Category: Economics, Business, & Work

I’ve become surer of the simple, but profoundly impactful, realization that:

1. The most valuable companies in the U.S. are increasingly tech companies.
2. The concentration of value (as denoted by market cap) being created in tech, is increasingly being created by the five largest companies, Facebook, Apple, Microsoft, Google and Amazon (aka FAMGA)
3. The concentration of market cap in just five hands will have an increasingly profound impact on innovation and wealth concentration in the U.S..

Source: The Profound Implications of 5 Increasingly Dominant Tech Companies

They are not just the places where the most ambitious and talented people want to be—they are where such people feel they need to be.

This dynamic is cumulative and self-reinforcing. … Moreover, the advantages that accrue to superstar cities are substantially more enduring than those that accrue to superstar talent.

I tracked housing prices in the more than 11,000 zip codes across America for which the real-estate firm Zillow has data. There are just 160 zip codes where the median home price was $1 million or more; 80 percent of them were located in the New York, Los Angeles, and San Francisco metro areas. All but four of the 28 zip codes where median home values were more than $2 million were located in or around these three cities: 11 in the San Francisco Bay Area, seven in LA, and six in New York. In 2016, 57 percent of homes in the Bay Area were valued at more than a million dollars, up from less than 20 percent of them in 2012. Meanwhile, 56 percent of the zip codes for which data are available have median home values of less than $200,000, and roughly 15 percent have median home values of less than $100,000.

How Many Houses Could the Price of One SoHo Apartment Buy in the Rest of the Country?

Despite these high land and housing prices, the conventional wisdom is that workers tend to be better off financially in superstar cities and tech hubs, which offer higher wages and salaries. … A different picture emerges when taking the higher housing costs of superstar cities into account.

After Paying For Housing, How Much Money on Average Do Workers Have Left Over?

The clustering force is at once the main engine of economic growth and the biggest driver of inequality. The concentration of talent and economic activity in fewer and fewer places not only divides the world’s cities into winners and losers, but ensures that the winner cities will become unaffordable for all but the wealthy. This unrelenting cycle is great news for wealthy landlords and homeowners, but bad news for almost everyone else.

Source: Why America’s Richest Cities Are Pulling Away From All the Others – The Atlantic

I’ve made this point over the years but it is worth repeating again. There are only two ways for an economy to grow. … One way is that the workforce increases, and the other is that you increase productivity. … Further, it is really hard to increase productivity in much of the service sector. How much more productive can a bartender or a cashier be? Or a taxi driver? Yes, we can eliminate their jobs with technology, but that just reduces the workforce side of the equation. … I don’t see us turning the workforce situation around unless we somehow manage to transform our negative imagery about immigrants and start to aggressively seek out productive young, educated immigrants from around the world.

Source: Men Without Work | Thoughts from the Frontline Investment Newsletter | Mauldin Economics

 

I have been promising a review of Nicholas Eberstadt’s very important book, Men Without Work: America’s Invisible Crisis.
…
At its heart, the book is about the fact that there are some 10 million American men of prime working age (25 to 54) who have simply dropped out of the workforce, and the great majority of them have not only dropped out of the workforce, they have also dropped out from any commitments or responsibilities to society. It is not just the labor force they are not participating in; they are not participating in the normal ebb and flow of community life.

This is not a recent phenomenon. … Male participation in the civilian labor force has been steadily dropping for 60 years, through boom and bust years, periods of inflation and deflation, Republican and Democratic administrations and congressional control; the trend seems to be relentless – except that it has been accelerating since 2009.

Source: Men Without Work | Thoughts from the Frontline Investment Newsletter | Mauldin Economics

 

AMERICAN workers without college degrees have suffered financially for decades – as has been known for decades. More recent is the discovery that their woes might be deadly. In 2015 Anne Case and Angus Deaton, two (married) scholars, reported that in the 20 years to 1998, the mortality rate of middle-aged white Americans fell by about 2% a year. But between 1999 and 2013, deaths rose. The reversal was all the more striking because, in Europe, overall middle-age mortality continued to fall at the same 2% pace. By 2013 middle-aged white Americans were dying at twice the rate of similarly aged Swedes of all races (see chart). Suicide, drug overdoses and alcohol abuse were to blame.

