates fall across the West, smart countries will compete for immigrants, not shun them. Us? Well, apparently we're cashing in our lead in immigration and choosing to become more like Hungary.
As you can see in this graph, the rate of growth in the labor force has been steadily falling in the last 5 decades.
Baby boomers and immigrants drove a big rise in the labor force. LBJ's Immigration and Nationality Act in 1965 ended the fairly racist quotas for immigration and increased the number of immigrants about the same time that baby boomers entered the job market. The birthrate for a stable population is about 2.1 births per woman. In 1960, the US had a birthrate of 3.65 and in 1973 it fell below 2, where it has stayed since.
The number of kids coming of age and the number of immigrants coming to our country have both steadily dropped since the 1970s. It is conceivable that in the 2020s, the labor force will actually stop growing.
This is good news for workers. Sort of. It should be mean strong wage growth for the millennials whose careers started out in the midst of the Great Recession. Workers will have more power in negotiations with companies who are competing for a shrinking pool of workers. They deserve it and it could be good for their pocketbooks. This also suggests that house prices will increase at a slower rate as demand for housing eases.
The news is not as good for the economy for at least two reasons.
The most obvious is that the ratio of retired to those working will go up. That suggests more poverty among the retired than we'd otherwise have. (Baby boomers might care about this.) Elder care will be more expensive as wages rise.
Less obvious is what fewer workers mean for an economy.
Just today the New York Times published a story on how Hungary's economy is now limited by workers. Prime Minister Viktor Orban is, like Trump, an anti-immigrant nationalist. Hungary is not the only European country experiencing lower birthrates, though. Demand for workers is up throughout much of Europe. Because of this, Hungarian workers are leaving for better paying jobs in big European cities. So Hungary's labor shortage is driven by two things: its own people emigrating to other countries and other people not immigrating into Hungary. As a result, businesses are turning away orders because they cannot fill them.
How are we i the US doing with immigration as birthrates fall?
Foreign student enrollment in American universities has fallen two years in a row - essentially since Trump has taken office. The immigrants we should most want - those able to get into our universities - are choosing to go elsewhere, raising the probability they will go work elsewhere.
There is something else going on here that rarely gets mentioned. As population increases, so does per capita GDP. More people stimulate more ideas, more creativity, more products, more technologies, and more businesses. This is a big reason why productivity and wages are so much higher in cities than in rural areas. Our creativity is stimulated by interactions with people; and the more diverse that group, the more creative our response.
The good news about diminishing growth in the labor force is that it will mean that workers will likely get more of the pie, be able to negotiate higher wages this year. The bad news is that there will be less pie, less creativity, innovation and entrepreneurship than we'd have with a larger, more diverse population and wages - while taking a higher percentage of corporate revenue - could actually be lower than they otherwise would be. (And that, of course, suggests company earnings would be smaller for two reasons: smaller portion of revenues going to profit and smaller revenues.)
As birthrates fall across the West, smart countries will compete for immigrants, not shun them. Us? Well, apparently we're cashing in our lead in immigration and choosing to become more like Hungary.
07 March 2018
How Apps, Entrepreneurship and a Steady Boom Have Brought Unemployment Claims to an All-Time Low
The Facts
The 4-week moving average of initial unemployment claims is at an all-time low.
In raw numbers, it was actually lower in 1969 but at that point the labor force was exactly half (well, okay, 50.7%) what it is now. So as a percentage, it has never been lower in recorded history.
This statistic is a measure of how many people walk into an unemployment office to say, "I've lost my job and don't have another one to go to."
In April of 2009, 658,000 people filed for unemployment each week. That was the worst of the Great Recession. October of 1982 was even worse, with 671,750 walking into unemployment offices around the country during a single week.
But the American economy is always shedding and creating jobs, at a rate of about 2 million per month. It's remarkable that such a small number of folks laid off or quitting one job don't end up in an unemployment office before they get their next job.
The week of 24 February, only 220,500 people filed initial unemployment claims. The last time it was lower was 27 December 1969 - nearly 50 years ago - when it hit 219,750. As a percentage of the labor force, though, that 1969 number equated to about 1.1% of the labor force showing up in an unemployment office during the month whereas this latest number suggests only 0.5% of the labor force filed for unemployment in the month. It's a stunning number.
The Theories
The most obvious explanation is an uninterrupted rise in jobs created that has now gone on for 88 months (and counting). Every month that results in more jobs created than destroyed means that many fewer people unemployed or unable to find a job. I think there is more to even than that, though.
Simply put, the economy has never been more efficient at creating new jobs and then matching unemployed people to those new jobs. I don't know why but I have a theory that it is because of apps and entrepreneurship.
Uber, Lyft, Mechanical Turk, PostMates, and other apps quickly match people to tasks they can do. Even the websites like Monster, and Indeed have accelerated the time it takes for employers to find qualified employees to hire. Some apps quickly find someone to perform a task; other sites accelerate the time it takes to find a new employee.
Once upon a time, in small communities, you knew that Todd could help carry heavy loads and Melissa could repair fragile things. You could easily find help and they could find work. As the world got bigger and more advanced, it became harder to know who could program in Java vs. C, or who could design period-furniture and who could repair modern furniture. It took a long time for the unemployed to find jobs and for employers to find help. It would take months to find the right person for a job and for tasks that might take only minutes or days, you might never find a match. There was a lot of friction in job markets even a decade ago.
Now software lets a person who wants to drive you to the airport find the person who wants a ride to the airport within about 15 minutes. It's easier than ever to find a match and this makes for nearly friction-less labor markets. This means that more people are downloading an app to make money (I know, to qualify as an Uber driver is not as easy as downloading an app) rather than waiting for a person to hire them. One result is a lower number of folks who file for unemployment.
Another element is increased levels of entrepreneurship. It is easier than ever to start or expand a business. Once upon a time you had to get loans to buy a store or build a factory to start a business; now you can fund a software startup with six laptops. More than half of American employees now work at least part of the week at home. This suggests that the overhead for office space per person is dropping, one less barrier to starting or expanding a business. (I know. It's not THAT cheap or simple. Still, even renting a cubicle is cheaper than setting up a factory.) A great number of employees are hired as contractors; some because that is now how corporations are engaging employees and some because that is an increasingly common way to put someone through the equivalent of a probationary period. There is less commitment and expense in "hiring" an employee and thus less hesitancy to do so. Employees still face a great deal of uncertainty about particular contracts or income levels but less likely to go long stretches without some kind of income.
In this way it's a bit like the move from a bank account that offers 3% annual rate vs. a stock that could rise or fall 30% in a year. Income will fluctuate more but employment will not. People are less likely to turn to unemployment insurance than to another job or task that could mean a temporary rise or fall in pay. If not already, I suspect that fewer people will look back at the last ten years of employment as a steady rise of 4% in annual pay and will instead see rise and falls more akin to the performance of a 401(k).
