#102: The 60/40 Economy Is Here, Magic Time & H1Bs
😷 What matters? I'm not sure, but I'm making sense of what I find
August 8th, 2020: Greetings from Connecticut. We lost power for a few days this week and cell service was down. It was a forced retreat with some intermittent attempts at connectivity at 56k speeds. It’s a good reminder of the fragility of modern life and how vital a constant flow of electricity is to the way we live.
Yet it was also a time to realize how uniquely great this experience has been returning to the states. As many of my relatives live in the same town, many of my cousins have returned to work remotely. We have our own trust bubble and its been quite fun. I hope people don’t forget what’s possible when this is all over…
Next week Jeremy Finch will be coming to you with a guest issue of Boundless. He is a fellow MIT MBA grad who I met this year who opted out of the default path right before the pandemic and is trying to make sense of it all. I’m not sure what he’ll come up with but I’m excited to read it.
📷 View Of The Week
The storm that took out power for a few days
Have a picture to share? Send your photos of your remote work setup, view or other interesting things worth sharing.
#1 The 40/60 Economy
Ray Dalio wrote an essay in 2017 describing what he saw as a bifurcated economy of the “top 40% and the “bottom 60%.” While there are some limits to this kind of framing (such as ignoring the movement of people between these groups throughout there lifetime) it does a better job than the top 1% / billionaires suck political framing that seems to en vogue these days.
I think it is a better framing because it zeroes in on what is happening in the economy. Namely, that the economy is unlocking increasing wealth, opportunity and flexibility for the top 40% and is pushing many people who used to be middle class into a bottom-tier, the 60%, who is struggling to find their place in this new economy.
This split has been accelerated and amplified by a health crisis that has made many high-wage knowledge jobs even better (ex- childcare issues of course) and has rendered many middle and low wage jobs fragile at best and eliminated at worst.
On a podcast someone who I don’t remember referred to our current crisis as a “depression stitched together by federal stimulus.”
This names something that people don’t want to acknowledge. Many people who are in the top 40% have chosen the stock market myth that says the world is okay as long as the stock market is going up. Yet when you dig deeper, it looks like only a few companies are carrying the load. An analysis of the top 12 “mega growth” stocks versus the remaining 490 or so companies in the S&P 500 shows that they are up 35% while the remaining companies are down 10% since Jan 2020.
Most people intuit this when they see Amazon going up 1,000 points and their local corner store shut down because they don’t have enough volume to cover their costs.
However, many people in the 40% are still not seeing the whole picture. They look around and see that most of their friends have kept their jobs. However, if you take a peek at the employment participation rate things are not as promising. Here is a breakdown of the employment of people by education level (Note: updated chart - it had incorrect #s for bachelors+ before)
Almost all of the loss of employment has come from people with less than a college degree.
This is not the financial crisis of 2008 where we saw millions of white-collar jobs being eliminated in 2009.
This is a complete transformation of how our labor economy works.
I have no idea how this will turn out but it seems Dalio’s 60/40 split is going to become more and more the working reality of how work work..
If you are young and can take some risk, you should do whatever you can to make sure your jobs is involved with technology in some way.
The new economy is here and its not going to be great for a lot of people.
#2 “Side of desk” work
I learned a new term from some friends in London used to describe the extra work that people are expected to do on top of their day jobs: “side of desk” work.
In consulting we called this “magic time.” This was used to refer to non-client work that was still expected to be completed and even more necessary if you wanted to be promoted. This included firm activities outside of work, culture initiatives, hiring and interviewing, talking to interested candidates and all sorts of other work. If you opted out of these activities you’d have to deal with the insecurity that you were not doing enough at work and often the real implications of a smaller bonus at the end of the year.
Any other terms for this in your industry?
Google quietly launched a new education offering that seems to be a sign of more to come. With Coursera, they launched new “certificates” in data analytics, user experience (UX) design, and project management. These entry-level jobs training programs will be 6-month courses at a cost of approximately $49 a month. They’re also promising 100,000 scholarships for people who cannot afford the fees.
In terms of making actual moves towards increasing diversity, this is an impressive one. Instead of recruiting a diverse pool from elite schools, this gives a fair shot to a wider range of people, especially the majority of people who do not have college degrees:
Google says it will consider all of its certificates as the equivalent of a four-year college degree for related roles at the company.
I think we’ll see education options explode, especially from the tech firms who have more money than they know what to do with. This serves a dual purpose of offering a public good to stifle anger and political action as well as a recruiting pipeline for the kinds of self-directed workers that will succeed in the remote work jobs that these firms are developing.
This seems like a small step but I think is a sign of a major transformation underway in how we think about learning. In googles initial IT Certificate, they had 250,000 people complete it:
Jeff Maggioncalda, CEO of Coursera, says more than 250,000 people have taken Google’s IT certificate, 57% of whom do not have a college degree, making it the platform’s most popular certificate. He suspects the new certificates will be similarly popular — especially in light of recent events.
It would take Harvard more than 150 years to educate 250,000 people at its current class size.
#4 Chart of the Week
In googling Harvard’s class size, I came across these trends from 2016. They’ve seen interest in the humanities steadily decrease as more people major in “applied STEM” majors that are likely better aligned with the job market.
#5 The US needs a global talent strategy
The US will have to eventually pass a comprehensive immigration overhaul. This is largely due to the fact that if we want to keep our economy operating on the same assumptions of the past (namely, workers pay for benefits of non-working and retirees), we are not having enough babies.
Yet because of the automatic political immune responses around immigration, you rarely see good deep dives into issues with the current system. A recent article from Bloomberg looked at the myth of a talent shortage and how that narrative is used by tech firms to hire foreign labor at below market rates.
companies in the D.C. metro area got a 36% discount from the median wage level for the most common certified H-1B occupation (a category of software developers) in the wage bracket for entry-level positions,a difference of $41,746 per employee in fiscal 2019. The discount came to 18%, or $20,863, for the second-lowest bracket. This can amount to billions of dollars of potential savings for employers.
A lot of the debate for or against H1B1 gets lost in the frame of xenophobia which is something worth addressing but does little to improve our system and misses the fact that H1B1 are also used to bring in talented workers, but many of them are workers without much opportunity to take advantage of the full economy.
These visa holders are not only less expensive, they also have less bargaining power vis-à-vis their employers. For no small number of them, what begins as a promising career entry point often ends up becoming a version of “bonded labor,” says Salil Choudhary, a former H-1B holder who became an American citizen in 2010.
Canada has taken advantage of the US’s failure to act and since 2015 has steadily attracted more global talent after passing the “Express Entry System” for skilled workers:
They have an easy to understand system that gives you points based on your background, connections to Canada and skills.
While some people have to have a job before they enter Canada, others can use the system to first move to Canada and then find a job. In the US this is really hard to do.
In my situation, we are applying for a Green Card for my wife after we leave the states and will have to wait outside of the country for a minimum of 11-17 months. This is for someone married to a citizen and with a graduate degree.
Over the last two years, many people I met are thinking of emigrating to Canada, New Zealand, Australia and Europe in addition to many digital nomad hubs. While many love the US and would love to work there, most just don’t think of it as a realistic goal anymore and also worry a lot about healthcare costs which are dramatically higher than any other countries.
I think our system is broken, but I could be biased.
Note: I’m not too sharp in this domain - if anyone has any interesting things worth reading here, send them my way.
That’s all this week. If you’d like to do a guest issue over the next two months, let me know. If you’d like to become a micro-supporter of the newsletter, subscribe here: