Our Fragmented Labor Markets Defy Outdated Conventions

There are hundreds of extraordinarily diverse labor markets in the U.S. economy, and it takes a much more granulated approach to make any sense of this highly fragmented and dynamic marketplace.

Conventional economists/media pundits typically view the labor market as monolithic, i.e. as one unified market. The reality is the labor market is highly fragmented. Thus it's little wonder that conventional measures are giving mixed signals on employment, wage inflation, etc.

Here is a typical chart of the labor market: the annual rate of change in hourly earnings, going back to the late 1960s. I've annotated the chart to show that hourly earning rose sharply in the inflationary 1970s, but since then have only popped higher in asset bubbles--the dot-com era and the housing bubble:

Gneralized measures that lump all wage earners together give us a snapshot of trends, but they fail to describe the realities of today's labor markets. The reality is much more complex, and thus beyond the outdated conventions that divide the labor force into broad sectors:

1. While most workers are receiving little in the way of wage increases, employers' total compensation costs are soaring due to skyrocketing healthcare premiums and other labor-overhead costs such as workers compensation.

Economists puzzled by the lack of wage inflation in an era of "full employment" should look at total compensation costs instead of wages: the inflation is in the labor-overhead costs, not employee compensation.

2. Regions dominated by a handful of employers do not offer many opportunities for employees to jump to other employers for higher pay. This lack of competition enables dominant employers to suppress wage growth.

3. Scarcities of skills and experience that drive wages higher tend to be sector-specific and are often localized. Across the broad spectrum of basic skills and experience (for example, white-collar work performed by employees with non-technical college diplomas), there are few scarcities that could push wages higher.

4. Regardless of labor availability/scarcity, many small-business employers can't afford to pay higher wages, given their soaring labor-overhead expenses. If wages rise, their options include selling out, closing down, or doing more of the work themselves. Paying higher wages will simply guarantee monthly losses. If you're losing money operating an enterprise, why be in business?

5. Employers demand a great deal now of lower-wage service sector employees. Fast-food jobs (for example) require high levels of productivity in a rigidly structured factory setting. There are few "easy" jobs left in the U.S. economy that require little training and pay for low productivity.

As a result, a great many people do not have the ability or willingness to take these grueling jobs. Reasons include physical limitations, pride ("I'm not wearing that dumb uniform"), a black market income that's much easier than available conventional jobs, inability to pass mandatory drug tests, etc.

6. The opioid epidemic and other drug addictions have removed millions of people from the work force. Disability is now the option of choice for those who qualify.

7. These factors turn the conventional wisdom on its head: rather than there being a surplus of lower-wage, lower skilled workers and a shortage of college-educated workers, there are shortages of lower-wage, lower skilled workers and a surplus of college-educated workers.

8. The cultural and educational bias in favor of "clean work" and high-visibility finance and entertainment has generated scarcities of skilled welders, pipefitters, etc., ("dirty physical work") and an astounding over-abundance of people who expect to earn a living as musicians, entertainers, writers, pro athletes, smart-phone app entrepreneurs, restaurateurs, hedge fund managers, etc., fields in which a relative handful of people earn most of the income.

The reality is these are winner take most fields of endeavor, and the vast majority of hopefuls will earn a tiny piece of the long-tail of income distribution.

In tandem with the general erosion in real-world skills (i.e. preference for watching cooking shows over actually cooking 95% of your own meals, inability to change the oil in one's vehicle, grow food, prune fruit trees, repair rotted stairs, fix appliances, repair a leaky faucet, install a solar panel, and so on), this cultural and educational bias in favor of narrow service skills and extreme specialization has left the work force poorly adapted on multiple fronts.

Skills such as welding and plumbing don't change much; once mastered, the skills can be applied for decades with little retraining being required. But the sort of "clean work" service jobs people favor are the ones most easily disrupted by automation, software and AI.

As for over-specialization, as often noted here, issuing 100,000 new graduate-level STEM diplomas (science, technology, engineering, math) does not magically create 100,000 high-paying secure jobs for the graduates.

Instead, we have a system of higher education that implicitly over-promises the rewards of law degrees, masters degrees in social sciences, MBA diplomas, STEM PhDs, etc., an institutional bias that has created a structural over-supply of over-educated, under-skilled specialists, a labor pool that doesn't align with the actual needs of real-world employers.