What It Means
One thing that no one would suggest, though, is that the Uber drivers are fine with just their cars and Uber app. Among other things, they need roads to drive on. Why mention this obvious thing? As the economy and information systems become more adept at matching supply and demand, it's important to support the infrastructure that makes it work. In this case, it's not just roads. People who are more likely to be getting their income from contract jobs and apps need things like universal healthcare to replace the standard benefits once provided by corporate employers and job training programs to make them steadily more productive. The good news is that these more efficient markets will mean less reliance on government unemployment insurance; the bad news is that more tenuous income streams suggests a greater need for things like government health insurance and education.
Another implication of more efficient labor markets is the very real possibility that the natural rate of unemployment has dropped. The ideal rate of unemployment would not be zero for the simple fact that finding a great fit between employee and job is not an instantaneous process. Given it takes a little while to find a great match, it makes sense that somewhere between 2 to 5% of the labor force would be unemployed at any given time. If it is true that it's easier for people to find work, it makes sense that this rate has gone down. What that means is that if string of uninterrupted job creation continues another 6 to 24 months, the unemployment rate could approach 3%. [I've already forecast about a 33% chance of a recession but if that doesn't hit this year, unemployment could steadily trend downwards.]
In all, more efficient labor markets is yet another great sign of progress. It doesn't mean that business cycles are over but it does mean that in any given month fewer people face the prospect of unemployment. That's pretty cool.
The 4-week moving average of initial unemployment claims is at an all-time low.
In raw numbers, it was actually lower in 1969 but at that point the labor force was exactly half (well, okay, 50.7%) what it is now. So as a percentage, it has never been lower in recorded history.
This statistic is a measure of how many people walk into an unemployment office to say, "I've lost my job and don't have another one to go to."
In April of 2009, 658,000 people filed for unemployment each week. That was the worst of the Great Recession. October of 1982 was even worse, with 671,750 walking into unemployment offices around the country during a single week.
But the American economy is always shedding and creating jobs, at a rate of about 2 million per month. It's remarkable that such a small number of folks laid off or quitting one job don't end up in an unemployment office before they get their next job.
The week of 24 February, only 220,500 people filed initial unemployment claims. The last time it was lower was 27 December 1969 - nearly 50 years ago - when it hit 219,750. As a percentage of the labor force, though, that 1969 number equated to about 1.1% of the labor force showing up in an unemployment office during the month whereas this latest number suggests only 0.5% of the labor force filed for unemployment in the month. It's a stunning number.
The Theories
The most obvious explanation is an uninterrupted rise in jobs created that has now gone on for 88 months (and counting). Every month that results in more jobs created than destroyed means that many fewer people unemployed or unable to find a job. I think there is more to even than that, though.
Simply put, the economy has never been more efficient at creating new jobs and then matching unemployed people to those new jobs. I don't know why but I have a theory that it is because of apps and entrepreneurship.
Uber, Lyft, Mechanical Turk, PostMates, and other apps quickly match people to tasks they can do. Even the websites like Monster, and Indeed have accelerated the time it takes for employers to find qualified employees to hire. Some apps quickly find someone to perform a task; other sites accelerate the time it takes to find a new employee.
Once upon a time, in small communities, you knew that Todd could help carry heavy loads and Melissa could repair fragile things. You could easily find help and they could find work. As the world got bigger and more advanced, it became harder to know who could program in Java vs. C, or who could design period-furniture and who could repair modern furniture. It took a long time for the unemployed to find jobs and for employers to find help. It would take months to find the right person for a job and for tasks that might take only minutes or days, you might never find a match. There was a lot of friction in job markets even a decade ago.
Now software lets a person who wants to drive you to the airport find the person who wants a ride to the airport within about 15 minutes. It's easier than ever to find a match and this makes for nearly friction-less labor markets. This means that more people are downloading an app to make money (I know, to qualify as an Uber driver is not as easy as downloading an app) rather than waiting for a person to hire them. One result is a lower number of folks who file for unemployment.
Another element is increased levels of entrepreneurship. It is easier than ever to start or expand a business. Once upon a time you had to get loans to buy a store or build a factory to start a business; now you can fund a software startup with six laptops. More than half of American employees now work at least part of the week at home. This suggests that the overhead for office space per person is dropping, one less barrier to starting or expanding a business. (I know. It's not THAT cheap or simple. Still, even renting a cubicle is cheaper than setting up a factory.) A great number of employees are hired as contractors; some because that is now how corporations are engaging employees and some because that is an increasingly common way to put someone through the equivalent of a probationary period. There is less commitment and expense in "hiring" an employee and thus less hesitancy to do so. Employees still face a great deal of uncertainty about particular contracts or income levels but less likely to go long stretches without some kind of income.
In this way it's a bit like the move from a bank account that offers 3% annual rate vs. a stock that could rise or fall 30% in a year. Income will fluctuate more but employment will not. People are less likely to turn to unemployment insurance than to another job or task that could mean a temporary rise or fall in pay. If not already, I suspect that fewer people will look back at the last ten years of employment as a steady rise of 4% in annual pay and will instead see rise and falls more akin to the performance of a 401(k).
What It Means
One thing that no one would suggest, though, is that the Uber drivers are fine with just their cars and Uber app. Among other things, they need roads to drive on. Why mention this obvious thing? As the economy and information systems become more adept at matching supply and demand, it's important to support the infrastructure that makes it work. In this case, it's not just roads. People who are more likely to be getting their income from contract jobs and apps need things like universal healthcare to replace the standard benefits once provided by corporate employers and job training programs to make them steadily more productive. The good news is that these more efficient markets will mean less reliance on government unemployment insurance; the bad news is that more tenuous income streams suggests a greater need for things like government health insurance and education.
Another implication of more efficient labor markets is the very real possibility that the natural rate of unemployment has dropped. The ideal rate of unemployment would not be zero for the simple fact that finding a great fit between employee and job is not an instantaneous process. Given it takes a little while to find a great match, it makes sense that somewhere between 2 to 5% of the labor force would be unemployed at any given time. If it is true that it's easier for people to find work, it makes sense that this rate has gone down. What that means is that if string of uninterrupted job creation continues another 6 to 24 months, the unemployment rate could approach 3%. [I've already forecast about a 33% chance of a recession but if that doesn't hit this year, unemployment could steadily trend downwards.]
In all, more efficient labor markets is yet another great sign of progress. It doesn't mean that business cycles are over but it does mean that in any given month fewer people face the prospect of unemployment. That's pretty cool.
