The Kuznets swing and the market for labour and skills

You must have seen the headlines recently? British wages falling sharply in real terms versus our EU brethren…

We wrote about a particular economic phenomenon referred to in this post about economic cycles and particularly the Kuznets swing; which we find the most interesting and thought provoking cycle. The reason for this is that it is a generational cycle, only lasting or more accurately stated lasting anywhere between 15 – 25 years.

Image representing oDesk as depicted in CrunchBase
Image via CrunchBase

So where are we on this cycle and what does it mean for me, should be the two most obvious questions to answer?

Lets address both separately below.

Firstly we believe we are now around seven years into a downward phase of the Kuznets cycle, therefore to some analysts it would mean that we are either almost half way or to others around a third of the way through this cycle.

Secondly, and more importantly, the impact it has on market participants like all of us:

We believe that the downward phase of a Kuznets swing is the ‘exuberance‘ correcting phase; when markets and other factors of productions contributing to mostly normal market clearing activity ‘got slightly out of kilter’. The Kuznets swing is always there to bring these factors of production into alignment. It is a consolidation phase of the cycle and interestingly for this particular phase, it coincides with disruptive technological advances around Cloud Computing, dis-aggregation of intermediaries, especially in labour markets with labour or skills exchanges appearing everywhere.  Examples include, Elance, oDesk, PeoplePerHour, etc..

English: Cloud Computing
English: Cloud Computing (Photo credit: Wikipedia)

Furthermore, and this is the most import action point for our readers to understand and appreciate, this consolidation and technological advance has a severe impact of wages levels and the distribution of where actual ‘work’ is being performed.

Hence headlines like the one we spotted this morning regarding real wages in Britain declining relative to other (very unproductive EU cousins) are not helpful without the pundit exploring and engaging n deeper analysis of the underlying drivers for the pressure.

The Income and Substitution effects of a wage ...
The Income and Substitution effects of a wage increase (Photo credit: Wikipedia)

Our recommendation:

Understand that the world of work is changing much faster than we had ever become used to in previous generations. As active able and willing participants in this market for labour and skills we have clear choices: Up-skill, be competitive appreciate and plan for volatility in the labour supply market, by ensuring flexibility in location, skills and prices. It is especially painful to suffer real wage declines, but remember this is the market’s subtle way of signalling a problem or challenge in that particular market and a way of adjusting in order to restore the natural balance and clearing prices.

We believe every interfering politician and educating commentator should always bear this in mind.

theMarketSoul ©2013

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The Economics of Social breakdown

How do we define the state of our nation at the moment?

For a little while now we have been experiencing an ‘unease’ with the communication revolution and the disparate nature of communication tools at our disposal. On the surface it would appear that what is happening is that rather than bind together a society it is having exactly the opposite effect.

The recent riots in the UK is just a small manifestation of this general unease.

From a purely economic and dispassionate analysis of the situation, we would offer the following opinion:

We don’t have a ‘broken society‘, as is such an often uttered phrase, but rather a complete misunderstanding of the disconnect between our ‘old / slow business models’ and the pace at which technology moves and changes the rules of engagement.

The pace of change in organisational design, planning and execution models lags multiple-fold behind the pace of technological advancement. It almost has an exponential relationship and due to this factor, we have not yet come to grips with applying new technology to ‘old world’ thinking, with its checks and balances and control mechanisms.

The disconnect between the pace of the communication revolution and the nature of diminishing returns has led to a massive gap in appreciating the fact the occasionally we have to pause and reflect on where we are and where we want to be.

Both the continuing economic crisis, pace of change, realisation that the future does not hold the same promise and prosperity as the recent past; are all infliction points that have amplified and spilled over into anger and the violence of the past few days.

So what we have is a ‘broken understanding’ of how different factors of production, such as land, labour, capital, enterprise and innovation has drifted further apart and caused unnecessary and unsustainable concentrations of accumulated power and risk amongst differing population groupings in the UK and elsewhere.

Remember, all five of these factors of production listed above need to work in harmony, in order to add, create and manage value and output that are useful and life sustaining necessities for all citizens.

Let’s address the gap between political and civil society to ensure sustainable progress and development for all.

theMarketSoul © 2011

The trouble with Innovation – Part 1

Today we address one of the critical and key factors of production, it is a factor we have severely neglected addressing earlier in this forum.  It is about Innovation.

Innovation

Speaking to a few delegates and attendees at CeBit 2010 we found that most people view Innovation as a key driver in advancement.  Yet we have a big problem with innovation in Europe.

Our model is broken!

If we investigate some of the underlying factors ‘driving’ this problem, we would point the finger at the social experiments we embarked on over the last two centuries in Europe.  The simple fact is that we just did not get on with each other.  There are two ways of accumulating wealth very quickly, one of them being to steal it and the other is to trade activity to get it.  However, in both choices you side require a lot of the other factors of production, namely land and capital and labour.

If neither of these two options are open to you then you need to follow the slow road of progress.  But here is where Innovation comes to the fore as an enabler.

The USA is a far better incubator and fertile soil for entrepreneurial and innovative development.

An orthographic projection of the world, highl...
Image via Wikipedia

In Europe we lack the cohesion of two factors that drove American innovation:

(1)  A common language (English) and

(2) a common goal (making money).

Irrespective of the language issue, we treat ‘raw’ capitalism with disdain and suspicion in Europe, whereas the States embraces this  with open gusto, so much so that the current administration is frustrating its efforts to burst forth once more as a power house of  growth.

Now we are not advocating abandoning regulation per se, what we would ideally like to see is innovation in the Regulatory space too, where regulation is thought through on an end to end basis, with due consideration for the law of unintended consequences that knee jerk regulation sets in motion.

So the hope in Europe now is this:  We have been building the platform for collaboration for a while now, with the EEC, EC and EU experiments and we now have continuity at the top with an appointed President and Foreign Secretary.

Lets bury the hatchet and utilise the platform of collaboration in order to launch and harness the power of ‘Innovation Incubation’, thereby eliminating the wasted effort and duplication of processes currently taking place and shaping our European hinterland.

Let’s explore these ideas further in future posts.

theMarketSoul ©2010