9/19/2014 Portland,
Oregon - Pop in your mints…
The results of the
Scottish referendum on independence are in, and in the maneuvering leading up
to the vote as well as the results themselves, the Scottish question has
brought to light a new dynamic that many economists, including yours truly,
have been late to properly identify: The
astronomical rise in the cost of labor that is on the horizon.
What do Scottish/English
politics and the labor market have in common?
Nothing, really, save the dynamic between an overlord (England/Employer)
and underling (Scotland/Employee), and the rapidly changing status quo.
First, a brief overview of the Scottish
referendum from an economic standpoint. Astute readers will note that we have
an extremely basic understanding this.
That said, the little we do understand serves our metaphor. As such, we dare not risk deepening our understanding
at this point.
Our aforementioned understanding
is the following: As part of the United
Kingdom, Scotland enjoys a £32 Billion per year block grant, for which it cedes
approximately £7 Billion per year in North Sea oil tax revenues, and
approximately £16 Billion in other taxes rendered to England, bringing
England’s net subsidy to Scotland to roughly £9 Billion per year. You can read more about the economics of
Scottish Independence at the ever Clairvoyant Market Oracle.
Scottish Independence YES Vote Panic
As you can see at the
end of the above video, the chances of Scotland actually voting “Yea” for the
referendum were extremely far-fetched and rightfully cause for panic. Furthermore, we observe that the reaction of
the English, predictably, was to cave to Scottish demands for autonomy and,
ultimately, an increase in the net subsidy in exchange for remaining part of
the UK.
As the Scottish
economy represents roughly £160 billion annually, it is clear that the £9
billion hit in terms of the subsidy loss would be devastating. Devastating as it may have been for the
Scottish people, the loss was at least calculable and to some extent
containable.
On the other hand,
while England appears to have forfeited a good deal of autonomy, not to mention
being out a net £9 billion on the Scottish subsidy, their zeal to keep Scotland
in the UK is explained by one simple fact:
Scotland is
irreplaceable, and for England to forfeit its allegiance now is not only to
turn its back on a union forged over the course of 300 years, it is to look
forward to a future of Balkanization and an incalculable demise in its political
and economic power as the sun finally sets on an Empire that at one time could rightfully
claim that the sun never set upon it.
Do you now see how the
metaphor applies to the labor market fellow taxpayer? In simple terms, Employee (Scotland) threatens
to leave Employer. Employer reacts by
giving employee more autonomy and pay.
This scenario is
playing out across certain cross sections of the US Labor market and is about
to have a tremendously disruptive effect on what many have come to understand
to be the status quo in terms of Corporate employment.
While it may be true
that, unlike Scotland, most employees are replaceable, it is also true that
with each employee that walks out the door, an incalculable amount of synergies
and institutional knowledge leaves with them.
Couple this loss of intangibles with the fact that the employee that
will be hired to replace them is likely to be 1) More expensive, 2) Less
productive, and 3) Less loyal than the one that just walked out the door.
Like Scotland, many
employees are finding that, while they have something to lose by leaving their
employer, the loss is calculable and often more than compensated for by the
potential gains awaiting them as the current game of musical chairs disrupts
the low cost of labor, a hidden subsidy that many corporations have come to
rely on.
While it may appear
that employees, like Scotland, have much to lose and little to gain by
declaring their independence and seeking new alliances, in reality it is the
corporate status quo, such as England, that stand to lose the most in this
latest game of musical chairs.
In the end, England
will pay dearly for maintaining its alliance with Scotland. Will your employer pay dearly for you? You may be surprised by the answer.
Stay Fresh!
David Mint
Key Indicators for September
19, 2014
Corn Price per Bushel: $3.31
10 Yr US Treasury Bond: 2.58%
Bitcoin price in US: $396.09
FED Target Rate: 0.09%
Gold Price Per Ounce: $1,216
10 Yr US Treasury Bond: 2.58%
Bitcoin price in US: $396.09
FED Target Rate: 0.09%
Gold Price Per Ounce: $1,216
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