14 October 2017
What Your Fellow Americans Are Making - And What That Suggests About Minimum Wage Law
13 October, our Social Security Administration released data on last year's wage earners.
An income of $95,000 put you in the top 10%, made you 1 out of 10.
An income of $250,000 put you in the top 1%, 1 out of 100.
$500,000 put you in the top 0.1%, or 1 out of 1,000.
$50,000,000 - fifty million - put you in the top 0.001%. It made you one in a million. 143 people reported incomes of over $50 million and those 143 people had average incomes of $100 million.
Here's another remarkable stat. Merely having an income put you in the top 50%. When I write, "top 10%," above, I'm writing about the top 10% of wage earners. Social security has data on 163 million wage earners. There are about 325 million Americans, so only about half of Americans reported incomes. Some were too young. (My wife's second grade class is full of slackers who haven't earned a dime in their life.) Some were too old. Some are too rich to work or make their living from investments rather than wages, property or stock owners. Some are too handicapped. Some are working jobs without wages, jobs like caring for their kids or parents. Some depend on family or friends for food and housing, some are in school, some recovering from injury, some permanently disabled, etc.
Now let's get into the normal people, the wage earners who don't make six figure salaries but still work. The 90%.
If you make $15,000, you make more than 30% of all wage earners. $15,000 a year works out to $1,250 a month. Median rent for a one-bedroom apartment in the country's most expensive 22 cities is higher than $1,250 a month. Assuming that you have to eat, buy clothes, get transportation, etc., what nearly a third of Americans make is not enough.
If you made $30,557.71 last year, you made more than half of all wage earners. You have as many people who would trade wages with you as you would trade wages with. In some sense, you are the representative American, someone fellow Americans are as likely to pity as envy.
$30,000 a year works out to $15 an hour. Half of wage earners make less than this. Half.
Seattle is a wonderful city. It's both home to two of the richest men in the world and to many liberals who folks in the Midwest would consider more liberal than Scandinavians. They've recently passed a $15 an hour minimum wage.
I have a problem with that.
I don't have a problem with places like San Francisco and Seattle - places where median wages are $90,000 to $100,000+ a year - saying to employers, "If you want to hire our people you have to pay more than you would elsewhere." That makes perfect sense to me.
What doesn't make perfect sense to me? Choosing to make that minimum wage $15 an hour - an amount MORE than what half the people in this country make.
Average wages in Belarus and Armenia are about one-tenth the average wage in the US. You can't just pass legislation requiring all businesses to pay Armenian employees the same as American employees. It's a noble and proper aspiration to lift wages but the way you get there is complicated. Better education. Easier access to foreign markets where they can sell their goods and services. More capital investment that makes their people more productive.
Minimum wage seems to work as a prod to businesses or industries that aren't keeping up. It can force the folks in the bottom of 10% or 25% of labor productivity to either go out of business, go overseas or to up their game and make their employees more profitable even at a higher wage. What it can't do is force wages up for half the workforce. You need more complicated policies than that.
Policies that make it easier to live when you make only $15,000 a year or less - something that 30% of the workforce is doing - are good, humane and necessary. Minimum wage laws that ignore what the market says about the value of half your workforce seem, by contrast, bad, silly and doomed to backfire.
12 October 2017
Unemployment Rate: What is Next After the Longest Drop in History?
We have data on monthly unemployment rates in the US from January 1948 - shortly after World War 2 - through September of 2017. During that time it has never been lower than 2.5% (which it was in May and June of 1953 at the peak of the post war recovery) and never been higher than 10.8% (which it was in November and December of 1982 in the depth of the Volcker-induced recession during Reagan's first term).
Half the time it is below 5.7% and half the time it is above 5.7%.
Unemployment rates of 3.8% or lower put you in the top 10%; rates of 7.9% or higher put you in the bottom 10%. 80% of the time, unemployment rates have bounced between 3.9% to 7.8%; that range defines normal. Outside of that range things are great or awful.
At the depth of the Great Recession - in October of 2009 - unemployment hit 10%. That's among the worst 1% of all months. (Well, in the worst 1.2%.) Since then it has steadily come down during the longest uninterrupted streak of job creation on record. Last month - the end of the streak - unemployment hit 4.2%, a value in the best 17%. We're in the top 20% but not yet top 10%, really good but still not great.
One simple answer as to whether unemployment will drop further is to say that it's only been lower than its current rate of 4.2% 15% of the time. Again, unemployment rates bounce between 4% to 8% most of the time; it doesn't seem to last long outside of that range. That alone suggests that the unemployment rate will soon stabilize or even rise.
Another interesting thing to note is that this is an exceptionally long recovery. Unemployment peaked 8 years ago this month - in October of 2009. A steady drop in unemployment has never lasted longer. The next longest improvement, the drop from the 10.8% high in December of 1982 to its low of 5% in March of 1989, took just over 6 years before beginning to rise again. Unemployment rates steadily drop for a time and then steadily rise, and steady improvements usually last just a few years, not 8 yerars.
At the start of a recovery people are well aware of all the reasons things can go badly. After all, they are just coming out of a period in which things did, indeed, go badly. Remember how early in the recovery people were anxious about Greece, China's stock market, deficit spending, the mortgage market, Greece, etc. People were looking for reasons that things could go wrong. Now? Now they're looking for reasons that the recovery could continue and less aware of reasons it might not; this makes economies more vulnerable.
There are reasons the unemployment rate could drop further and reasons it won't.
Among the reasons it could drop further is that our labor force is growing more slowly than it did a decade ago. From 1955 to 2005, US labor force (folks aged about 25 to 65) grew 1.7 percent a year. Since then it has grown about 0.5%. As companies seek to hire, they'll have fewer options; all else being equal, this would translate into lower unemployment.
Another reason it could drop further is because of a drop in immigration. Again, this lowers the number of available workers and could mean that employers will draw from the unemployed rather than the newly available. If immigration rates drop enough, the labor force might even stop growing.
Curiously, the reasons that the unemployment rate could start to rise again include a drop in immigration. Immigrants don't just find work here. They buy houses, clothes, meals and all the things that drive demand for goods and services that, in turn, drives demand for employees here. If Trump's policies are successful at slowing down the flow of immigrants, he'll actually succeed at destroying jobs.
Trade, of course, could still provide jobs for American workers. Assuming, of course that Trump does not ignite trade wars. Simply put, he wants trade wars with our biggest trading partners - threatening to blow up Nafta and trade deals with China - and if he gets his way we'll see a drop in trade with our three biggest trading partners. That will destroy American jobs.
