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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Some Questions for Europe

After the conclusion to what some pundits called a ‘tumultuous week’ for Europe (week ending 11 May 2012), we still find ourselves asking some important questions.

Europe Simulator
Europe Simulator (Photo credit: wigu)

We all know that the question is not around what growth, where growth or why growth.  The fundamental question in Europe now is:

How Growth?

For way too long Europe and its leadership had taken its eye off the growth ball.  They had taken their eye off that ball focussing instead on creating the conditions for a ‘stable’ internal market, forgetting that it was all actually centred on competitiveness and growth creation!

Too much needless bureaucratically driven regulation, not creating the sustainable conditions for growth, but rather the spiral into debt driven oblivion…and therefore leading to the volatility and the instability we currently experience!

So the choice now comes down to how do we drive growth, in the face of an electorate that favours public sector driven growth, rather than private sector led growth.

It must make common (or at the very least common enough) sense for private sector growth incentives being created, rather than debt fuelled public sector or even Keynesian focused supply side stimulus. But no, the discourse in Europe has not been around stimulating demand by creating the conditions for competitive led export fuelled growth!  Instead, the in-fighting and constant politicking around balanced budgets and debt to GDP ratio targets and endless pacts to patch the patient with half-baked policy sticky plasters has contributed to exactly the opposite outcome the leadership tried to create in Europe, namely a stable platform for internal market competitiveness.  They forgot about the world changing outside the ‘Chinese wall’ of an expanded 27 member union.

And now the electorate has firmly rejected the austerity programmes, in both Greece and France, because they have not been educated in the dangers of public sector excesses.  Nobody in Europe (except for maybe Sweden) realised that giving the “Engine of Growth”, namely enterprise and entrepreneurs an incentive to create businesses and employment opportunities, is actually tax reductions and not increases, combined with tempering public sector growth and reducing labour market inflexibility.  Most European countries have youth unemployment; the hungry, tech-savvy and street smart under 25’s, running in double digits, of anywhere between 15 – 50%, depending on which country or statistics you want to believe…

We beg you Europe

For the sake of yourselves and the rest of the world, we beg you Europe (and off course we mean the leaders of Europe) to think about the following key growth criteria, as part of any ‘Growth Pact’ you might negotiate in the coming months:

  1. Reduce the size of your bloated public sectors
  2. Introduce private property ownership incentives and pension reforms
  3. Lower your punitive tax rates
  4. Reform your burdensome and needless regulation, opting for streamlined market driven regulatory stabilisers
  5. Introduce labour market reforms and encourage flexibility and mobility
  6. Encourage and actually treat your citizens like the responsible ‘conduits of growth’ and employment creators they are and can be
  7. Encourage personal and community based accountability
  8. Be tough on crime, but fair on punishment and reform

And above all believe, think, do, act and (if you must) enact economic GROWTH!

theMarketSoul ©2012

Panic in the Cars of Britain?

With apologies to The Smiths; the original version of the song Panic’s lyrics reads something like this:

“Panic on the streets of London / Panic on the streets of Birmingham / I wonder to myself / Could life ever be sane again?”

Panic (The Smiths song)
Panic (The Smiths song) (Photo credit: Wikipedia)

Or is this the beginning of what we will call ‘Austerity Anarchy’?

As a case study in behavioural economics goes, the last week in March 2012, in the UK must go down as a classic…

United Kingdom
United Kingdom (Photo credit: stumayhew)

What sparked the ‘run on petrol and filling stations’ is not the aim of our analysis, but rather the deeper underlying cultural psychosis affecting Austerity Britain.  However, the austerity is not driven by the current revenue expenditure austerity, but rather the culture of Investment Austerity over many decades that has created a supply chain time bomb in the UK.

There is generally a severe lack of investment in any form of storage capacity.  Not as a risk management concept, but rather as a pure short sighted cost management issue.

Yes, land capacity is limited on a small (in places patchily overcrowded; especially down in the South East of England) island and the cost of owning a vast storage network must seem prohibitive; yet having so little risk management or rather ‘buffer’ and shock absorption capacity available must be the vast hidden opportunity cost ‘time bomb’ waiting to derail a sustained or sustainable short run upturn in the economy?

Hidden or in the economists parlance ‘Opportunity Cost’ is generally not an item on any policy maker’s agenda, yet in it lies the ‘unintended consequences’ element that so seldom gets factored into the equation.  Yet opportunity cost highlights the risk element we have to factor in.  And in this sense we use the word RISK in its proper intended format, namely a quantifiable probabilistic evaluation of the downside of a transaction.  Yes, threats are more closely aligned to ‘unintended consequences’ and are the issues we can only subjectively be aware of, but cannot quantify with any degree of accuracy.