Averages and medians tell us very little about real-world labor markets. There are hundreds of extraordinarily diverse labor markets in the U.S. economy, and it takes a much more granulated approach to make any sense of this highly fragmented and dynamic marketplace.

Of related interest:

Career Advice to 20-Somethings: Create Value as a Mobile Creative


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Career Advice to 20-Somethings: Create Value as a Mobile Creative

Finding work that fits who you are is rarely easy, especially if you don't fit into the mainstream, and usually it requires a lot of compromises, hard work and dead-ends. But that’s the process.

Establishing a satisfying career is difficult in today's economy, doubly so for those who find life within hierarchical institutions (corporate America and government) unrewarding, and triply so for those burdened with student loan debt and college educations/diplomas of uncertain market value or those re-entering the job market with skills that have been marginalized.

Given that I wrote a book entitled Get a Job, Build a Real Career, and Defy a Bewildering Economy, it's unsurprising that I get emails from young people asking for career advice.

I've also written essays of friendly advice such as A Teachable Moment: to the Young Person Who Complained About Her Job/Pay at Yelp and Was Promptly Fired.

Here is my response to a recent email from a 20-something in a familiar place:burdened with student loan debt, aware that the self-serving institutional shuck-and-jive is false (get a college degree and your future is secure), and uncertain how to proceed.

Here is my correspondent's email:

I wish my faith in our conventional institutions had faded sooner, but I borrowed a lot of money in my early 20s only to find out that most of what I was learning was utterly useless.

But I can't go back. Only forward. So with thousands of dollars in debt aside, and limited experience in the professional world (food service, retail, and industrial construction), where in the hell can I start? I get a lot of the concepts you are proposing. I get the need to create value for people. I've just never really seen it done in a "professional" environment. I've scrubbed floors, calibrated thermometers, bent tubing and made coffee. But intellectually this is obviously not satisfying.

I want to create value, I want to solve problems. Not just for altruistic reasons, but because it is the only thing that seems challenging.

So what would you tell a late 20 something, who's not used to wearing a suit and tie, starting from the bottom, with the intellectual capacity to do more than scrub floors? Because I guarantee you... there are plenty of us waiting in the shadows to exercise our inalienable human right to achievement, collaboration, and freedom.

A lot of us just resent the monstrosity that centralized thinking has created. But we need to put that bitterness aside and come out of the shadows to contribute.

Extremely well said. Here is my response:

You’re right--there’s often very little value created in “professional” environments, which is partly why so many people are dissatisfied/frustrated with their jobs/ work life.

My book Get a Job, Build a Real Career has some suggestions, which I will summarize here.

1. Lower your cost basis (cost of living) so you can live a satisfying life while earning comparatively little money. This starts with the usual drill: cook all your own food, waste nothing, etc. The first bit of advice a successful artist tells people is “get accustomed to poverty.” But low income doesn’t have to mean unhappiness/destitution.

Focus on the highest expenses where you have the most leverage, which is often housing. How can you create value? Lots of small apartment owners can’t find anyone responsible to maintain their building, so becoming that person could drop your rent a lot. Another possibility is rent a house and then rent rooms to responsible people at rates that lower your share of the rent to very low rates. You’re in charge, you keep the place tidy, you select nice, responsible people to share the house and that’s why people will pay to rent rooms in your house. You’re creating value by taking care of all the stuff most people won’t do or can’t do.

2. Find ways to get satisfaction/meaning /purpose in life regardless of the income generated. This could be a community garden, volunteering at a church or school, or pursuing some project of your own that doesn’t rely on others’ approval or money for its success. If “work” isn’t satisfying, at least you have multiple sources of satisfaction/purpose outside of work.

3. As for work, the cliché is, find an endeavor that you would do for fun or after hours regardless of the pay. This “work” will align with your character, aptitudes, interests, strengths and subconscious/unconscious drives. As Carl Jung observed, “Until you make the unconscious conscious, it will direct your life and you will call it fate.”

And as Jerry Garcia said, "You do not merely want to be considered just the best of the best. You want to be considered the only one who does what you do.”

Finding work that fits who you are is rarely easy, especially if you don't fit into the mainstream, and usually it requires a lot of compromises, hard work and dead-ends. But that’s the process.