The third reason that the unemployment rate could rise is because Trump is planning to cut spending and taxes. Tax cuts will disproportionately go to the rich. If you give a poor guy a $1,000 in tax cuts, he's likely to spend $900 of it. When you're making only $30,000 a year, you could use that extra $1,000. If, by contrast, you give a rich guy $1,000 in tax cuts, he's likely to save $900 of it. When you're already making $500,000 a year, an extra $1,000 isn't going to change your vacation plans. Government spending ripples throughout the economy in ways simple (the employees of the State Department buy coffee at that little coffee shop across the street) and complex (the Medicare recipient pays a medical bill which enables the hospital to make a down payment on a new imaging technology and the young doctor to make a down payment on a new car). If you cut $1,000 in government spending and then give a $1,000 tax cut to someone rich, you'll reduce spending, reducing demand for the goods and services that drives demand for employees.
What is the punchline? It depends on whether Trump ends trade deals. In either case, unemployment rates are likely to start rising again within 3 to 9 months. If he ends trade deals, they'll begin to rise sharply.
If Trump fails to end trade deals:
Unemployment will fall to no lower than 3.8% within the next six months, after which time it'll start to rise again. Given drops in the growth of the labor force, job creation could turn negative at least one or two more months within the next year even as the unemployment rate remains relatively stable.
If Trump succeeds in ending trade deals like Nafta:
Unemployment will - at best - hit 4% near term but may have already bottomed out at the current 4.2%. We'll have a recession and the unemployment rate will rise to 6% to 8% within a year or two.
Half the time it is below 5.7% and half the time it is above 5.7%.
Unemployment rates of 3.8% or lower put you in the top 10%; rates of 7.9% or higher put you in the bottom 10%. 80% of the time, unemployment rates have bounced between 3.9% to 7.8%; that range defines normal. Outside of that range things are great or awful.
At the depth of the Great Recession - in October of 2009 - unemployment hit 10%. That's among the worst 1% of all months. (Well, in the worst 1.2%.) Since then it has steadily come down during the longest uninterrupted streak of job creation on record. Last month - the end of the streak - unemployment hit 4.2%, a value in the best 17%. We're in the top 20% but not yet top 10%, really good but still not great.
One simple answer as to whether unemployment will drop further is to say that it's only been lower than its current rate of 4.2% 15% of the time. Again, unemployment rates bounce between 4% to 8% most of the time; it doesn't seem to last long outside of that range. That alone suggests that the unemployment rate will soon stabilize or even rise.
Another interesting thing to note is that this is an exceptionally long recovery. Unemployment peaked 8 years ago this month - in October of 2009. A steady drop in unemployment has never lasted longer. The next longest improvement, the drop from the 10.8% high in December of 1982 to its low of 5% in March of 1989, took just over 6 years before beginning to rise again. Unemployment rates steadily drop for a time and then steadily rise, and steady improvements usually last just a few years, not 8 yerars.
At the start of a recovery people are well aware of all the reasons things can go badly. After all, they are just coming out of a period in which things did, indeed, go badly. Remember how early in the recovery people were anxious about Greece, China's stock market, deficit spending, the mortgage market, Greece, etc. People were looking for reasons that things could go wrong. Now? Now they're looking for reasons that the recovery could continue and less aware of reasons it might not; this makes economies more vulnerable.
There are reasons the unemployment rate could drop further and reasons it won't.
Among the reasons it could drop further is that our labor force is growing more slowly than it did a decade ago. From 1955 to 2005, US labor force (folks aged about 25 to 65) grew 1.7 percent a year. Since then it has grown about 0.5%. As companies seek to hire, they'll have fewer options; all else being equal, this would translate into lower unemployment.
Another reason it could drop further is because of a drop in immigration. Again, this lowers the number of available workers and could mean that employers will draw from the unemployed rather than the newly available. If immigration rates drop enough, the labor force might even stop growing.
Curiously, the reasons that the unemployment rate could start to rise again include a drop in immigration. Immigrants don't just find work here. They buy houses, clothes, meals and all the things that drive demand for goods and services that, in turn, drives demand for employees here. If Trump's policies are successful at slowing down the flow of immigrants, he'll actually succeed at destroying jobs.
Trade, of course, could still provide jobs for American workers. Assuming, of course that Trump does not ignite trade wars. Simply put, he wants trade wars with our biggest trading partners - threatening to blow up Nafta and trade deals with China - and if he gets his way we'll see a drop in trade with our three biggest trading partners. That will destroy American jobs.
The third reason that the unemployment rate could rise is because Trump is planning to cut spending and taxes. Tax cuts will disproportionately go to the rich. If you give a poor guy a $1,000 in tax cuts, he's likely to spend $900 of it. When you're making only $30,000 a year, you could use that extra $1,000. If, by contrast, you give a rich guy $1,000 in tax cuts, he's likely to save $900 of it. When you're already making $500,000 a year, an extra $1,000 isn't going to change your vacation plans. Government spending ripples throughout the economy in ways simple (the employees of the State Department buy coffee at that little coffee shop across the street) and complex (the Medicare recipient pays a medical bill which enables the hospital to make a down payment on a new imaging technology and the young doctor to make a down payment on a new car). If you cut $1,000 in government spending and then give a $1,000 tax cut to someone rich, you'll reduce spending, reducing demand for the goods and services that drives demand for employees.
What is the punchline? It depends on whether Trump ends trade deals. In either case, unemployment rates are likely to start rising again within 3 to 9 months. If he ends trade deals, they'll begin to rise sharply.
If Trump fails to end trade deals:
Unemployment will fall to no lower than 3.8% within the next six months, after which time it'll start to rise again. Given drops in the growth of the labor force, job creation could turn negative at least one or two more months within the next year even as the unemployment rate remains relatively stable.
If Trump succeeds in ending trade deals like Nafta:
Unemployment will - at best - hit 4% near term but may have already bottomed out at the current 4.2%. We'll have a recession and the unemployment rate will rise to 6% to 8% within a year or two.
01 September 2017
Progress, Sex, and the 24 Hour Workweek
About 90% of men had a job in 1900. (The Labor Force Participation Rate, or LFPR is the measure of this.)
The workweek was 60 hours.
Nearly the same percentage of men - 86% - had jobs in 1950.
The workweek was 40 hours.
Between 1900 and 1950, the workweek shortened and roughly the same percentage of men had jobs. Productivity gains translated into a shorter workweek rather than fewer jobs.
In 2017, about 63% of men have jobs.
The work week is about 34 hours.
Since 1950, productivity gains have translated into a slightly shorter workweek and a significantly smaller percentage of men with jobs.
To keep the same percentage of men employed would have meant a workweek of 24 hours instead of 34 (or 40).
Let me briefly digress onto the topic of sex.
