How much should we be fearing “resets”?

It is a common observation that nominal wages are sticky but let’s not forget that real wages are often sticky too (and in fact nominal stickiness tends to matter much more when accompanied by real stickiness, but that is a point for another day.)  That means many labor market changes will be slow to manifest themselves in the real world.  Furthermore you often will see them first for new jobs, for the young, and for new labor market entrants (usually but not always the young).

To cite one example, commentators are debating whether Obamacare will induce employers to “shed” insurance coverage, given that the workers can be picked up by the subsidized exchanges (and the fines, where applicable, are relatively low).  Probably we won’t know the size of this effect until we have had a fairly full set of job “turnovers” in labor markets, as many employers will be reluctant to upset previous explicit or implicit deals.

Circa 2013, I fear many of the pending reset deals in labor markets.  Insiders are often treated quite well, but the next generation of outsiders may never reattain such privileged positions.  The average doesn’t change very rapidly, because most of the employed still are insiders.  Still, we can see that the reset may be a doozy.  After all, labor’s share as a percentage of gdp has been falling in many of the advanced economies around the world.

Even putting cyclicality aside, Greek and Italian youth worry about exactly this problem.  Any aspiring academic in the United States should worry about the reset too, with or without MOOCs.  Especially in the humanities, the old privileged positions simply aren’t being replicated because for most schools those positions no longer make economic sense.  At the same time, few if any tenured professors are taking significant real wage cuts.

Resets show up more quickly in some sectors than others, most of all they come quickly when buyers and sellers have only sporadic and perhaps even anonymous contact with each other.  In other words, the reset comes more slowly for the mistress than for the street prostitute.  And when you see youth losing relative ground in labor markets, that is another signal that you should be worrying about resets.

Fear the reset.  The world will continue to produce much more value, and much more gdp, but who will capture that value is already changing dramatically and will continue to do so.

Addendum: Here is commentary from Ashok, and also from Luis Pedro Coelho.  And from On Demand.


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