Is Labor just another Commodity (Millennials)

First, some excerpts from "Falling Job Tenure: It's Not Just about Millennials" (posted June 2015 by Julie L. Hotchkiss and Christopher J. Macpherson at the Atlanta Fed, discussing labor as a commodity. The reader's comments are very informative.)

The image of a worker in the 1950s is one of a man (for the most part) who plans on spending his entire career with one employer. We hear today, however, that "long gone is the lifelong loyalty to a corporation with steadfast servitude for years on end."

One report tells us that people entering the workforce within the past few years may have more than 10 different jobs before they retire. The reason? "Millennials don't like commitments." Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth.

But simply measuring trends in job tenure is not all that straightforward. The problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012.

One of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee's retirement.

Additionally, the share of those 25 and over with a college degree in the United States has increased from 5 percent in 1950 to 32 percent in 2014. A more educated workforce is one with more general, or transferable, human capital, reducing the need to stay with just one employer to reap a return on one's investment in human capital.

The transition of the U.S. economy from a basis in manufacturing to one based in services, supported by technology, also means employers require more general, rather than specific, human capital.

Firms have also changed the way they invest in workers, offering less on-the-job training than they used to, weakening their ties to the worker.

And on top of all of this, because of near-instantaneous access to information, movies, and music brought by the digital age, younger cohorts are purported to have shorter attention spans than older cohorts.

All these factors shape the environment in which workers and employers view the value of longevity in their relationship.

Median job tenure is indeed declining through the generations. So what does declining job tenure mean for the U.S. labor market?

From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around.

From the perspective of the worker, portable retirement savings and, now, portable health insurance mean that workers confront a world of possibilities that our parents and grandparents never dreamed of. [Is the Atlanta Fed putting a positive but misleading twist on an otherwise dismal job situation?]

Yes, perhaps the days of predictability in one's career is a thing of the past. But so is the "eggs-in-one-basket" loss of retirement savings when your employer goes out of business as well as potentially slower career progression within a single firm. [Is the Atlanta Fed putting another positive but misleading twist on an otherwise dismal job situation?]

As I said, the reader's comments are very informative. Here's one:

Given the "flexible" scheduling imposed on many hourly workers, the typical "job tenure" is down to hours — since you don't know when you will be called again. With a millennial job tenure of a year or so, those millennials must be continuously job hunting, even in the first few weeks of a new job. From the perspective of the worker? Uncomfortably long periods of unemployment where the money-gap is made up by digging into the "portable retirement savings" — such that, a lifetime of labor translates into a lifetime of poverty.

The Wall Street Journal (June 2015): "Federal Reserve policies launched in a historic economic slump may have exacerbated wealth disparities in the U.S., according to new research from the Philadelphia Fed ... Official borrowing costs have been effectively zero for six and a half years, and the Fed purchased more than $3 trillion in mortgage and Treasury bonds in order to further encourage borrowing and investment by keeping long-term rates down ... If lower interest rates boost employment and the poor have higher jobless rates, then a loose monetary policy can be seen as redistributive in the direction of lower-income earners. At the same time, QE has been seen as key driving force behind a sharp rally in the stock market, which benefits the wealth disproportionately."

Other Recent Labor Posts

CBS News (Mark Thoma, June 2015) What's swelling the ranks of involuntary part-timers? (Spoiler alert: That shift in labor may point to a "new normal," where the typical household finds decent, full-time employment harder and harder to find."

Richmond Fed (June 2015) Since PTER workers' [involuntarily working part-time] share is highest in non-routine manual (typically, low-wage) occupations and given recent works on job polarization, it is a challenging task to disentangle cyclical versus structural factors behind an increased number of PTER workers after the 2007-09 recession.

* My thoughts: We went from a manufacturing economy (requiring steady 8 hour shifts in a 24 hour day — day shift, swing shift and graveyard shift) to a service economy where employees work part-time during peak business hours (i.e. restaurants for breakfast and lunch shifts, and those for dinner shifts — sometimes working "split shifts")

Tim Taylor: The Conservable Economist (June 2015) "The share of Americans working for large employers has been rising in recent years ... Overall average pay per employee (the range of pay inside enterprises) show that in an enterprise with more than 500 employees, average pay per employee is $52,554."

* My thoughts: 1) Maybe more people work at larger companies now because of all the mergers & acquisitions (a smaller company buying another company to become a bigger company with more employees), and 2) because wage “averages” (and not “median” wages) in larger companies are higher, it might be because the executives are paid so much more in these larger companies (skewing what the "average" would be).

Comment from a reader at Mark Thoma's blog on this subject:

Republicans along with far too many Democrats have been backing capital gains and dividends tax policy changes that encourage corporate consolidation since the 1950's. The economies of scale that brought to large firms and franchise chains put competing small firms out of business by heads on product price competition (e.g., Walmart) over supply chain costs and ordinary operations overhead more than anything else, but advertising as well in some sectors (e.g, fast food). Higher end restaurant business does not go as well. Outback Steakhouse, Ruth's Chris Steak House and Bonefish Grill cannot put the mom and pop restaurants out of business and can only capture a small market share and sometimes they get their clocks cleaned by local competition.

Another good post by Paul Krugman (June 2015) Notes on Walmart and Wages (Wonkish):\

Walmart reports that its recent wage hike is paying off via reduced turnover, which produces cost savings that offset the direct expense of the higher wages. In other words, efficiency wage theory is vindicated. What are the political/policy implications? What follows is a slightly wonkish note, largely to myself.

Efficiency wage theory is the idea that for any of a number of reasons, employers get more out of their workers when they pay more. It could be effort, it could be morale, it could be turnover. The causes of the efficiency gain could lie in psychology, or simply in the fact that workers are less willing to risk better-paying jobs with bad behavior ...

Or to put it differently, efficiency wages suggest right away that the invisible hand’s grip on labor is a lot looser than people imagine, that wages are relatively easy to shift with social and political pressure. And this is one important reason attempts to reduce inequality can and should involve working on the distribution of market income as well as ex-post redistribution through taxes and transfers.

As an aside: Who can write an app for "Virtual Labor Organizing"? An app that workers using social media can use to organize for labor unions. I’ll bet the AFL-CIO and the Democratic party would pay well for this (Although, they might have to copyright and/or patent their work).

Per the new JOLTS report: Are there really 5.4 million unfilled job openings? Really? From the Economic Policy Institute:

The total number of job openings rose to 5.4 million in April while the number of hires was little changed at 5.0 million. While there has been a clear improvement, it is important to remember that a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong.

There is a wide range of “recruitment intensity” a company can put behind a job opening. If a firm is trying hard to fill an opening, it may increase the compensation package and/or scale back the required qualifications. On the other hand, if it is not trying very hard, it might hike up the required qualifications and/or offer a meager compensation package.

Perhaps unsurprisingly, research shows that recruitment intensity is cyclical—it tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled and the labor market is weak, AS IT IS TODAY, companies may very well be holding out for an overly-qualified candidate at a cheap price.

Here are 6 million unemployed Americans who are currently not counted in the unemployment rate...

BLS: Job openings levels and rates by industry and region
http://www.bls.gov/news.release/jolts.t01.htm