Now that the US is mired in a recession and unemployment is more than 10% (and functionally more than 17%) it is worth thinking about jobs. I worked for large corporations, a state government and a law firm for more than 35 years. I also had the generational “good” fortune to graduate and be a job seeker during deep recessions. I was always relieved and thankful when I was hired for a position. The way I expressed my appreciation was to “work my tail off” for my employer. Working more than 60 hours a week, nights, weekends and much of my vacation time were the norm. I often figured if I was not smarter than my co-workers, I at least could come to work prepared and outwork them. Plus, I kept Woody Allen’s wisdom in mind: “eighty percent of success is showing up.”
Sadly, my attitude toward a job was not the norm. I was always amazed at how casually some of my colleagues approached their work: often coming in late, exercising in the company gym for several hours mid-day, leaving early, never missing a child’s soccer match or play (I actually have regrets on this one), arranging vacations wherein they could not be reached, constantly complaining about pay, bad bosses or workload inequities. A job had become an entitlement. Gratitude for their good fortune at being employed, often in high level positions, was sadly lacking.
Jobs as Annuities
In a world of zero interest rates, it is worth looking at employment in another way. Until the current recession, a job was often a 20-30 year annuity within a large corporation. Better than a real annuity, the employee did not have to part with a large sum of money to purchase this “work annuity.” The only entry fee was a best effort in performing the job.
Now, let’s use the annuity model to value a job. Thus, if one is paid $100,000 a year (a relatively low salary in corporate law) and applies a 1% interest rate (an amount lower than the 2-year Treasury note) one would need to invest a principal amount of $10m dollars to replicate a $100,000 income stream. Even if the 10-year Treasury bond is used as the benchmark, which is now yielding approximately 3.3%, one would need to invest a principal amount of about $3m. Of course, I am simplifying the model and leaving out actuarial factors.
Implications
This analysis highlights and suggests a whole different paradigm of job behaviors. Jobs are incredibly valuable. Perhaps, the new American employee might want to work harder, they also might want to emulate the Japanese custom (oseibo/ochugen) of thanking their supervisors for being employed and bringing them gifts. Second, this illustration explains why employers are unwilling to hire. Zero interest rates do not exist in a vacuum, they signal a zero or negative growth economy. It also signals very low returns on labor and capital. Third, exacerbated by outsourcing and international wage arbitrage, it is not surprising to see employers actually reducing compensation.
Conclusion
The self reinforcing cycle of expanding credit, wages, corporate earning and GDP has come to an end. The workplace is going to get a lot tougher before the good old days return, if the ever do. Employees might want to be looking for that special gift for their employer.
‘Tis the season.
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