Flexible Labor Markets and Inflexible Bills II: Could It Be Good For The Employee?
In the first article in this series I talked about some of the different catch-22’s with flexible labor markets, the dream of nearly all entrepreneurs and economists. In a flexible labor market, employers generally want to hire and fire workers as needed, but employers also want regular income, which only comes from workforce populations that are earning money and not getting laid off. Employers want occupationally and geography mobile workforces who can go where they are needed and do what needs to be done. People tend to stick with people they care about, and don’t have time to learn new skills when they are putting food on the table and raising a family. Employers also want limited government intervention, yet any government action, including those that promote laissez-faire economic environments, have both positive and negative impacts on the workforce and business in general. After reading that first article, you may think that a Flexible Labor Market is either a pipe dream or just a nightmare for the workforce. As it turns out, there are some benefits for the members of the workforce, but just like the employers there are some catch-22’s.
First let’s look at some of the characteristics of a flexible labor market. Like the first article in this series, most of what I’m going to refer to in this article is from the economicshelp.org website. The site, a great primer on this subject, lists the following six characteristics.
- A skilled workforce which can adapt to changing requirements.
- Flexible hours and working contracts e.g. more temporary employment or working from home.
- Self-employment where workers and firms can be more flexible in how and when to work.
- Labor markets are competitive.
- Greater flexibility in pay arrangements.
- Non-unionized workforce
The first point about the skilled workforce which can adapt to changing requirements is very much aligned to one of the stated traits of a flexible labor market. Specifically, that the market includes a workforce that’s occupationally and geographically mobile. If you are able to change your job or your job location, clearly you are flexible and can adapt to the ever evolving nature of the modern working environment. Honestly this is a great trait for everyone to have and I’m always very surprised when I meet people who don’t want to learn new skills. There is definitely a group of people in the world who want to learn a skill, and only ever do a job related to that skill. Although I’ve never looked up if there was quality research data on this type of attitude, I have always felt that this type of thinking was very much in the minority. The closest data I have is a statistic from a training group blog which claims that 74% of workers are willing to learn new skills or re-train in order to remain employable. I guess that means 26% of the population doesn’t want to adapt by learning new skills.
The challenge with that flexibility is it’s mostly not free. I guess it’s free if you are a basic laborer with limited education and it only takes a few hours or days to learn a new job. Then you just have to have the right attitude. Low skilled jobs aren’t growing, they are being replaced by machines wherever possible, because no matter where you go, it’s always cheaper to have a machine do work than a human. We are really expensive. But what if you aren’t low skilled, i.e. you are like most professionals? What if you want to be able to switch from teaching to programming because that’s where all the jobs are? What about going from being a paralegal to a logistics manager or a fuel analyst? Who is going to pay for that advanced training? More importantly, who is going to pick up the cost of life while the worker is in retraining? If your mid-career and have a mortgage, car payment, kids, etc, then the system isn’t very good at making sure you can take care of everything while you are getting retrained for a higher demand industry. For the professional, having various skill sets is like insurance or like having a diversified investment portfolio. Like investing or insurance, it’s something that should be done over time in little increments which add up to a great deal. A little training here, a little training there, maybe volunteering for some extra duties at work in some up and coming area, and then the next thing you know, you have a second job opportunity. This means you can meet the requirements that employers want. But that’s one person, this type of continual retraining is not part of the fabric of the entire workforce because it’s simply too expensive. In theory, if we really want a truly skilled workforce which can adapt to changes quickly, we should have some form of reeducation system with mandatory participation. I’m thinking it’d have to be a pension style education investment. It should be structured so that an employee can go back to school for two or four years to get a new degree in some new knowledge area while getting an income and benefits comparable to what they were earning i.e. it takes care of the flexibility needed by employers and the life needs of the workforce. I say pension style as some will use it and others won’t. By spreading the cost over a larger population, then the system can be more flexible than if we had some sort of education investment program built around individual accounts for retraining every ten or twenty years.