Reading history made me deeply sympathetic to people who we would today call prudes. Pregnancy and childbirth could easily kill a woman a century ago. What people today may consider, "regular, healthy sex" could mean supporting a dozen children, a woman's life metaphorically lost to the logistics of child rearing if her life isn't first quite literally lost in the act of childbirth. To find sex alarming a century or two ago seems to me a wildly rational impulse. There was nothing casual about sex in this time, fraught as it was with sobering consequences.
The Pill - and more broadly, a variety of safe contraceptives - has changed sex. Technically speaking, given the rate at which women died in childbirth, a healthy sex life 100 years ago probably meant celibacy. Today, with contraceptives, a healthy sex life can mean sex throughout the week. Sex has been largely separated from childbirth and even when childbirth follows, it is much safer for mother and child. Casual sex is no longer an oxymoron.
The separation of sex from the natural consequence of childbirth caused a sexual revolution. For one thing, premarital sex has become fairly common in the West for the simple reason that sex no longer has to mean pregnancy. Everyone has to find and define their own morality in this time of easy contraception but the consequences of casual sex are far less dire than they were a century ago. This has forced people to rethink what they consider moral. You may have traditional or modern views on sex but whatever drives them it no longer has to be wrestling with the inevitability of childbirth.
Now let me return to the topic of work.
There was a time when 90-some percent of the population had to work simply to feed everyone. To have someone in your group slacking off could translate into starvation or malnutrition after harvest. In this period it made sense to be harsh with folks who weren't working. Today, though, productivity advances mean that we can feed everyone with just 2% of the workforce. No one is going to starve because a few guys in the corner are playing solitaire.
Technology has made it easier to be productive. We have a traditional definition of work ethic that includes - among other things - a 40 hour workweek. Technology and management enhancements have challenged that model in the same way that contraceptives have challenged notions of morality. 4 six-hour days could be to us what 5 eight-hour days were to our grandparents. Proof that we don't need everyone working 40 hours a week is that only 73% as many men are working as did in 1950. It's a fact that we don't need as many hours worked to enjoy our current level of prosperity; the question is whether we adjust to that by having fewer men work 40 hour weeks or having the same percentage of men work 24 hour weeks.
Gains in productivity, like the Pill, have challenged traditional notions of morality and ethics. You may have traditional or modern views on work but whatever drives them, it no longer has to be worry that if someone slacks off we won't have enough to eat.
If we were to lower the workweek to 24 hours, it could result in labor force participation rates of over 80% (assuming the same total number of hours worked as we do now with 63% of men working nearly 40 hour weeks).
How could this help? For one thing, it would result in a broader distribution of wages, a correction to growing income inequality. For another, people working 24 hours a week could have time to engage in creative endeavors that are high-risk and high-return. Pursuit of art, music, business startups or any of a number of efforts that are likely to fail but - should they succeed - have the potential to make the individual rich or gratified and positively change society. More time outside of work could result in more binge watching of Netflix shows but also more socializing, exercise, startups, sex, and creativity. More people with jobs could even translate into lower incarceration rates.
Having sex need not mean facing the risk of childbirth. Cutting back on hours worked need not mean facing the risk of starvation. Progress has broken old linkages and given us choices that previous generations did not have.
What a 24 hour workweek would mean, of course, is a change in the definition of work ethic. That's not a tough thing, though. There was a time just a century ago when we thought it normal to work 6 ten-hour days. Why not change that again to 4 six-hour days? It could be fascinating to see what might happen.
----------------
Quick acknowledgement.
One reason LFPR for men has dropped is because the LFPR for women has gone up. It might not make sense for men's LFPR to remain closer to 90% when women's LFPR has nearly doubled (rising from 32.4% in 1948 to 57.3% in 2017, roughly 70 years later). Still, the general principle of shorter workweek as a means to sustain higher LFPR holds.
The workweek was 60 hours.
Nearly the same percentage of men - 86% - had jobs in 1950.
The workweek was 40 hours.
Between 1900 and 1950, the workweek shortened and roughly the same percentage of men had jobs. Productivity gains translated into a shorter workweek rather than fewer jobs.
In 2017, about 63% of men have jobs.
The work week is about 34 hours.
Since 1950, productivity gains have translated into a slightly shorter workweek and a significantly smaller percentage of men with jobs.
To keep the same percentage of men employed would have meant a workweek of 24 hours instead of 34 (or 40).
Let me briefly digress onto the topic of sex.
Reading history made me deeply sympathetic to people who we would today call prudes. Pregnancy and childbirth could easily kill a woman a century ago. What people today may consider, "regular, healthy sex" could mean supporting a dozen children, a woman's life metaphorically lost to the logistics of child rearing if her life isn't first quite literally lost in the act of childbirth. To find sex alarming a century or two ago seems to me a wildly rational impulse. There was nothing casual about sex in this time, fraught as it was with sobering consequences.
The Pill - and more broadly, a variety of safe contraceptives - has changed sex. Technically speaking, given the rate at which women died in childbirth, a healthy sex life 100 years ago probably meant celibacy. Today, with contraceptives, a healthy sex life can mean sex throughout the week. Sex has been largely separated from childbirth and even when childbirth follows, it is much safer for mother and child. Casual sex is no longer an oxymoron.
The separation of sex from the natural consequence of childbirth caused a sexual revolution. For one thing, premarital sex has become fairly common in the West for the simple reason that sex no longer has to mean pregnancy. Everyone has to find and define their own morality in this time of easy contraception but the consequences of casual sex are far less dire than they were a century ago. This has forced people to rethink what they consider moral. You may have traditional or modern views on sex but whatever drives them it no longer has to be wrestling with the inevitability of childbirth.
Now let me return to the topic of work.
There was a time when 90-some percent of the population had to work simply to feed everyone. To have someone in your group slacking off could translate into starvation or malnutrition after harvest. In this period it made sense to be harsh with folks who weren't working. Today, though, productivity advances mean that we can feed everyone with just 2% of the workforce. No one is going to starve because a few guys in the corner are playing solitaire.
Technology has made it easier to be productive. We have a traditional definition of work ethic that includes - among other things - a 40 hour workweek. Technology and management enhancements have challenged that model in the same way that contraceptives have challenged notions of morality. 4 six-hour days could be to us what 5 eight-hour days were to our grandparents. Proof that we don't need everyone working 40 hours a week is that only 73% as many men are working as did in 1950. It's a fact that we don't need as many hours worked to enjoy our current level of prosperity; the question is whether we adjust to that by having fewer men work 40 hour weeks or having the same percentage of men work 24 hour weeks.
Gains in productivity, like the Pill, have challenged traditional notions of morality and ethics. You may have traditional or modern views on work but whatever drives them, it no longer has to be worry that if someone slacks off we won't have enough to eat.
