ECON 101: Comparative Advantage: Or, why it still can be ok to be worse at everything

I was talking with a friend recently, the kind of person who is just good (and often really darn good), at just about everything. Successful in their career, well-respected in their industry, good-looking, model family life, knows how to cook/fix/find just about anything.... you get the idea.

We probably all have a friend or colleague that fits that description, maybe even going back to childhood perhaps where the memory of our high school nemesis that was just a little better than us at sports and in class and with the ladies (or guys), always just ticked us off to no end.

No matter what the activity or subject or context, this person was just better.  At everything. And it can easily be pretty annoying.David Ricardo - 'He amassed a considerable personal fortune'

Until you recall (or learn for the first time as in the case of the high school me), the Law of Comparative Advantage. Let's do a quick ECON 101 review:

In economics, comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.

The idea of comparative advantage has been first mentioned in Adam Smith's Book The Wealth of Nations: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." But the law of comparative advantages has been formulated by David Ricardo who investigated in detail advantages and alternative or relative opportunity in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce.

Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. 

This Business Insider piece from the weekend spurred me to think about Comparative Advantage (and what can happen when really powerful and attractive companies like Google are powerful enough to essentially ignore the 'law' in many respects), a look at some of the worst aspects for working for such a desirable employer.

Among the chief complaints raised about life at Google was that their hiring standards are so high and that fact, combined with seemingly everyone wanting to work for them, that many, many sort of mundane positions are staffed with over qualified, exceptional, and often wasted talents. 

Here is an example of how that plays out:

There are students from top 10 colleges who are providing tech support for Google's ads products, or manually taking down flagged content from YouTube, or writing basic code to A|B test the color of a button on a site."

Adam Smith's law of Comparative Advantage, if Google cared about such things, would probably tell them that it was relatively inefficient for them to try to be the best at everything, that more or less, they should focus on those elements where their advantage in the market (for talent in this case), was the greatest compared to their competition, and let the wanna-bees fight it out over the rest.

But I don't really care about Google, I care about you, (I am a giver that way). We both know what it's like having to deal with that person who is just better at everything than we are.

It is tiring.

It is frustrating.

And often, we will simply give up and move on to something else when we really should have stuck with what we loved.

Everything is comparative. If you get a job at Google you are probably going to feel dumb much more often than you are accustomed to feeling.

Note: I had a recent piece over on Fistful of Talent that looks at this topic a little more as well. 

Have a great week!

FOLLOW-UP: More on Home Ownership and Employment

Yesterday, I posted about the downward trend in home ownership rates in the United States, coupled with the sharp rise in 'all-cash', primarily investment-driven home purchases, (which almost always are converted into rental properties), and the implications these trends might have on work, employment, and mobility.

So it was really interesting to me that this morning more on the topic of the relationship between home ownership and employment was posted on Business Insider in an article called 'High Home Ownership Is Strongly Linked To High Unemployment [STUDY]", a look at some recent research out of Warwick University on this very subject. 

The piece is relatively short, but I will pull out the most pertinent points below:

High levels of home ownership are strongly linked to subsequent rises in unemployment because labor mobility becomes reduced, according to new research.

Using data going back to 1950 across all U.S. states except Alaska and Hawaii, Warwick University economics professor Andrew Oswald finds that the lag from ownership levels to unemployment rates can take up to five years to show up.

But he said the linkage, established using data on millions of randomly sampled Americans, was extraordinarily robust.

Doubling home ownership in a state can lead to more than a doubling of the jobless rate.

"I have become convinced that by boosting home ownership we have ruined our labor market," Oswald said.

Oswald said the research may go some way to explaining why Spain, with a home ownership rate of 80 percent, has unemployment above 25 percent, whereas Switzerland, with a 30 percent ownership rate, has a jobless rate of just 3 percent. Germany, another nation of renters rather than home owners, also has relatively low unemployment.

Home ownership unwittingly impairs the labor market by deterring people from moving in search of work, a process that is time-consuming and expensive; long commuting times might also discourage a householder from taking a particular job, his research suggests.

A nation of renters, if indeed that is where America is moving towards, might not be all that bad for the future of work and employment, if this study has any truth and validity.

