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Eureka: An air-conditioner side chat on job creation Eureka: An air-conditioner side chat on job creation
by Akli Hadid
2018-09-20 07:57:25
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The thing about a job is we enjoy it while we have it. Google, which is famous for providing employees with high salaries and incredible benefits ranging from children's education in private schools to retirement plans to bonuses to all kinds of perks makes things sound like employees have their job for life.

The problem with IT as with the rest is the big names kind of come out of nowhere. Google came out of nowhere, Facebook came out of nowhere, YouTube came out of nowhere, and soon enough, the next Google, Facebook or YouTube will probably come out of nowhere. The new trend is younger people tend to stay away from search engines and connect with their friends on all kinds of “cutesy” chat applications. Who knows what the next trend will be.

job0001_400This means Google's employees could end up like Kodak, Fuji Film, TDK, Panasonic, Sanyo, Swatch, Rado or Blockbuster employees. Technology evolves in three ways. The first is you have a guy or a team of guys (or girls, but usually guys) who figure out your algorithm, guess the technology you're using, and make even better technology. That is, imagine guys inventing a Google but where the average person leaves their personal information, biographies and photos in the open. That is a Google where you have better and cleaner access to people's personal information. Second is a new technology makes your technology useless, imagine a smartphone that can open like a fan to become a television with unlimited satellite television, live podcasts and broadcasts, and unlimited access to YouTube. Third, people could stop using your technology. Imagine people no longer needing the internet and only using phone and chatting applications, no longer bothering to read people's biographies or to check out their pictures.

This could be said about any industry. That is your job, no matter how attractive the perks, could be on the line and disappear anytime. It could be a happy ending with a retirement, it could be induction to the company board of trustees, but in a lot of cases, it's a painful breakup.

So with my usual chatty and informal tone, occasional typos and not-so-deliberate omissions, I'll discuss, somewhat briefly, the pseudo-science of job creation. 

A tale of two natural experiments

1996. Korean giant Samsung just beat Japanese giants at camcorders and VCRs, televisions and tape recorders, washing machines and dishwashers and even the nascent cell phone industry. 2005 and Samsung reconverted, ditching VCRs and getting to the digital camcorder and camera business, flat screen televisions, cell phones, washing machines, dishwashers and even cars. 2010 and Samsung successfully enters the smartphone market, becomes a world leader.

Hundreds of thousands of Koreans send a job application to Samsung. In the 1980s, Samsung used to hold job interviews on a lot of Korean university campuses, along with other Korean conglomerates. In the 1990s job applicants had to send a few documents and get screened for three interviews, usually a group job interview, an individual job interview and a final interview with the CEO. 2005 and Samsung now has its own SAT, the SSAT. Hundreds of thousands take the test, and their score will be totaled along with the scores of a couple of other tests. People who score highest on the test move to several rounds of job interviews, including English job interviews, PPT presentations, and of course, a final interview with the CEO. Out of roughly 140,000 job applicants, about 5,000 get in. 2018 and Samsung workers are in the dark, no one knows how much longer they can keep their job. Kind of like how Swatch got outcompeted by 3 dollar watches and by cell phone watches, Samsung products got outcompeted by second-hand electronics, and cheap Asian, European and even African electronics.

Samsung is now trying to market artificial intelligence, but as much as AI is good for a movie title, no one really knows how anyone can make money with AI. Today still many people apply for jobs with Samsung, but nowhere near 140,000.

The Caucasian English teacher in South Korea. 2005. Few Americans or Canadians would venture out of their comfort zone to move to a country like South Korea to teach English. South Korean schools tried to attract such teachers with generous pay, ranging in the 24,000 dollar a year range, tax-free, free housing, free meals, and flexible schedules that usually involved only teaching in the mornings or only teaching in the afternoons. If you're a morning person, teach mornings and do an online course in the afternoons. If you're a party person, party like a rock-star and wake up at 1 PM to start teaching at 2 PM. Don't worry about hangovers, students will tend to think that's how Caucasian genes are made.

Over the years school after school tried to attract teachers by offering crazy contracts. 3,500 dollars a month for teaching 10 hours a week, no office hours, 4 months paid vacation a year. Quite a few schools tried to offer that to attract far few teachers who wanted to move out of their comfort zone and come to Korea. Teachers were encouraged to blog and describe their awesome lifestyle in Korea, all their vacationing around Asia, and how they saved thousands of dollars a year teaching in Korea.

Eventually too many potential teachers found out about the sweet deal and the sweet deal was no longer sweet. 10 hours a week and 4 months paid vacation became 20 to 25 hours a week and perhaps 3 weeks paid vacation if you are lucky, and vacation in on its way out. When teachers only needed a Bachelor's degree, now a lot of them need a Master's degree of even a Ph.D. Thousands of teachers were fired, either to be replaced by teachers who would accept lower pay and longer hours, or simply got rid of their English language programs. With Samsung struggling to have too many zeros in its profit report, LG struggling to keep afloat, Hyundai hanging in there, and SK and KT virtually on their death beds, many schools got rid of their English programs.

In sum, the 70,000 dollar a year Samsung employee now has his job in line, a few jobs pay 70,000 a year in South Korea. The 3,500 dollar a month 10 hours a week 4 months paid vacation teacher probably could no longer find a job like that no matter how hard he tried. I'll briefly discuss the intricacies of job creation below.