If we were to lower the workweek to 24 hours, it could result in labor force participation rates of over 80% (assuming the same total number of hours worked as we do now with 63% of men working nearly 40 hour weeks).
How could this help? For one thing, it would result in a broader distribution of wages, a correction to growing income inequality. For another, people working 24 hours a week could have time to engage in creative endeavors that are high-risk and high-return. Pursuit of art, music, business startups or any of a number of efforts that are likely to fail but - should they succeed - have the potential to make the individual rich or gratified and positively change society. More time outside of work could result in more binge watching of Netflix shows but also more socializing, exercise, startups, sex, and creativity. More people with jobs could even translate into lower incarceration rates.
Having sex need not mean facing the risk of childbirth. Cutting back on hours worked need not mean facing the risk of starvation. Progress has broken old linkages and given us choices that previous generations did not have.
What a 24 hour workweek would mean, of course, is a change in the definition of work ethic. That's not a tough thing, though. There was a time just a century ago when we thought it normal to work 6 ten-hour days. Why not change that again to 4 six-hour days? It could be fascinating to see what might happen.
----------------
Quick acknowledgement.
One reason LFPR for men has dropped is because the LFPR for women has gone up. It might not make sense for men's LFPR to remain closer to 90% when women's LFPR has nearly doubled (rising from 32.4% in 1948 to 57.3% in 2017, roughly 70 years later). Still, the general principle of shorter workweek as a means to sustain higher LFPR holds.
05 March 2017
The Fourth Economy & the Popularization of Entrepreneurship (or how work evolves from farming to entrepreneurship)
 |
| Graphic created by Jacob Morch jacobmorch.com |
The definition of work changes as economies evolve. The grandchildren of farmers became factory workers and the grandchildren of factory workers became knowledge workers. There’s good reason to believe that the definition of employee will change again, this time into something like entrepreneurship.
Thomas
Jefferson imagined the United States as a country of educated, gentleman
farmers. Even when he became president in 1801, though, the percentage of Americans
farming had begun its steady decline. Now, each month economists await the
announcement of nonfarm payroll employment. Today farm jobs are not even
included in the country’s defining measure of jobs lost and gained.
Alexander
Hamilton’s vision of an industrialized nation turned out to be more prescient
but in recent decades, manufacturing’s share of the work force has also been in
steady decline. Next century, economists may await the nonmanufacturing payroll
employment report.
Millions
voted for Trump and his promise to bring back manufacturing jobs. As promises
go, it seems more akin to a 1916 campaign promise to bring back farming jobs
than an adaptation to new realities. Yet acknowledging that farming and
manufacturing are unlikely to reverse their decline leaves us with the question
about the source of next generation jobs.
------------
The economy has shifted but policy has not. Until economic policy begins to address the new limit, it will continue to be ineffective.
Over the last 40 or 50 years the per capita GDP growth rate has fallen. The fallout is not just economic. It has made voters less trusting of major institutions and expressed itself in surprising victories for BREXIT and Trump. Most people now feel that “the system is broken, unfair, and failing them.”[1]
Over the last 40 or 50 years the per capita GDP growth rate has fallen. The fallout is not just economic. It has made voters less trusting of major institutions and expressed itself in surprising victories for BREXIT and Trump. Most people now feel that “the system is broken, unfair, and failing them.”[1]
Meanwhile, one place that has done remarkably well in the
last half century is Silicon Valley, a place that more than any other has
become synonymous with entrepreneurship.
About a century ago, Henry Ford made business history by
doubling the wages of his factory workers. Doubling. Not only was he making
cars more affordable, he was paying working class people enough to buy them.
In 2016, median wages in the US were about $51,000 a year. Like
Ford, Silicon Valley has doubled that. In Santa Clara County – one reasonable
approximation of Silicon Valley – average wages were $117k, or 118% higher than
the national average.
It’s possible that Silicon Valley is an anomaly, a place that
other communities can only envy but never emulate. A more interesting
possibility is that Silicon Valley is to a new entrepreneurial economy what
Manchester, England of the 1700s was to a new industrial economy: just the
first place to enter a new economy whose practices will eventually spread around
the world.
Four
Economies and Four Limits
Agricultural economies give way to industrial economies,
which give way to information economies. Most people share that intuition but their
understanding of what these labels mean and how to distinguish between them is
fuzzy. Even industrial economies have farms and information economies have
factories. It takes a little explanation, but limits can clarify the distinction
between different economies and predict a fourth, entrepreneurial economy.
Economy
|
Period in West
|
1st, Agricultural
|
1300 to 1700
|
2nd, Industrial
|
1700 to 1900
|
3rd, Information
|
1900 to 2000
|
4th, Entrepreneurial
|
2000 to ~
|
Before talking about economies, imagine a factory with four stages.
It gets raw materials in on one end and sends product out the other. The
materials that become a finished product must pass through all four stages
before they’re sold.
The numbers and height of the bar indicate how many products
a stage can process in an hour. The first stage can process only 1, the second
can process 2 and the fourth and final stage has the capacity to process 4
products an hour.
The customers don’t buy the unfinished product from any intermediate
phase, though. They only buy product that comes out of the whole factory,
product that has passed through all four phases. The question is, what is the
capacity of this whole factory? How many products can it produce per hour?
The answer is 1 per hour. Your factory’s capacity is equal
to the capacity of your first stage. You could call that a bottleneck, a
constraint or limit. Whatever you call it, this limit defines the capacity for
your whole factory. If it can only feed the next stage 1 item per hour, it
doesn’t matter that the second stage has the capacity to process 2 items per
hour because it won’t get product fast enough to process that many.
Until you increase the capacity of the first stage, you will
not increase the capacity of your factory. So, you experiment. Maybe you speed
up the process, simplify the process or just buy a second machine for that first
stage. However you do it, you eventually double the capacity of this first
stage to get a picture like this:
The good news is that by doubling the capacity of the first
stage you have just doubled output for the whole factory. Armed with the
knowledge that focusing on the first stage makes all the difference, you
continue to experiment and invest in improving that first stage until you find
a way to double its capacity again.
This time, though, doubling the capacity of your first stage
does not change your factory output. Why? You were so successful at improving
the first stage that it is no longer the limit to your factory. Your limit has
shifted elsewhere.
Two lessons from your factory could apply to any system.[2]
- To improve the system, you have to focus on the limit, and
- Success eventually shifts the limit.