4. Trust your network. I’m not good at networking, far from it, but the more people who know you’re a responsible hard-working person who will do what you say you’ll do, and the more people who know your interests, the greater the chances that somebody will offer you some apparently tiny opportunity that might turn into something larger with time.

5. As Drew Sample points out in our recent podcast, sometimes the best way to create value is to work on ourselves, i.e. develop the eight soft skills I list in my book that are applicable to every field of endeavor and are thus always in demand. They require dedication, self-awareness, humility and hard work to acquire. They create value in every field because all fields are now collaborative, networked, global and fast-changing.

6. Set a goal of creating multiple income streams/ways of creating value for others. In terms of living an anti-fragile, fulfilling and relatively resilient life, the ideal arrangement is multiple income streams/value creation in disparate (unrelated) fields, so if one field of endeavor is disrupted then others will still continue since they're not connected to the sector that's been overturned by technological innovation, globalization, etc.

This is what I call the Mobile Creative class--not necessarily mobile in terms of physical movement between locales but mobile between sectors and ways of generating value.

The New Class: Mobile Creatives (May 1, 2014)
The Mobile Creative credo: trust the network, not the corporation or the state.

The Changing World of Work 3: "Full-Stack" Skills (April 15, 2015)

To be honest, I’ve struggled for decades to reach this understanding. I didn’t have any mentors, so I had to mentor myself, which given my lack of experience, was difficult. Sometimes we have to mentor ourselves from the perspective that we’re going to become successful at being ourselves and adding value, regardless of our income. As our own mentor, we seek to advise and encourage ourselves just as we would advise and encourage a close friend.

This advice is not age-specific. The Mobile Creative approach to creating value applies equally to people in their 30s, 40s, 50s, 60s and yes 70s.

Drew and I discuss the process of creating value from the perspective of those working outside "professional" institutional environments: The Sample Hour 184: Creating Value.

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format.


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Venezuela's New Cryptocurrency: Just Another Form of Control Fraud

If a currency can't be converted on demand into the underlying commodity, it's not "backed by oil," it's just another form of control fraud.

The broke and broken country of Venezuela appears to be the first nation-state to issue a cryptocurrency token (the petro) as a means of escaping the financial black hole that's consuming its economy: Maduro Launches Oil-Backed Crypto "For The Welfare Of Venezuela".

For context, here is a chart of the black market (i.e. real-world) value of the Venezuela's fiat currency, the bolivar: a 100,000 bolivar note is worth somewhere around 40 cents USD (US dollar), i.e. near zero. (Venezuela maintains a fantasy-official USD/bolivar exchange rate that has no relation to the actual purchasing-power value of Venezuela's fiat currency.)

The gee-whiz component of the petro is that it is supposedly "backed by oil."In other words, unlike other cryptocurrencies/ tokens, the petro has intrinsic value because it's backed by oil.

But what does backed by oil actually mean?

The only way any currency, fiat or crypto, is "backed" by any real-world commodity is if the currency is convertible into the commodity on demand, that is, the currency can be exchanged for the commodity at a transparent published conversion rate.

If Venezuela's petro cannot be converted directly into deliverable-upon-demand oil contracts, it's not backed by anything. It's important to understand that any currency that claims to be "backed" by gold, oil, rice, bat guano, etc. must be convertible to the underlying commodity at a transparent conversion rate.

If a currency can't be converted on demand into the underlying commodity, it's not "backed by oil," it's just another form of control fraud, which I define as those holding power in centralized institutions enrich themselves at the expense of the citizenry by modifying what's legally permissible.

Conventional fraud is against the law; control fraud is legal because it benefits those who make the rules. If there is no transparent mechanism for converting petros into oil that can be sold and delivered in the global marketplace, then the petro is nothing but a central-state control fraud: those foolish enough to believe the con that the petro is "backed by oil" will end up with a worthless token.

A bit of history will clarify "backed by something real" conversion. In the 1960s, the US dollar was famously "backed by gold," which meant that other nations (via their central banks) could convert $35 USD into an ounce of gold upon demand.

As U.S. trade and federal budget deficits soared in the late 1960s, nations such as France began converting their excess dollars into physical gold. If this conversion had been allowed to continue, foreign entities would have drained all of America's gold as they converted their dollars (exported via trade deficits to other nations) into gold. As a result, the U.S. had no choice but to end the conversion of dollars to gold.