And aren't we seeing and hearing from pretty much every front that surely one element of the nature and future of work is that it will be, for many more people that before, more fluid, more temporary, more 'project-based' and not 'employer-based'. 

A future where many more people will bounce around from assignment to assignment, from 'employer' to employer, and from city to city even, as they chase the much more transient opportunities to ply their trade and earn a few bucks.

Many of us have tales we like to tell about the 6 crappy apartments we lived in after college before we 'settled' somewhere and maybe bought a house, got married, or at least decided to live with a significant other, and maybe even had some kids.

But that 'settling' process almost always came after the steady, 'permanent' jobs were landed. Maybe they were not the jobs or companies you saw yourself staying in forever, but they would be secure enough to save up some dough, prove to the mortgage company that you could in fact afford your new house, and even convince skeptical in-laws to be that you would be a suitable partner for their child. 

But in a economic climate where 'permanent', (if there was really ever such a thing), work is fast-becoming a relic of the past, then too, it seems like some of the follow-ons that came from landing those jobs, (getting married, buying houses, having 2.2 children), are also naturally going to be impacted.

If there are far fewer permanent jobs than it stands to reason that more and more workers will end up living like many of us did in our twenties - bouncing around from one place to another, living out of a few suitcases and boxes, only staying until the next job takes us somewhere else, since no 'job' is going to last too long.

It is a great deal for the companies that want to engage with labor and talent in this manner, but I am not at all sure that as a society we are prepared for a much more transient, less-rooted, nomadic population of professionals, wandering from place to place, and rental house to rental house, chasing a dream that is receding further away all the time.

But think about it, if we were all willing/able to move much more freely in pursuit of work and opportunity, how many of us would stay right where we are and how many would pick up and find something better?

Happy Weekend all!

On our wearable technological future workplace

If you haven't yet, you should really spend some time reading Josh Bersin's excellent piece on Forbes, 'The 9 Hottest Trends in HR Technology... and Many are Disruptive.' In the piece, Josh combines his insight into the HR and HR technology markets to offer up his view of some of the most important, and potentially impactful trends for HR and the workplace in the near and semi-near future. 

Josh hits some trends that have been brewing for a few years now, (video, social, and Big Data in talent management and HR), but it is his last trend 'Watch for Wearable Computing and the Internet of Things', that interests me the most, and I wanted to touch upon briefly here.

Josh describes the potential for recruiting applications that run on wearable devices like Google Glass, (something I wrote about on the blog some time back), and a different kind of wearable device from Hitachi that monitors employee movements, activities, and interactions in the hopes of helping the organization (and the individual), 'learn' about when and with whom they are most productive, inspired, and efficient. I even blogged about a similar technology all the way back in 2011.

We all like to say that endless meetings suck the life out of us at work, but with a kind of 'work logging' device that could track the time and participants in a meeting, then perform some analysis about how much or little 'great' work got done soon after, then an organization might be able for the first time be able to 'know' the true cost of their propensity to endlessly gather around large, wooden tables.

And as I wrote about in 2012, a 'Glass' type device to help inform, monitor, and help an interviewer (or manager) adapt on the fly to interactions with candidates or employees seems to hold incredible potential for increased accuracy and productivity. Additionally, the ability of Glass (and presumably other technology), to record and immediately make available digital records of these interactions will provide a real-time capability and mechanism for in the moment feedback, coaching, and improvement.

But there is a downside to this, certainly, for the worker anyway. The loss of perceived privacy namely. While we have all come to accept the fact that while on company time and using company equipment and networks that our digital activities can be and probably are being monitored, most of us would be less willing to sign up for offline (hallways, meetings, the cafeteria), monitoring as well.

At work, we like to be able to steal away from the computers and phones and have side conversations, chats in the break room, even the occasional adult beverage or two with our peers and colleagues. The beauty of these kinds of interactions is that they are generally completely unscripted, informal, and more relaxed. Exactly the kinds of interactions that smarter people than I like Marissa Mayer talked about when she famously put a stop to remote working arrangements at Yahoo a few months back. But will these interactions be as 'free' and as valuable and productive if they are being tracked, monitored, recorded?

