I try to offer job search and career outlook advice through my blog.Typically I try to be upbeat. However, I’ve been thinking a lot about the job market from an economists perspective, recently.
With a lot of recent buzz about executive compensation because of the bailouts, the fact that this issue came to the forefront is not surprising. What does surprise me, though, is the fact that the major shareholders of said companies didn’t (and probably still don’t) understand the risk they forced on these executives. Trying to curtail these “incentives” does nothing to stop them from forcing future executives from taking equally ridiculous risks. The devil is in the details, right?
The above mentions how the uber-rich were chastised for accepting bonuses. But as I mentioned, the risks they took were a function of the rewards their shareholders demanded.
What happens when we take a look at the average worker in the United States. Surely, once you take out the million dollar bonuses, the average employee is rightly compensated…… right?
The Average US Worker – Overpaid
When you take a step down the hierarchy and instead look at the average worker, the picture doesn’t improve. American workers are vastly overcompensated compared to their global counterparts. If America wants to (and I think this is pretty logical) regain its competitive edge, there will have to be some sort of downward valuation on compensation and benefits packages.
One chilling snippit from the article:
Global wage convergence is great for the poor (MLR edit: China, Moldova, etc) but tough on the overpaid rich (MLR edit: USA, UK, etc). It’s possible to run the numbers to show that U.S. manufacturing workers should take average real wage cuts of as much as 20% to get into global balance.
The required cut may be smaller. But if U.S. wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching 1930s levels of unemployment.
“But MLR, wages (when adjusted for inflation) haven’t budged in nearly the past decade for middle-class workers, anyways!” This is true, and the focus of the disparity seems to be amongst the top-income earners. However, in a global context, no one cares about whether or not we are making more money than last year except for us.
Illusions of Grandeur
And discussing this topic without also mentioning the fact that the situation was exasperated by the illusion of a rising standard of living would be missing an opportunity to have a wholesome conversation. Why do I say illusion of an increasing standard of living? To some, they may look around their house and exclaim “How can you tell me that what I see and experience is fake, MLR? How is my house and car an illusion?” I say this because the standard of living increases depended on debt creation and sequential asset bubbles (stocks, real estate).
To put this more bluntly, and some would say cynically, there hasn’t been economic progress for some segments of the US population for literally decades.
How did we let this happen?
The US has made, and continues to make, massive investments of both manpower and capital into things that haven’t produced any real return. This could be compared to selling our economic soul to the devil in exchange for cheap trinkets.
And how did that happen?
This seems like a pretty big systemic problem at this point, right? The mechanics behind this prolonged misallocation of resources was fueled by the government overspending, government spending on useless projects, and consumer/business spending fueled by debt rather than real value creation.
What does this mean?
In the long-run? People need to move out of bubble professions (looking at all of the newly licensed real estate agents, here) and into real value and foreign exchange producing roles.
Preparing for Pay Cuts
In our lifetimes, it is increasingly likely that our nominal incomes could actually decrease.
The LA Times wrote a pretty good article, which states in closing:
A slow way to achieve that reduction would be to allow the dollar’s value to continue to slide against other currencies, a trend that has been underway since 2001.
The fast way — sudden and steep pay cuts across much of the economy — is a chilling concept. It would risk a deflationary spiral of falling incomes leading to falling prices for goods and services as workers have less to spend — exactly the spiral that the Federal Reserve is so intent on stopping before it can get any momentum.
If the pay cuts occur because of currency devaluation, you may not notice the differences as much – it’ll be more subtle if handled correctly. If some businesses decide to go the second route, we may have a dark road in front of us as we see salaries getting slashed.
With a high domestic unemployment rate and a high global unemployment rate willing to work for less, this isn’t out of the realm of possibility.
To prepare, focus on making yourself more competitive by making your resume more competitive, getting an in demand college degree, learning from other people who got hired quickly, honing your interview skills, and focusing on networking.