Want a larger piece of the (economic) pie? Look for the most competitive industries

Caught a really interesting piece over the weekend at The Atlantic looking at one potential reason why (relatively speaking) that worker's or labor's share of GDP is decreasing when compared to 'capital's', i.e. ownership's share. This divergence in share has been thoroughly examined as a primary driver of increasing economic inequality, and was the main subject of Thomas Piketty's influential Capital in the Twenty First Century from 2014.

Said differently, and much more simply, today in the aggregate is getting a smaller piece of the overall economic pie than in the past. There are tons of data points you can examine on this, but they all more or less show the same thing - on average, workers are no better off today, and might be worse off, than they were 20 or 30 years ago.

Why The Atlantic piece titled One Reason Workers are Struggling Even When Companies are Doing Well caught my attention is that it shared some insights from a recent NBER research paper on not just that this share divergence is happening, but offered some reasons as to why it is happening.

And the theory is kind of an interesting one, and if true, can help better inform anyone making career/industry decisions moving forward. Best of all, it is a pretty simple idea that boils down to this - The more concentrated an industry is, (fewer competitors and the ones that dominate are all pretty large), the lower labor's share of the income for that industry will be.

Here's some color from The Atlantic piece:

The researchers looked at data from the U.S. Economic Census between 1982 and 2012 for nearly 700 industries in six major sectors, including manufacturing, retail, wholesale, services, finance, and utilities and transportation. Looking at how much the four largest firms in each industry accounted for in terms of total sales in the industry, they found an upward trend in concentration in all of the six sectors, meaning that it was increasingly common that just a few firms accounted for the bulk of sales. Since the U.S. Economic Census reports payroll, input, and employment, the researchers were able to observe a negative correlation between concentration and labor’s share—meaning that this trend of so-called superstar firms tends to mean workers taking home a smaller share of the pie. Moreover, the more concentrated an industry had become, the larger the decline in labor’s share.

Unpack that a little bit to show a pretty straightforward formula:

Industries have tended to consolidate over time --> the more dominant the four largest firms in an industry become --> then decreasing shares of the overall industry profits find their way to workers/labor.

There are a couple of reasons on offer for why more consolidated, big-firm dominated industries are getting worse in terms of share of profits for workers. One is that these companies are simply growing revenues at a faster pace, and labor costs just have not (or do not need to) keep pace. Another is that modern, transparent business practices make it easier for consumers to find and reward the 'best' companies, which drives out competition in the industry faster than before - and reduces the potential number of firms competing for workers.

The takeaways for the average employee?

Probably that it might pay, (no pun intended), to keep on eye on the relative levels of competition in your industry, particularly if you are in a role that feels industry-specific. If your industry has seen consolidation with weaker competitors being driven out of business (or being acquired), the trends suggest a shrinking percentage of profits will find their way to you and your colleagues.  

You might be better off thinking about an industry that seems to have more, and more even competition, where the market share, (and to some extent the demand for labor), is not being controlled by two or three big companies. And one where the threat of competition for your skills can either score you a better offer somewhere else, or give you more leverage and power in your next compensation negotiation with your current shop.

More options might not be better for the owners of your company, but they might be much, much better for you.

Have a great week!

Two years away (from being two years away)

At the National Basketball Association player draft in 2014, former college basketball coach and now broadcaster and analyst Fran Fraschilla offered this classic observation of then 18 year-old Brazilian prospect Bruno Caboclo and his potential to become a successful NBA player:

"He's two years away from being two years away, (from being ready to play in the NBA), and then we'll see."

I thought about this gem of a line from Fraschilla in a recent conversation I was having with a friend about potential career choices. Why did the '2 years away' line come up?

Because I think that 2 years may be the new 5 years, in terms of the old classic interview "Where do you see yourself in 5 years?" question. Take your pick from fast-changing technology, new business models, disruption coming from all sides, and toss in a side dish of the gig economy and I think most people would have a really hard time seeing out five years into the future and be able to offer up a credible or coherent idea of what they think they will be doing then. Two years seems at least more tangible. The future can't move that fast, right? Don't answer that.