Risk Management road sign
Risk Management road sign (Photo credit: Wikipedia)

Hence, ‘Austerity Anarchy’ is what we believe an angst and siege mentally is, when decision-making (or rather calculus driven decision-making) gets ‘suspended’ and the irrationality of “mankind’s mind” and the mainstream misinformation distribution takes over, creating PANIC in Little Britain and the commentators at theMarketSoul ©1999 – 2012 ask themselves:

I wonder to myself;  could life ever be sane again?” – with thanks to The Smiths

 

theMarketSoul ©2012

The BIG Sovereign Debt Structure cliff – Part 1

In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.

English: Update history of the rates of the Eu...
Image via Wikipedia

Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to.  With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.

New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.

English: Various Euro bills.
Image via Wikipedia

Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises.  Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.

Auction Calendars

Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:

The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.

US T-Bill Auctions schedule

Seal of the United States Bureau of the Public...

To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)

English: Development of government debt in the...
Image via Wikipedia

We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.

theMarketSoul ©2012

A new Commercial Reality under Austerity

How to compete fairly and openly.  [Part of our ‘The Trouble with Innovation series 1,2,3,4,5 – Part 6]

Doing business anywhere, anytime is never easy!

That is a stark commercial reality, that most business people will accept as a given.  But how? now? does is work in a climate of AUSTERITY???

(Apologies for the blatant confusion and poetic licence taken in the previous sentence).

Public and private sectors mostly have an uneasy symbiotic relationship with each other.  If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.

All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…

Business Cycle
Image via Wikipedia

It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle.  And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.

Yet, do they take advantage of this? 

Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite).  Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…

Our summary take away from this article:

The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.

Community and Public Sector Union Pledge Signi...
Community and Public Sector Union Pledge Signing 20th August 2010 (Photo credit: Senator Kate Lundy)

theMarketSoul ©2012

The behavioural impacts of Just in Time (JIT) in the Interim & Gap Management market

The inspiration for today’s thought piece is a small and medium sized enterprise (SME) and now our new definition namely MELE (Medium Enterprise to Large Enterprise) decision making styles and abilities.

Our enquiry runs along the lines of discussions and conversations we have observed in the Interim and Gap Management market.

If decision-making and more importantly the ‘pre-engagement life-cycle’ time has shrunk, is that why some Interim and Gap Managers (I&G) are extremely busy and run off their feet and others not?

Is it a pure marketing and reputation effect the busy I&G Managers are facing versus the ones ‘on the bench’ or is it because SME, MELE and to some extent large corporate clients have delayed resourcing and strategic decisions to the extent of jeopardising the normal pre-engagement fact finding life-cycle?

Finally, if JIT and agile decision-making is here to stay, will the client community still allow the I&G Manager enough time to do the really value-added stuff, which is spend enough time understanding the culture, environment and agenda of the organisation in order to help shape the changed future state?

Was Kurt Lewin wrong with his Change Management Model of ‘Unfreeze – Change – Re-Freeze’ cycle that in an agile planning and development world, there is just no more time to ‘Re-Freeze’ the changed organisational state?

theMarketSoul ©2011

The Market Equation

Image representing Creative Commons as depicte...
Image via CrunchBase

Please note:  This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 444 Castro Street, Suite 900, Mountain View, California, 94041, USA.  If you would like to speak to the author about any aspect of this work, or in order to contribute towards developing the framework and ideas further, please click on the Contact Us link.  (We acknowledge and reward valued contributions).

The Market eQuation (MeQ):

Today we are commencing our investigation and outreach to discover what we will call the Market Equation.

Basically the idea is to come up with a mathematical equation and rating or ranking system to assess the state and status of various markets.

Whether this will lead to a theory of Markets that can compete with some of the other theories in existence is open to debate.

The basic premise is this:

There should be a methodology to access the Openness and Fairness of any given market versus other comparable markets.  This specific ratio or result should therefore determine the individual participant’s level of engagement and commitment to that specific market.  The result should also be able to be repeatable over time in order to elicit trends and movements of particular markets relative to each other.

The basic equation can be expressed as MA2R4K2E3T3 = OF outcome (Open & Fair).

 

Therefore:

OF = (A)2 x (R)4 x (K)2 x (E)3 x (T)3

 

And derives from the Market Equation Table listed below:

 

The Market Equation Table

  

O Open
F Fair
M Multiple
A Accessible Adjoining
R Random Rapid Regular Repeated Regulated Risk
K Complex Connected Competitive
E Effective Efficient Equilibrium
T Technology Time Trade

Key:

Subjective measure
Objective (External)  measure

MA2R4K2E3T3 = OF outcome

Therefore: OF = (A)2 x (R)4 x (K)2 x (E)3 x (T)3

 

Our astute readers might already seen through this equation?

By dropping the M (which will always be 1) the letters that remain result in the word raket.  RA(C)KET?

With the additional C, being the complex bit, ultimately the Market Equation becomes a COMPLEX RACKET.

theMarketSoul ©2011