The second trait of a flexible workforce includes flexible hours and working contracts e.g. more temporary employment or working from home. There is no question in my mind that this type of arrangement would be much preferred by the majority of members of the workforce if their life needs could be met. Life needs include healthcare, retirement contributions, and income during the ups and downs in temporary employment. If this became more of a reality than what it is today, home designs would have to be restructured to allow for very distinct “work areas” and “life areas.” I’ve always had a dedicated home office. In my current home I have two, one for me and for my wife. I think the COVID-19 pandemic and the aftermath proved that there is strong demand among the workforce for this type of working reality. Unfortunately our physical data infrastructure and our societal infrastructure including retirement and healthcare systems aren’t ready. If we could figure these things out I think this trait of a flexible workforce can become universal.
The third trait, one where there is more self employment, is very much aligned to the second trait of more flexibility when working for a company. In effect the differences are really in perception. If you are working for yourself and your business is under contract to a company to provide your services, or you have a temporary job with that company, there is very little actual difference, except who picks up the retirement and healthcare bills. Again, this is a situation where if we could modify our societal infrastructure, then the differences between flexible contracts and self-employment would virtually disappear.
The fourth trait about labor markets being more competitive is a bit worrisome. Competition typically means ups and downs. At the time of this writing every workforce story in the news is about “The Great Resignation” where workers are transitioning jobs at a record pace. In an up market like this one, workers are strongly benefitting from the demand in the labor market. There is no question that this situation will change with the next economic downturn. When that happens employers will pay as little as they can get away with and eliminate workers wherever they can. In any situation where there are ups and downs there needs to be buffers to navigate those ups and downs. The only way to make this happen is a comprehensive unemployment system that is independent from the undulations of policymakers. The current systems pay the minimum they can to get people through infrequent loss of employment. In a competitive labor market which ebbs and flows based on economic cycles, then the unemployment system needs to be adjusted so that it’s able to handle substantial swings. That means all stakeholders have to fund a very conservative system that makes sure that people’s incomes stay relatively stable during ups and downs. Social security has proven that our lawmakers don’t understand saving for a rainy day. This kind of system would need to have many watchdogs to represent all the stakeholder groups.
The fifth characteristic of a flexible labor market includes greater flexibility in pay arrangements. The question here is what determines flexibility? Would employers like to pay by the day? I know some that would. Would they like to pay once a month? That’s actually my current compensation schedule and I like it. What about pay by piece of productivity? As I argued in my first article on flexible labor markets, if you want a group of consumers who pay for services regularly, then you, by definition, need to have them receive their incomes on a regular schedule as well. This is one of those traits that is only good for the employer, and really, not good for the employer if you take into account they need their customers to have money to pay them. If anything, less flexibility in pay arrangements means more predictability, and if there’s anything that wall street prefers, it’s greater predictability.
The sixth and final characteristic of a flexible labor market is that it includes a non-unionized workforce. This is one of the areas that I am in complete agreement with. Unions, while they have their place, are a solution to a problem that’s over a century old. Our workforce isn’t made up primarily of people who work in dark, dirty and dangerous factories. The Union mentality of us vs. them doesn’t fit today’s economies. The alternative solution is equitable stakes. If employees represent a chunk of the board of directors of every publicly traded organization, and employees own a significant stake of that same organization, then there is no “them”. All decision making becomes a conversation around what is good for everyone, all the shareholders, inclusive of the employees.
Are the characteristics of a flexible labor market bad or good for the workforce? The answer to that question is simply “yes.” For a flexible labor market to benefit everyone much of the way we manage our workforce has to change. I cited some ideas here and there are many others. In my next and final article on this subject, I’ll take a look at recommended policy shifts to make labor markets more flexible. Surprisingly, it’s not a never ending mantra of “get government away from business.” In the same way that I espoused changes to the structure of our society that would help workers and employers be more flexible, economists have their own suggestions. Some of which are very interesting indeed.
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