The notion that China or Russia will issue a gold-backed currency attracts considerable attention, but a currency is only "backed by gold" if a foreign financial institution can convert their yuan or rubles into gold upon demand. If there is no transparent, easy mechanism for foreign holders of the currency to convert their currency into gold upon demand, then the currency isn't actually backed by anything: it's simply a form of control fraud.

It doesn't matter if the currency is digital, paper or crypto: if it can't be directly converted into the underlying commodity at a transparent published conversion rate, it's not backed by anything.

Until a foreign financial institution successfully converts its Venezuelan petros into actual barrels of oil, or oil contracts that can be sold immediately on the global market, then the petro isn't backed by anything. Until that conversion process is functioning transparently, the petro is nothing but a giant control fraud perpetrated to benefit the few clinging to power in Venezuela at the expense of the many.


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The End of (Artificial) Stability

The central banks'/states' power to maintain a permanent bull market in stocks and bonds is eroding.

There is nothing natural about the stability of the past 9 years. The bullish trends in risk assets are artificial constructs of central bank/state policies. As these policies are reduced or lose their effectiveness, the era of artificial stability is coming to a close.

The 9-year run of Bull-trend stability is ending as a result of a confluence of macro dynamics:

1. Central banks are under pressure to reduce, end or reverse their unprecedented monetary stimulus, and the consequences are unpredictable, given the market's reliance on the certainty that "central banks have our back" is ending.

2. Interest rates / bond yields may well plummet in a global recession, but if we look at a 50-year chart of interest rates, we see a saucer-shaped bottoming in play. Technician Louise Yamada has been discussing the tendency of interest rates/bond yields to trace out a multi-year saucer bottom for over a decade, and we can now discern this.

Even if yields plummet in a recession, as many analysts predict, this doesn't necessarily negate the longer term trend of higher yields and rates.

3. The global economy is overdue for a business-cycle recession, which is characterized by a retrenchment of credit and the default of marginal debt. The "recovery" is the weakest recovery in the past 60 years, and now it's the longest expansion.

4. The mainstream financial media is telling us that everything is going great in the global economy, but this sort of complacent (or even euphoric) "it's all good news" typically marks the top of stocks, just as universal negativity marks secular lows.

5. What happens to markets characterized by uncertainty? Once certainty is replaced by uncertainty, markets become fragile and thus exposed to sudden shifts of sentiment. This destabilization is expressed as volatility, but it's far deeper than volatility as measured by VIX or sentiment indicators.

Market participants have become accustomed to an implicit entitlement: that investors / speculators will earn consistently positive returns on their capital, as central banks and governments have both the power and the mandate to "save" participants from losses and generate phantom wealth ("gains").

This entitlement is ending, as the central banks'/states' power to maintain a permanent bull market in stocks and bonds is eroding, and I suspect few participants have a strategy for a permanently riskier environment going forward.

How much will risk assets have to decline for "wealth" to return to the production of real-world wealth in the real-world economy? Clearly, the answer is "a lot."

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Russian Meddling: Gagging on the Irony

The irony that is most gagging is that America's power elite is destroying the nation's social order by its concentration of wealth and abuse of power.

The irony of the Deep State's obsessive focus on "Russian meddling" in the precious bodily fluids of our hallowed democracy is so overwhelming that it's gagging. The irony is a noxious confluence of putrid hypocrisy and a comically abject terror at the prospect that the citizenry may be awakening to the terrible reality that America has lost its soul as well as its democracy.

The foul stench of hypocrisy arises from the long and sordid history of America's meddling in the internal politics of virtually every nation on the planet-- a deeply entrenched policy of meddling on such a vast scale that the Deep State minions tasked with projecting a wounded astonishment that some foreign power has the unmitigated gall to attempt to influence our domestic politics must have difficulty restraining their amusement.

America's foreign policy is one of absolute entitlement to influence the domestic affairs and politics of every nation of interest, which to a truly global empire includes every nation on the planet to the degree every nation is a market and/or a potential threat to U.S. interests.

Assassination of elected leaders--no problem. Funding the emergence of new U.S.-directed political parties--just another day at the office. Inciting dissent and discord to destabilize regimes--it's what we do, folks. Funding outright propaganda--one of our enduring specialties. Privatizing public assets to reward our cronies and domestic corporations--nothing's more profitable than a public monopoly transformed into a privately owned monopoly.