The really important point isn't just that 2 years might be the new 5 years, but that just like our pal Bruno Caboclo, what you don't want is to find yourself two years from now STILL being two years away from whatever goal/plan you had set out to reach.

It may be more realistic and reachable to set out career plans and goals in 2 year increments as opposed to 5, (or whatever your dopey interviewer says), but the downside is that 2 years passes really, really fast.

Just ask Bruno, who in 2 1/2 full seasons in the NBA has played in a grand total of 22 games and scored a whopping 16 total points. 

The upside? Bruno is still only 21 and has time to get to where he wants to be. 'Losing' two years might not hurt him that much. 

But I am pretty sure that most of the rest of us don't have that kind of luxury. Or an NBA contract.

Have a great day!

CHART OF THE DAY: People are quitting faster than you can fire them

Do you know what the best day of the month is for workforce trends and labor market geeks is?

Of course you do - when the monthly JOLTS (Job Openings and Labor Turnover Survey) report is released by the Bureau of Labor Statistics!

That great day was yesterday, and in what has become a semi-regular feature on the blog over the years, I want to share just one chart from the latest JOLTS report, and as you DEMAND, offer some free (cheap!) comments on the data.

First the chart - this one showing the amount of 'Quits', (voluntary separations), vs. the level of  'Layoffs and Discharges' (non-voluntary turnover), for the US labor force.

Some quick takes from the 'Take this job and you know what with it!' vs. the 'Clean out your locker and scram' trends:

1. Consistent with the longer term and pre-recession trends, 'Quits' are now exceeding 'Layoffs' by about a 2/1 ratio. Back in 2006, you could expect 2 folks to quit for every 1 who you had to fire (or layoff). Halfway into the last recession, (and for some time after), Layoffs surpassed Quits, as no one in their right mind wanted to quit their job with the chances of finding another one being so dicey.

2. Obvs, the return to a more 'normal' and historical 2/1 Quits/Layoffs ratio puts much more pressure on HR,  recruiters, business leaders - essentially anyone whose job depends on having the needed people in place, and not looking to leave for the next, better opportunity at the drop of a hat. The same drivers that are making the Quits rate climb, (perceived labor market leverage, lots of openings across the country, rising wages), also tend to depress the 'layoff/discharge' rates. Do you really want to can that marginal performer if you are not at all sure you can find a better replacement in a timely manner?

3. Finally, what might be the most valuable take away from looking at the overall labor market Quits/Discharges ratio is that it (should) force us to think about this ratio in our own organizations, and what we think might be the optimal or healthy ratio for us. We probably would rather exist in a world where there were not all that many quits and certainly not all that many firings or layoffs. But that ideal world rarely exists, and even if it did, would it be perfect?

Said differently, there probably should be some tension and some churn in our organizations. The system/culture/workplace should weed out some folks who will self-select out. There should be some really talented folks that end up having/choosing to leave to chase some bigger dreams and goals that you might not be able to offer them the opportunity. And there should be some folks that you force out. The key may not be the absolute numbers of any of these categories, but the way these groups compare. If you are being forced to forcibly remove more folks that leave on their own accord, then you have a problem I would imagine.  And if no one ever decides to leave on their own, you have a problem as well, albeit a different one.

Ok, that's it from me. Enjoy the JOLTS report like I know you will!

PODCAST - #HRHappyHour 271: For 2017, Echoes of Success

HR Happy Hour 271 - For 2017, Echoes of Success

Hosts : Steve Boese, Trish McFarlane

Recorded LIVE while watching the Tournament of Roses Parade

Listen to show HERE

This week for the first HR Happy Hour Show of 2017, hosts Steve and Trish talk about 'success'. specifically some ways to think about success at work in 2017. The lens through this conversation was framed was the 2017 Tournament of Roses Parade, whose theme was 'Echoes of Success', and provided an interesting context for the discussion.

We talked about some of the important barriers to success and ways to try and move past them - like overcoming fear, making sure you identify your tribe of supporters and allies, and  Alfred Hitchcock quotes.

