Being in the technology field and employed by a direct competitor of IBM and Hewlett Packard, it is difficult to pass the day without hearing something of the goings on in the industry. Yesterday brought news of HP missing its 1Q targets by a large amount and increasing its planned firings from 10,000 to 16,000, mostly in the US.
To some, it was good news that the competitor is struggling. To me, though, it is bad news, having been through the layoff meat grinder once already with the prospect of not having to repeat it far from certain, I relish not the idea that yet more people will be subjected to it. I’d much prefer to compete on points of merit and value. The truth is that they are all struggling for reasons many of us MM’ers already know about, and for others that perhaps haven’t been widely rationalized.
I’ve heard some people say that our problems originate from cheap labor in other countries, and I think they generally mean the perceived value to be gained from exchange rates. My boss has explained the value proposition a few times, especially when the accommodations provided for my Indian counterparts are discussed, like a limousine ride to work every day. He says we get this guy for the equivalent of $20k per year to do work it would cost ~$80k per year to do here; if you want to work for $20k, you can have the limo too. Though, I would probably have to work for less than $20k to get the limo because limos are more expensive here too. In India, one can work for a decade or so, save and retire rather well off mid-thirties, as one of my Indian teammates did last month.
This isn’t about me and probably not so much about the cheap labor and the cost of long distance management of it. Aside from supply side differences, from a corporate perspective it’s about cost per unit. With older companies like my employer and its major competitors, legacy costs that were committed to during a much different set of economic circumstances and outlook for the future are a large part of the calculus considered; and I can imagine they are pretty staggering. One might think that in the wild, new domestic entrants would have a serious advantage over the larger and older companies given zero legacy costs and focus on value that can be achieved with less diseconomy of scale (lack of insular middle management for example), but I rarely see or hear of any. Where are they?
And that is mostly my point – Where are they? Even with relatively tight monetary policy, shouldn’t there be at least one or two new entrants stepping up to take on the big boys given the talent that has been shed from them over the last handful of years? Most of the discussion regarding the long term unemployed has been focused on the possibility of personal problems of the individuals, such as Tyler Cowen’s remarks that they are likely marginally employable, without reference to the types of people who end up left behind or why seemingly nothing is becoming of them. They’ve even been waved off as part of the retiring boomer generation, an unreasonable conclusion in my mind given the age distribution, and as if there is no difference between voluntary and involuntary retirement. My guess is that these people are trapped between combinations of rocks and hard places that include cost of entry – which was certainly true in my case.
It is very difficult to start while struggling to survive, which is true enough under what used to be ordinary economic circumstances. But that hill has been made much harder to climb with the change in monetary conditions in addition to static supply side policies that discourage new entrants.
And here is where I am tempted to start a rant about so-called macroprudental policy (tight money that “gets into all the cracks”) and bubble fear mongering. But while that is a large part of the problem, and likely the largest, it isn’t the only component of lost opportunity when it comes to the ability of these folks to make their own jobs and, in turn, create jobs for others.