So, what limits an economy? In every introductory economics
course, students learn that there are just four factors of production: land,
capital, labor, and entrepreneurship. Anything of value created by an economy
depends on some mix of these four factors and one of those would have to be the
limit at any given stage of economic development. Land includes all natural
resources, from herring to oil, acreage and cotton. Capital includes the
financial and industrial tools that transform those natural resources into
finished products, the factories that can turn cotton into clothing and the
stocks or bonds that finance the machines and factories. After the industrial
revolution, the labor of knowledge workers – people like accountants, engineers
and advertisers – who manipulate the symbols of things rather than actual
things was the most defining labor. Finally, entrepreneurship brings together
land, capital and labor into a profitable enterprise.
The four phases of a factory can become four factors of
production in an economy and we can examine limits to an economy in the same
way that we examined limits to the factory. The output of an economy can be
measured by things like jobs or wealth, income or GDP.
Different
limits create different economies
Agricultural economies are limited by land. Wealth between
1300 and 1700 didn’t result from advances in information technology (not that
the Gutenberg Press wasn’t disruptive) but instead came from trade, conquest,
and colonization with faraway lands and creating nation-states and private property
in your own land.
An industrial economy is limited by capital. Between 1700
and 1900, the creation of wealth was less about exploration, conquest and
colonization than it was about building the factories that could turn raw
materials into finished goods and then build out canals and railroads to
distribute those goods. Wool and cotton became fashion. Iron ore became
railroads. Skyscrapers rose in cities and cars emerged to drive between them.
An information economy is limited by knowledge workers.
Between 1900 and 2000, it wasn’t enough to have factories that could make more
products than anyone had ever seen before. They had to be the right products (which
required marketing and design expertise) made for and sent to the right places (which
took manufacturing and distribution knowledge) by the right methods (which took
advertising and retail display experts.)
An information economy emerges after an industrial economy.
Before the automation of the industrial economy, you need workers to manipulate
actual things, afterwards, machines can do that and labor can shift its focus to manipulating
symbols. The sequence from agricultural to industrial to information economies
is not just an historical sequence, it’s a logical one.
Economy
|
Limit
|
Period in West
|
1st, Agricultural
|
Land
|
1300 to 1700
|
2nd, Industrial
|
Capital
|
1700 to 1900
|
3rd, Information
|
Knowledge Workers
|
1900 to 2000
|
4th, Entrepreneurial
|
Entrepreneurship
|
2000 to ~
|
Economies are complicated and progress is slow so it makes
sense that as communities gradually overcome limits they’ll cling to the
processes that once made them great. Like the factory manager who keeps
doubling the capacity of his first process step to no avail, communities can continue
to create foreign colonies, spending huge sums on a global empire even after
they’ve entered an industrial economy. Or more recently, they might pump money
into their economy or create graduates past the point that capital or knowledge
workers actually limit the rise in per capita GDP. It is almost inevitable that
communities will continue to do what they’re now good at even after reaching a
point of diminishing benefit. Cultures last longer than cost-benefit analysis
and new practices become old habits.
An additional complication is that there are always pockets
within a larger community that face earlier limits, and those limits define local
culture and politics. When natural resources are the basis for wealth in a
region, for instance, it will be more religious and more inclined towards
policies like a strong military that support the notion of a zero-sum economy.
It’s not the ingenuity of people that creates an oil field but is instead just
a gift of God or nature. And that oil field doesn’t get larger because we
decided to share it. Either I own it or you do, and rather than win-win we’re
going to have a winner and a loser in this exchange. There will always be
regions that lead or lag in development and thus will lead or lag in the reality
they experience and that informs their convictions. It’s not just that a person
living in rural Kentucky has a different political philosophy than her peer in
Cambridge, MA; the daily reality that informs her perspective is different.
One other way to understand a limit is to look at its price.
Scarce factors are expensive and abundant factors are cheap.
The success of the second economy made capital abundant.
Traditional bankers who emerged from the second economy (many of our current
banking practices were defined in England by 1900) carefully loaned out money,
trying to minimize the risk of losing capital. Venture capitalists, by
contrast, treat capital as abundant and fully expect to lose quite a few
investments. Given they’re taking equity in a new firm rather than hoping to
get back capital with interest, they know that only a fraction of their
investments need to succeed in order for them to get great returns. Traditional
banking evolved when capital was scarce: venture capitalists evolved when
capital was abundant.
What is scarce now? Entrepreneurship and we can see that in
its price. At 31, Bill Gates became the richest self-made billionaire in
history. A generation later, Mark Zuckerberg became a billionaire at 24. The
price of capital is the interest rate and towards the end of last year,
investors owned about $12 trillion in negative interest rate bonds. Trillion. We
have a glut of capital and a shortage of entrepreneurs, which suggests that
effective policy would focus on increasing the supply of entrepreneurs rather than
the supply of capital. Between 1700 and 1900, we learned how to increase the
supply of capital through a variety of means, from popularizing savings and
investment (from founding father proverbs like “A penny saved …” to expanding the
number of people who bought wartime bonds and then later became savers) to
changing the money supply or interest rates. If policy makers think that we’re
short of capital, they can quickly pump billions into the economy. There are no
comparable policy levers for increasing levels of entrepreneurship. Not yet.
When The
Old Limits No Longer Limit
If capital were still a limit, we’d be in great shape. The
S&P 500 have $1.5 trillion in cash and in the third quarter of last year
they paid out $200 billion in dividends and stock buybacks. Banks excess
reserves have dropped from their August 2014 high of $2.7 trillion but are
still at a staggering $1.9 trillion.[3]
(Before the Great Recession, excess reserves in the US were closer to $1.5 billion.)
Our education system helped us to overcome the limit of
knowledge workers. In 1900, less than 10% of 14 to 17 year olds were formally
enrolled in education. By 2000, less than 10% were not. In a century, the US
went from an industrial economy dependent on child labor to an information economy dependent on adult education. That helped to transform life in the 20th
century, real incomes increasing 6X to 8X and life expectancy rising from 47 to
77.
If knowledge workers and their information technology were
still a limit, creating more graduates would help to create more jobs. In 2013,
the American education system created 3.7 million graduates, everything from
folks with AA degrees to PhDs and all the degrees in between. That same year,
the economy ended the year with 2.4 million more jobs than it had at the start.
We’re creating graduates faster than we’re creating jobs, 15 new graduates for
every 10 net new jobs. It’s no wonder that student debt is becoming a growing
issue.
It’s not just ineffectual to pursue old policies in a new
economy. It can be dangerous.
A glut of money creates problems. Investors in search of
returns, unwilling to accept negative interest rate bonds, too readily bought expensive
things like tech stocks in 1999 or subprime mortgage instruments in 2007. Trillions
in investments can create a series of bubbles and busts as it wanders the earth
like a murmuration of starlings in search of returns.