We also talked about moving hot tubs up a large hill, (not easy), a fun New Year's Eve wedding, Rocky IV, and the different ways success can be defined.

You can listen to the show HERE. or using the widget player below, (email and RSS subscribers click through)

This was a really fun show and a great way to kick off 2017 on the HR Happy Hour.

Thanks to show sponsor Virgin Pulse - learn more about them at www.virginpulse.com.

And remember to subscribe to the show on iTunes, Stitcher Radio, or your favorite podcast app. Just search for 'HR Happy Hour' to subscribe and never miss a show.

Another way of winning

I have only a very few things I care about deeply, (Note: I am talking about 'things', not people here). 

One of those things is the New York Knicks who are, (for now), in the midst of their best season in the last few years. 

One other sports-related thing I care about deeply are my beloved Liverpool Reds of the English Premier League who are also in the midst of a fine season, currently sitting in second place only a few points behind the leaders. Liverpool play an exciting, attacking brand of football/soccer, and as has been in the past few years have paired a dynamic and high scoring offense, with a porous, weak defense. Liverpool often concede goals in the most embarrassing ways, and with regularity.

This lack of maturity and poise in their defense and goalkeeping is what is usually cited as the reason that despite their ability to create and score amazing goals, Liverpool will never be a real title contender. They simply for the most part have shown only one way to compete - run and press as much as possible, and hope to simply outscore their opponents 4-3 or 5-2, etc.

While this approach can win some games, and is really entertaining to watch, it probably isn't the best way to win championships.

Why the deep dive into a soccer club that you don't care about?

Because a recent Liverpool match against rival Everton, won by my Reds 1-0, was interesting not only from a sports perspective, but what it also reminds us about the importance of adaptability in work, business, and our careers. 

From the Bleacher Report coverage of the match:

Since Liverpool's strong start to the 2015/16 Premier League season, some pundits have poured cold water on their title credentials by claiming that Jurgen Klopp's side don't have another way of winning than to blitz opponents away with relentless pressing.

It has been claimed in media circles that Liverpool do not have the cliched "other way" of winning—something that was thoroughly dismissed as Klopp's side recorded a 1-0 success in the Merseyside derby.

The Reds' first 1-0 win in the Premier League of 2016 arrived after rivals Everton had put them under firm pressure for the first half an hour, but Liverpool held on before taking control of the game in the second half and eventually getting their rewards deep into stoppage time.

It was another way of winning. A way of winning that title contenders have had in the past and that Liverpool showed at Goodison Park.

The specifics of the soccer tactics are not what matters here. What matters is that in soccer the very best teams usually have to be able to adapt at times from their preferred methods and strategies in order to achieve the greatest success. Liverpool, if they want to win the title, have to be able to win close, defensive battles like the Everton game, as well as the kinds of games they prefer, that are more open, and high scoring.

This is an important to remember for all of us as well. Some of us succeed by simply trying to out-work or out-hustle our competition. But if that is all you can compete on, then your work and hustle will sometimes, maybe even often, get trumped by someone else who just has a better, more creative idea.

And then there is the flip side to this, e.g., folks that maybe don't grind all that hard, but come up with enough clever ideas, decent recommendations, and can normally just outsmart their way forward. Sure, they can ride, sometimes for quite a while on their last good idea, but what happens when the daylight between the last and next great idea starts to increase? What happens then? Can they fill in the space where they are not really contributing or earning all that much with something else - maybe a stint of 12-hour days to at least be 'doing' something?

The key is, as we see in the Liverpool example, to have 'another way of winning', or another way of efforting, competing, and contributing in order to in the long run give yourself the best chance for sustained success.

No matter how great the idea is, someone else will copy it, forget you had the idea in the first place, or time will reveal it wasn't such a great idea after all.

No matter how hard/long you work, (and you are probably lying about that a little), someone else out there is working a little bit harder/longer than you.

By having 'another way of winning' you protect yourself from the competition and from relying too much on a single strategy that if/when it fails, you end up on the losing end of the 1-0 score.

Go Reds.

Have a wonderful weekend and holiday season!