I do think the horse is just about out of the barn, at least on these technologies themselves. Many organizations will indeed see these kinds of wearable, always-on, always tracking, always recording devices as a simple extension of phone, network, and email monitoring that is generally accepted and expected in the workplace. Most employees have adapted to this reality by generally keeping personal, controversial, and potentially inflammatory content off of corporate devices and networks. But once the corporation extends 'monitoring' to the person, and not just the tools the person uses? Well, that is a different situation entirely.

Whether or not it takes two years or more like ten, it seems to me that we will almost certainly see more tracking, monitoring, and recording of workers of all types - from service providers out in the field, to customer service folks, to information workers at the corporate office, and who knows, maybe even to the big shots in the big offices too.

It will be really interesting when, as I first asked back in 2011, whether or not employees are going to be excited about wearing a 'workplace wire'. 

The end of retirement

Some highlights, (or lowlights, depending on your perspective), from the recently released Wells Fargo Middle Class Retirement Study, an annual look at the attitudes, preparedness, and expectations for retirement amongst middle class American worker:

1. More than half the middle class (59%) are very clear that their top day-to-day financial concern is “paying the monthly bills,” an increase from 52% in 2012.

2. Saving for retirement ranks a distant second place, with 13% calling it a “priority."

3. Four in ten middle class Americans (42%) say saving and paying the bills is “not possible.”

4. 48% are not confident they will be able to save enough for a comfortable retirement.

And last but not least the major implication for HR and Talent pros from this pretty depressing report on the state of American middle class retirement readiness:

5. 34% of the middle class say they will work until they are “at least 80” because they will not have saved enough for retirement, up from 25% in 2011 and 30% in 2012

A pretty grim situation on the current state of the average middle class American worker you would have to say. Even allowing for some sample size error, and for the inability of folks to accurately estimate the amount of funds needed for their retirement, (and their likely life spans), which I would argue would put even more folks in the 'there is no way I can ever retire' category, when over a third of folks think they will be working until they are 80 years old then I think we have to pause and think about the implications of that conclusion.Save my seat. My shift at Walmart ends at Noon.

I know it has become perhaps even trendy to say or think things like, 'I'm never going to retire', or to look at the traditional view of 'Full' retirement, i.e. doing absolutely no work at all once you leave the workforce as a relic of our parents generation, many of whom logged 30+ years at one employer and hit 65 (give or take), and started drawing a nice monthly company pension check that combined with their savings and Social Security payments would see them nicely into their golden years. With long-term employment at one employer and guaranteed pensions no longer the norm, the entire geometry of the path to retirement in 2013 looks almost nothing like it did even 25 years ago.

But it seems to me like the folks that I hear that proudly talk about 'never' retiring, really aren't the same ones that the Wells Fargo survey is measuring. Mostly, it seems, that 'I'm never retring' people are the ones that are making that decision quite consciously and out of a desire to continue the interesting and challenging work that they have been fortunate and industrious enough to have been doing. They probably could, strictly speaking from a financial point of view, afford to retire in the traditional sense close to the traditional retirement age.

No, it seems to me that most of the rest of us, and the majority of the survey respondents, still remain philosophically attached to what is fast becoming a relic of the past, that after logging 30 or 35 years as a loyal and diligent cog in the corporate machine that you'd have at least 10 or 15 years of front porch sitting, lemonade drinking, and grandchild spoiling to look forward to, all unencumbered by the demands of work, (and some 32 year-old hotshot and clueless boss).

But this survey, and likely a dozen other we can find, tell a very different story, one that is more about the mismatch between expectation and reality, and one where we see what has long been a cherished and venerated ideal bucking up against the reality of life in corporate American in 2013.

Retirement might indeed be over in America in the very near future.

Is your workplace ready to accommodate even more workers in their 70s and 80s?

Have a great week all! 

Can you help a reader out?

For a Friday, here is a simple question lifted directly from the blog mailbag:

Hi Mr.Steve, 

I have been into HR for the last 4 years.

What should I do grow in my career.

Regards,

Avis Federick (name changed to protect the reader)

Well?

Have any ideas for the 4-year HR pro that wants to grow or get ahead, or maybe just wants to learn something new?

And is desperate enough to ask me for advice?

Hit me up, take yourself back to when you were four years into your career, what advice would you want to give the 25 year old you?

I have some ideas but I'd love to hear yours.

Have a great weekend!

Sincerely,

Mr. Steve