The Future of Work, Income & Savings
This article explores the impact of global, geopolitical uncertainity and technological disruption on economic and business models and the future of work, income, savings and wealth. The key takeaway is that the economy of the future is being created every day byte by byte and the ability to see the virtual world with clarity will help you prepare for a day where the weekend or the ability to spend your day as you wish will be a reality which, at once,is both exciting and frightening. Do not be fooled by the cheery sounding title of this article. I deliberately chose a dark image below the title to hint at the irony that the title belies.
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way — in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only — Charles Dickens, A Tale of Two Cities
The Starbucks Experience
It was a bright, summer evening in August. I was sitting with my business school friend outside Starbucks in St. Louis. On the opposite table, sat a lady with headphones listening to music and editing photographs on the laptop. From the appearance of things, it seemed that she was a freelance photographer-a representative of the gig economy. This sight will seem very familiar to many. In as much as Starbucks represents an upscale, customizable, coffee experience, it has also come to represent a virtual workspace that is open to anyone for free as long as occupancy permits.
In addition to Starbucks, every Venture Capitalist (VC) in Silicon Valley may have a usual haunt to listen to entrepreneurs pitching their business. Established startups such as WeWork are actively redefining the work experience to create an enjoyable experience. Established in 2010 by Miguel McKelvey, Rebekah Neumann and Adam Neumann, WeWork now has workspaces in 18 countries — a level of growth that reflects shifting labor market economics where the marginal cost of labor is consistently falling because of competing freelancers across the globe (very similar to price wars in a perfectly competitive market).
The rapidity with which incumbents and startups alike have to innovate signals a transitory job market:
The impermanence of jobs today reflects the impermanence of economic and business models
Global Labor Market
In a report on Migrant workers published in 2015, Manuela Tomei, Director, ILO Conditions of Work and Equality Department (WORKQUALITY) had this to say:
In today’s globalized world, labour migration is a rising policy priority. Economic hardship and geopolitical crises leading to the lack of decent work are resulting in growing and diverse migratory movements. In many economies, including emerging economies, ageing populations and declining labour forces are also contributing to the growing mobility of workers. Women are joining migration flows in growing numbers as independent workers, with important consequences for gender equality in countries of origin and destination alike.
The gig economy, the sharing economy and other forms of sourcing temporary resources for a business project for a short time frame is now visible in many incumbent companies for which manpower cost constitutes the largest expense on the Profit and Loss account. The consequences of converting a fixed expense into a variable expense is creating seismic shifts in the labor market which are expected to accelerate with the arrival of Robotic Process Automation (RPA), Machine Learning and Artificial Intelligence (AI).
Markets created a Volatility Index (ViX) to track market volatitilty. Many market participants joke that that there needs to be a ViX for a Vix. This joke masks the serious implications of growing global, geopolitical uncertainty. Black Swan Events and their global implications are starting to seem less improbable and surprising.
For emerging economies, premature de-industrializtion or “jumping the gun” early on automation without having a strong manufacturing base is the price to pay to participate in the global economy where advanced economies are forced to automate in the face of aging population, lagging growth, low inflation and negative real interest on savings held in the bank.
In a more recent report published in 2017, the ILO states that:
Global GDP growth hit a six-year low in 2016, at 3.1 per cent, well below the rate projected in the pre- vious year. Looking ahead, global economic growth is expected to pick up modestly in 2017 (3.4 per cent) and 2018 (3.6 per cent).
This report highlights the following key points:
1/ Global unemployment is expected to rise by 3.4 million in 2017
2/ Second, vulnerable employment — at 1.4 billion worldwide — remains pervasive
3/ Reductions in working poverty are slowing, endangering the prospects for eradicating poverty as set out in the Sustainable Development Goals
4/Inequalities in opportunities and social discontent persist
5/ Accordingly, policies that address both the root causes of secular stagnation and structural impediments to growth need to be incorporated into macroeconomic policies and placed at the forefront of the policy agenda. The ILO estimates that a coordinated effort to provide fiscal stimulus — an increase in public investment — that takes into account each country’s fiscal space would provide an immediate jump-start to the global economy.
What Does All This Mean to You?
Varying geopolitical landscape leads to varying economies and to varying business models. Variable business models applying Artificial Intelligence results in elimination of some jobs, creation of new jobs and variability in employment practices by companies. Varying employment practices and increase in contract labor results in varying incomes for the workforce ie people like you and me. These changes explain the economic rationale behind the sharing economy.
Even for the retired employees, social security stands on unstable ground in many countries. What all this means to you is the following:
- Gone are the days of single earners, single income streams. Every worker in the labor force today has to create multiple income streams that can buffer the shocks of a constantly changing labor market.
- Ironically, a liberal arts background coupled with a technical education in coding or business administration can help you stand out as an employee in your organization. It is harder to replace an original thinker who also executes tasks on time with a high quality output than it is to replace highly structured tasks using automation or new hires.
- If you dont have a creative background, learn to think originally by consuming as much knowledge you can in a day. This could mean reading 500 pages a day (similar to the advice Warren Buffet and Charlie Munger) have been doling out for years.
- The internet has resulted in improved talent discovery but has also led to improved price discovery which means your skills as a freelancer faces global competition resulting in a general bidding war.
- Deleveraging has never been more important. As companies change their cost structures to more variable cost, you have to think about converting your living expenses into more variable expenses. This will also explain ride sharing on autonomous cars in the future.
- Smart contracts are on the verge of replacing many jobs including lawyers and investment bankers. Whether this scenario ultimately plays out is anybody’s guess but lends more weight to relying on multiple sources of income.
- Real interest rates in many countries are zero or near zero resulting in capital flow to bonds and equity markets. But, if there is a general slowdown, it will affect capital markets too. It is time to create a portfolio of assets that can hedge the underperformance of bank deposits or bear markets.
- You may have the flexibility of planning your day to your desire just as you would plan your weekends ie you could freelance for a bit, work on a business project for some time and could possibly work for less than 40 hours a week. Yet, you could earn more than before. This is a silver lining in a dark cloud that you can capitalize on if you are smart enough to spot the trends and control your week.
- As the age old wisdom says, start saving early and wisely. Consult a financial advisor who can guide you. Use apps such as Mint, Personal Capital, Albert and put technology to work for you.
- Create a simple spreadsheet that outlines your personal balance sheet ie your assets and liabilities and create a budget to track expenses daily. The discipline of tracking your financial health is as important as tracking the calories you eat and the steps you walk.
I am not a Cassandra with an immaculate crystal ball. But, I would like for everyone to have an umbrella on a rainy day. Until the social aspect of economics remains underrated, changes will seem more inhuman. Therefore, my endeavor always has been to shed a light on changes that are not visible to many in their entirety. Rather, people are mostly exposed to the symptoms of the new economy i.e. sharing rides, workspaces or accomodations and freelancing. Connect the dots and you see a larger picture emerge.
Now, imagine if your entire life was a weekend. Too many holidays may result in boredom for many people and their intelligence could atrophy. So, working when you desire to offset the boredom of a perennial holiday will not hurt anyone. The reality of a 20 hour work week is stranger than fiction but then:
Art imitates life or so they say……