High supply of workers and low demand of workers from employers

The main problem when there are too many people chasing too few jobs is that it's a disaster for your economy. This means many people don't have income. They can't afford high quality products, so they purchase low-quality products. Companies hire average minds to produce low-quality products. And the vicious cycle goes on and on. Your best elements are in the sidelines, your best products are in the sidelines, and you have to focus on low quality products and average quality workers. This also means the budget for education tends to be cut, education focuses on breeding average minds, and the vicious cycle goes on and on.

High supply of workers and high demand of workers from employers

Ideally, your economy should have a good supply of workers, and a good deal of demand from employers. Workers can move from one job to the next, companies have a good mix of excellent and not-so-excellent staff, and the staff keeps getting better. Product quality keeps improving, and there is a demand for high-quality products as most people have a job and can afford high-quality products. Your high-quality products are in demand internationally, and your economy booms. 

Low supply of workers and high demand of workers from employers

This actually happens in some towns or countries, especially mining towns or administrative towns. The towns are boring, there's not much to do for workers, or in some cases pay is too low for workers. In other cases there's a booming industry and the education system did not educate the adequate number of workers.

You spend too much time training workers, in some cases training workers is almost a waste of time, and you either have to import workers or to get the job done with a reduced workforce.

Low supply of workers and low demand of workers from employers

In some industries, there is a low supply of workers, just the right amount needed for the industry. This could be said about some highly-specialized industries, industries that demand advanced skills and know-how, like the wine industry or the diamond industry. Workers tend to have their jobs protected, products tend to be expensive, and there is little outside competition for the job.

High real estate prices

High real estate prices is enemy number one for job creation. Especially when real estate prices are artificially inflated. Workers are cramped up on the job; have to deal with cramped spaces, meaning they have to compete with more businesses as reduced business size also means more businesses springing up in the neighborhood. If I could have my thousand square feet of business for my restaurant, and each restaurant could have their thousand square feet, there wouldn't be too many restaurants in the neighborhood to compete with. Same goes for any business. High real estate prices also mean lower wages for employees, higher product manufacturing cost, inflated consumer prices, lower wages, lower consumption, the vicious cycle goes on and on. Get the picture?

Overregulation of labor laws

Minimum wage laws, mandatory social security payments, and mandatory resting times usually assume four things: people work just for the money, want to stay at the same job forever, and would have trouble finding another job if they lose this one and all companies are the same.

At the macroeconomic level, if you suppress minimum wage, social security payments and mandatory resting time, you will have some companies providing better packages than others. Now some cynics say that if companies can do what they want, they will pay less, won't allow vacation time and will never encourage social security payments. Some companies have better reputations than others, and getting a job is as much about gaining experience as it is about getting paid decent wages. If you allow workers to negotiate their own pay and working conditions, they tend to get what they want. Of course, some companies think they can rely on 1 dollar an hour Indian virtual Skype assistants, but you usually get what you pay for.

High frequency of consumption cycles

We don't use the same products 10 years ago that we use today. 10 years ago, Reese Peanut Butter cups were what Oreos are today. Blackberries were what IPhone or some other smartphone are today. DVDs were what Netflix is today. Easyjet was what Ryan air is today. And not all TVs were flat screens.

Consumer cycles is specifically what the job market has to plan for. One company is hot today, not tomorrow. In some countries, leaving your job is as shocking as leaving your wife. While leaving your wife should be shocking, with the consumer cycles I just described, leaving your job should be a fact of life.

Overregulation of consumer laws

Yes consumers should be protected. Just like children should be protected. There's a difference between protecting your child and micromanaging your child's life. You make sure products are safe and clean, and that there are no predatory payment practices, but you don't micromanage consumer products. Otherwise people are forced to buy what they don't need, or perfectly safe and harmless products get banned because big brother says so.

Formal and informal labor unions and union busting

Formal labor unions have names and hierarchies. Informal labor unions are the local pub or the water cooler at the company. Ideally, workers should have a good network of friends they can turn to if they lose their job. If social life is structured around fear and repression of group gatherings, people who lose their jobs have no one to turn to find a new one.

Yes, household and corporate debt plays a role, and it's an ugly one

Imagine I have 100,000 dollars of debt. Or 700,000 dollars of debt. This means, no matter how lousy my skills or talents, I will not take a job that pays 50,000 a year or less. Or perhaps 100,000 a year or less. When an entire population lives on debt, you have to inflate wages because no one will take a job where they are paid less than would allow them to repay their debt. So it would be smarter for companies to hire people with no college degree, no mortgage and no consumer debt.

As for companies, debt means they have to charge the kind of prices the product is not worth. So if you go somewhere and see the cheap kind of stuff for incredibly expensive prices, this either means transportation costs were high, raw material costs were high, or they're trying to get rid of debt.

Friendly with workers, passive-aggressive with workers or aggressive with workers?

Some companies are friendly with workers, and that's what makes a company's reputation. That's the kind of company people like to work for.

There's the passive-aggressive company, and chances are you'll end up at the mental hospital. And then there's the aggressive company, and chances are you'll pick up fights with your boss.

Now if an entire job market is built on aggressive companies, aggressive business practices and aggressive sales practices, in no time, people will turn to the local market or souk for business.

So, what's the best way to manage your career?

If you're the government, you need to plan accordingly with global trends, consumer trends and market trends. People quit jobs and change jobs frequently. People negotiate their pay, will start off working for a dollar an hour before they network their way to a five dollar an hour job before they get enough experience to work at a twenty dollar an hour job before they settle for a 50 dollar an hour job. With minimum wage laws, you are forcing potential employees to get knowledge and experience before they get a job rather than encourage on the job training for symbolic wages, and you are depriving low-skilled jobs of their workers.


     
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