Tag Archives: Labor Market

The New Labor Market – Scotland’s Lesson to Labor

9/19/2014 Portland, Oregon – Pop in your mints…

The results of the Scottish referendum on independence are in, and in the maneuvering leading up to the vote as well as the results themselves, the Scottish question has brought to light a new dynamic that many economists, including yours truly, have been late to properly identify:  The astronomical rise in the cost of labor that is on the horizon.

What do Scottish/English politics and the labor market have in common?  Nothing, really, save the dynamic between an overlord (England/Employer) and underling (Scotland/Employee), and the rapidly changing status quo.

First, a brief overview of the Scottish referendum from an economic standpoint. Astute readers will note that we have an extremely basic understanding this.  That said, the little we do understand serves our metaphor.  As such, we dare not risk deepening our understanding at this point.

Our aforementioned understanding is the following:  As part of the United Kingdom, Scotland enjoys a £32 Billion per year block grant, for which it cedes approximately £7 Billion per year in North Sea oil tax revenues, and approximately £16 Billion in other taxes rendered to England, bringing England’s net subsidy to Scotland to roughly £9 Billion per year.  You can read more about the economics of Scottish Independence at the ever Clairvoyant Market Oracle.

Scottish Independence YES Vote Panic

As you can see at the end of the above video, the chances of Scotland actually voting “Yea” for the referendum were extremely far-fetched and rightfully cause for panic.  Furthermore, we observe that the reaction of the English, predictably, was to cave to Scottish demands for autonomy and, ultimately, an increase in the net subsidy in exchange for remaining part of the UK.

As the Scottish economy represents roughly £160 billion annually, it is clear that the £9 billion hit in terms of the subsidy loss would be devastating.  Devastating as it may have been for the Scottish people, the loss was at least calculable and to some extent containable.

On the other hand, while England appears to have forfeited a good deal of autonomy, not to mention being out a net £9 billion on the Scottish subsidy, their zeal to keep Scotland in the UK is explained by one simple fact:

Scotland is irreplaceable, and for England to forfeit its allegiance now is not only to turn its back on a union forged over the course of 300 years, it is to look forward to a future of Balkanization and an incalculable demise in its political and economic power as the sun finally sets on an Empire that at one time could rightfully claim that the sun never set upon it.

Do you now see how the metaphor applies to the labor market fellow taxpayer?  In simple terms, Employee (Scotland) threatens to leave Employer.  Employer reacts by giving employee more autonomy and pay.

This scenario is playing out across certain cross sections of the US Labor market and is about to have a tremendously disruptive effect on what many have come to understand to be the status quo in terms of Corporate employment.

While it may be true that, unlike Scotland, most employees are replaceable, it is also true that with each employee that walks out the door, an incalculable amount of synergies and institutional knowledge leaves with them.  Couple this loss of intangibles with the fact that the employee that will be hired to replace them is likely to be 1) More expensive, 2) Less productive, and 3) Less loyal than the one that just walked out the door.

Like Scotland, many employees are finding that, while they have something to lose by leaving their employer, the loss is calculable and often more than compensated for by the potential gains awaiting them as the current game of musical chairs disrupts the low cost of labor, a hidden subsidy that many corporations have come to rely on.

While it may appear that employees, like Scotland, have much to lose and little to gain by declaring their independence and seeking new alliances, in reality it is the corporate status quo, such as England, that stand to lose the most in this latest game of musical chairs.

In the end, England will pay dearly for maintaining its alliance with Scotland.  Will your employer pay dearly for you?  You may be surprised by the answer.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for September 19, 2014

Copper Price per Lb: $3.13
Oil Price per Barrel (WTI):  $92.41

Corn Price per Bushel:  $3.31
10 Yr US Treasury Bond:  2.58%
Bitcoin price in US: $396.09
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,216

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  17,279
M1 Monetary Base:  $2,747,800,000,000

M2 Monetary Base:  $11,479,800,000,000

More Evidence of the Impending Wage/Price Spiral Appears

4/2/2014 Portland, Oregon – Pop in your mints…

The wage/price spiral.  It is a nasty economic phenomenon where the labor market suddenly tightens, causing a chain reaction of relative scarcity of output, which leads to higher prices for goods, which leads workers to demand higher wages, which employers pay for by raising prices and attempting to increase output, which finds itself back staring back at the tight labor market, where each available worker now knows he or she is worth much more.

The wage/price spiral, which is generally only possible on a broad scale in times like our own, when credit passes as money, appears to be accelerating.

Graphic courtesy of Deutsche Bank Research
Graphic courtesy of Deutsche Bank Research

The tightness in the US labor market has been happening in near stealth mode.  While the Unemployment rate remains above 6.5%, the line drawn in the sand by the FED for consideration of tighter monetary policy, what is lost in the data is that Baby Boomers are retiring.  While it is true that their overall consumption will likely decrease, it is also true that their staggering output as a generation is falling even faster, leaving fewer workers to fill the gaps, especially in highly skilled positions.

What does it mean?  If you are a worker feeling squeezed by higher prices, ask your boss for a raise.  If they won’t comply, start looking for another employer.  Chances are, by the time you have found a better offer, your current employer will realize what is happening, and make you an even better offer to stay.  This is a hypothetical situation, of course, and each person must carefully consider their own situation.  However, when this spiral takes off, you will want to be well ahead of the curve.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 2, 2014

Copper Price per Lb: $3.04
Oil Price per Barrel:  $99.20
Corn Price per Bushel:  $5.05
10 Yr US Treasury Bond:  2.80%
Bitcoin price in US:  $469.48
FED Target Rate:  0.06%
Gold Price Per Ounce:  $1,292
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  16,541
M1 Monetary Base:  $2,694,800,000,000
M2 Monetary Base:  $11,229,900,000,000