A glut of graduates creates problems. Young people not only
start careers with mounting debt but find it more difficult to find jobs they
could not have worked with just a high school diploma. Millennials who are the best-educated
generation in history nevertheless fear that they’ll be the first generation in
American history to do worse than their parents. (This student debt will also
make it tougher for them to finance startups. As medical school has become more
expensive, for example, the percentage of doctors working for large groups or
hospital has gone up relative to those who start a private practice.)
One consequence of continuing to pursue dated policies is
that it makes it tougher to pursue any policy. When incomes are steadily
rising, politics is civil. Families can pay a little more in taxes to support schools
and help the poor while still taking home more pay after taxes. When incomes
are stagnant, politics becomes more divisive. Few people like the idea of not
supporting education or the sick but if the choice is between that or less take
home pay? Well, the conversation becomes more heated and compromise is harder
to reach on top of the fact that everyone starts this policy conversation
disenchanted and bewildered.
We don’t need to jettison incredible financial and
educational systems that are essentially over-producing, creating more capital
or graduates than we can fully employ. We just have to stop looking to those
systems as the means to create jobs and wealth. As we become successful at
overcoming this new limit of entrepreneurship, we’ll be able to fully employ
capital and college grads. Eventually, we will even create enough demand for
them to bid their prices up further.
The Central
Question of Every Economy
The central question for any generation concerned about
economic progress is how to overcome its limit, not the limit of its
grandparents or founding fathers. Creative answers to that question result in a
new economy and a very different community.
In retrospect, the central question of economic development
from about 1700 to 1900 was simple: how do we get more capital and make it more
productive? The creative answers to this included everything from the Dutch
stock market, Rothschild’s international bond market and the British banking
system to the spinning jenny, steam engine, and continuous production
technology. (The question is simple. The answers can be complicated.)
The central question of last century was, how do we create
more knowledge workers and make them more productive? The creative answers to
this included the popularization of K-12 education, the modern university,
R&D labs, the modern corporation and information technology.
The question that policy makers everywhere – city hall and
senate floor, corporate boardrooms and universities – should now ask has two
parts:
- How do we create more entrepreneurs and make them more effective?
- How do we make employees more entrepreneurial?
Creative answers to these simple questions will transform the
economy. We now have a financial system and an education system. We don’t have
an entrepreneurial system but instead expect our entrepreneurs just to show up,
like autodidacts in 1800. Changing will be an odd, fascinating and profitable
project. Think about educating students to be prepared to become entrepreneurs
in the same way that we now educate students to become university students and
knowledge workers, for instance, or changing the definition of employee.
Changing
the Definition of Work. Again.
Perhaps more interesting than the question of how to create
more entrepreneurs is the question of how to make employees more
entrepreneurial. We – rightfully – make a big deal about national economic
policy. It’s worth keeping in mind that measured by GDP or revenue, of the 100
biggest economic entities only 31 are countries; the other 69 are corporations.
(Walmart’s $480 billion in revenue would put it just between Sweden and Belgium’s
GDP.) Corporate policy deserves as much discussion as national policy if we’re
interested in progress. The most important topic in this discussion might be to
ask what it means to be an employee in a time when AI like IBM’s Watson is
liable to automate knowledge work in the same way that capital automated manual
work.
Think about changing employment so that employees within a
corporation had as much freedom to pursue new ventures as citizens within a
country. Roughly 800,000 Americans make more than the $400,000 a year that we
pay the president.[4]
That sort of thing was unthinkable in Egypt under Hosni Mubarak or France under
King Louis XIV, but as nation-states evolve, people within them have the
potential to prosper more than even the head of state. Contrast that with how
evolved the corporation is. While it’s common for professional athletes or
portfolio managers to make more than their managers, it is rare that anyone
inside a traditional Fortune 500 firm makes more than the CEO. What if
employees could become more entrepreneurial, were able to create equity by
taking existing products into new markets or by leading product and business
development efforts that are akin to startup activities? And what if the
success of those ventures could actually result in their making more than the
head of the company in the same way that an American entrepreneur has the
potential to make more than the American president? This dispersion of power
and pay is just one way that the popularization of entrepreneurship will change
the corporation.
Overcoming the limit of entrepreneurship will require and
result in new legislation, new education, and new definitions of what it means
to be an employee. As importantly, it will continue in a grand tradition of the
west, doing for business what earlier economies did for religion, politics, and
finance. That is, it will expand freedom for the individual. There is no way to
make employees more entrepreneurial without giving them more freedom.
There are interesting examples of popularizing
entrepreneurship within companies. Ricardo Semler did something interesting
with his Brazilian company Semco. He gave his employees freedom to negotiate
work arrangements. People working side by side on the factory floor doing
similar work might have very different arrangements. One was paid hourly,
another a monthly salary, another paid by piecework and another might actually
be paying Semco to use equipment to make product that she – the employee – could
later sell herself. Uber lets “employees” accept or reject specific fares and take
just one fare a week or work all day. Amazon’s marketplace and Apple’s iTunes
are platforms that let companies and entrepreneurs sell their own products. P&G
is among the companies who richly reward successful product development leads
whose responsibilities overlap quite a bit with entrepreneurs. All of these are
examples of enabling entrepreneurship, blurring the boundary between
traditional definitions of employee and entrepreneur, and giving the employee
more freedom to define their own work and its results.
This matter of employees gaining more autonomy is not
incidental to progress. Autonomy is a way to define progress and each new
economy has given the individual in the West more freedom. If you have shoes
you have more options about where to go than if you are barefoot; if you have a
car you have even more options. If you live in a democracy, you have more
options about what to believe and how to live than if you live in a theocracy.
If you have a credit card you have more options than if you need to approach a
banker to request a loan for a specific item, or can’t get a loan at all. If
you have the freedom to create equity as an employee you have more freedom than
if you’re expected to adhere to a process someone else defined.
The popularization of entrepreneurship will increase our
product options and levels of wealth. Progress, though, is only partly about
more and better products. That is only one way that our lives expand to include
more options. The first economy didn’t just bring potatoes and tomatoes to
Europe; it brought religious freedom. The second economy didn’t just bring fashion
and automobiles to households; it brought democratic freedoms. And the third
economy didn’t just give us radio and the polio vaccine; it made capitalists out
of knowledge workers, giving them financial options that people in 1900 would
have found as baffling as the internet. The fourth economy will transform business
and work in the same way that the first three economies transformed religion,
politics, and finance. That is, it will give us more autonomy, as economic
progress always does.
[1] https://twitter.com/Bill_Gross/status/821245915579240448
[2]
Eli Goldratt, author of The Goal and Critical Chain popularized the ideas of
Theory of Constraints (TOC) in the 1980s and 1990s within many Fortune 500
companies and government agencies.
[3] https://fred.stlouisfed.org/series/EXCSRESNS
[4] https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2015
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