Source: Free exchange: Economic shocks are more likely to be lethal in America | The Economist

 

Job destruction caused by technology is not a futuristic concern. It is something we have been living with for two generations. A simple linear trend suggests that by mid century about ¼ of men in the US aged between 25 and 54 will not be working at any moment. I think this is likely to be a substantial underestimate unless something is done for a number of reasons.

I think this is likely to be a substantial underestimate unless something is done for a number of reasons. First, everything we hear and see regarding technology suggests the rate of destruction will pick up. Think of the elimination of drivers, and those who work behind cash registers. Second, the gains in average education and health of the workforce over the last 50 years are unlikely to be repeated. Third, to the extent that non-work is contagious, it is likely to grow exponentially rather than at a linear rate. Fourth, declining marriage rates are likely to raise rates of labor force withdrawal given that non-work is much more common for unmarried than married men.

On the basis of these factors I would expect that more than one third of all men in the US between 25 and 54 will be out of work at mid-century. Very likely more than half of men will experience at least a year of non-work out of every five. This would be in the range of the rate of non-work from high school dropouts and exceed the rate of non-work for African-Americans today.

Source: Men without work | Larry Summers blog
Source: Men not at work: Lawrence Summers on America’s hidden unemployment | Financial Times

 

the progressive detachment of so many adult American men from the reality and routines of regular paid labor poses a threat to our nation’s future prosperity. It can only result in lower living standards, greater economic disparities, and slower economic growth than we might otherwise expect.

Between 1948 and 2015, the work rate for U.S. men twenty and older fell from 85.8 percent to 68.2 percent.

It is not just that LFPRs (Labor Force Participation Rate) have deteriorated for certain age groups or specific periods. Rather, the process has progressively depressed every successive rising cohort’s LFPRs over the course of the prime working ages….

In sum, an American man ages twenty-five-to-fifty-four was more likely to be an un-worker in 2015 if he (1) had no more than a high school diploma; (2) was not married and had no children or children who lived elsewhere; (3) was not an immigrant; or (4) was African American….

a single variable – having a criminal record – is a key missing piece in explaining why work rates and LFPRs have collapsed much more dramatically in America than other affluent Western societies over the past two generations. This single variable also helps explain why the collapse has been so much greater for American men than women and why it has been so much more dramatic for African American men and men with low educational attainment than for other prime-age men in the United States.

Source: Men Without Work: America’s Invisible Crisis by Nicholas Eberstadt

Exchanging cheap U.S. crops for expensive foreign cars and computers doesn’t look like a winning trade.

In the 1990s, it really was true that manufacturing production was booming even though employment in the sector was falling.

But this piece of conventional wisdom is now outdated.

What’s more, the overall numbers hide serious declines in most areas of manufacturing. A 2013 paper by Susan Houseman, Timothy Bartik and Timothy Sturgeon found that strong growth in computer-related manufacturing obscured a decline in almost all other areas.

the U.S. to this day runs a trade surplus in agriculture even as it runs a huge deficit in manufactured products. … U.S. manufacturing is hurting in ways that U.S. agriculture never did.

If a country makes complex products that are linked to many other industries — such as computers, cars and chemicals — it will be rich. But if it makes simple products that don’t have much of a supply chain — soybeans or oil — it will stay poor.

Source: Staying Rich Without Manufacturing Will Be Hard – Bloomberg View

Inequality isn’t just about individuals — it’s risen between companies, too.

I believe that much of the rise of between-firm inequality, and therefore inequality in general, can be attributed to three factors: the rise of outsourcing, the adoption of IT, and the cumulative effects of winner-take-most competition.

What is clear is that over the past 35 years, firms have divided between winners and losers, and between those that rely heavily on knowledge workers and those that don’t. Employees inside winning companies enjoy rising incomes and interesting cognitive challenges. Workers outside this charmed circle experience something quite different. For example, contract janitors no longer receive the benefits or pay premium tied to a job at a big company. Their wages have been squeezed as their employers routinely bid to retain outsourcing contracts, a process ensuring that labor costs remain low or go ever lower. Their earnings have also come under pressure as the pool of less-skilled job seekers has expanded, due to automation, trade, and the Great Recession. In the process, work has begun to mirror neighborhoods — sharply segregated along economic and educational lines.

Source: Corporations in the Age of Inequality | HBR.org

1m:44s tl;dr Video: Corporations in the Age of Inequality