(If your nation hasn't been targeted for intervention and campaigns of hard and soft power influence, we apologize for the oversight. We'll get to destabilizing your political order and economy just as soon as the queue of pressing interventions clears a bit.)

One of our most effective means of meddling is economic. First we press the targeted foreign government and civilian power centers--universities, corporations, banks and other institutions--to liberalize the economy and banking system to allow foreign credit and investment in, under the guise of encouraging beneficial development.

Then we flood the economy with cheap, abundant credit, first to buy up natural resources and the most valuable assets, and secondly to fuel a consumption binge that feels like Utopia to credit-starved residents and enterprises: suddenly there's credit to buy almost everything consumers could hope for, and credit to expand production, tourism, etc.

The government is encouraged to borrow to fund large-scale infrastructure projects (which are of course built by foreign firms) and other development projects, with great big slices of the borrowed billions carved off for politicos, functionaries and others in line for bribes, fees and offshore accounts of stolen millions.

This monumental expansion of debt eventually undermines the nation's currency and its economy, as the addictive gush of credit quickly moved beyond sensible, productive projects into speculative ventures with little prospects beyond the initial profits earned by insiders.

As all these marginal projects default, the credit spigot is suddenly shut off, and waves of creditors who thought the good times would last forever go bankrupt.

This destabilization was not an unfortunate side-effect--it was the goal from the start. With the target nation's currency in a freefall and enterprises defaulting left and right, U.S. firms flush with U.S. dollars and banks with nearly unlimited lines of credit in dollars swoop in and offer to ease the pain by scooping up devalued assets for dollars, or extending credit denominated in dollars.

Compared to the scale of these interventions, $100,000 in Facebook adverts is like a pin prick. The indignation and outrage of America's power structure is a tell:how dare you give us a taste of our own medicine--only we're entitled to meddle and intervene as we see fit.

The other source of pungent irony is the failure of America's power structure to maintain the pretense of a functioning democracy and social contract. The nation we inhabit has strayed so far from the nation's founding principles and values that it is unrecognizable. In place of democracy, we have a permanent unelected, impervious-to-the-people Deep State and a pay-to-play system in which political power is auctioned off to the highest bidder.

A mercantile nation that sought to protect sea lanes and trade routes and avoid foreign entanglements has metastasized into an entitled Imperial Project, a Project that enriches domestic corporations and veritable armies of national defense / national security functionaries, think tank and university employees, philanthro-capitalist toadies, media factotums--a nearly endless profusion of beneficiaries of Imperial aspirations.

America's power elite isn't just entitled to intervene and meddle at will globally; it also feels entitled to select America's elected leadership. Elected leaders are anointed in the media, and the citizenry is expected to march to the drumbeat.

That the people failed to follow the directives of their betters was a shock that is still reverberating, hence the power elite's hysterical need to locate a source other than the power elite itself that can be publicly blamed and crucified.

Projection is a well-known psychological coping mechanism. That the loss of the nation's democracy and soul are the direct consequence of the self-serving power elite's own concentration and abuse of power--this is unacceptable. And so the responsibility must be pinned on some external demonic force.

The irony is the American social contract is in tatters due to the self-enriching extremes of the New Gilded Age: an era of unprecedented concentrations of wealth and power in which the citizenry has been reduced to dry tinder awaiting a spark.

Washington and the technocrats are aghast at reports that the opportunistic efforts of Russia-based groups to sow discontent ended up generating 300 million impressions says more about the corruption and abuses of power that have undermined the social order than it does about the diabolical effectiveness of amateurish front groups.

If the U.S. wasn't a nation of haves and have-nots, a nation stripmined by the few at the expense of the many, a nation befuddled by a grotesquely Orwellian media that goes into full propaganda mode if its group-think is questioned, a nation that until recently lauded tech giants whose profits flow exclusively from advertising aimed at users whose engagement is encouraged by just the sort of divisive, emotionally disturbing "news and opinion" that the Russian groups paid for--if the U.S. wasn't a rotten-to-the-core fake-news, fake-recovery, fake-democracy nation, then the modest efforts of the Russian interlopers would have been lost in a sea of legitimacy and authenticity.

The irony that is most gagging is that America's power elite is destroying the nation's social order by its concentration of wealth and abuse of power, yet this power elite claims a handful of social media sites undermined our democracy. How pathetic is that?

The correct question to ask is: what democracy?

Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.


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