NO SHORTAGE OF WORK EXPLAINED
by: Brooke Allen (founder)
Our main idea is that there is never a shortage of work, although some times there is not enough money to pay compensation.
If you go too long without working, you will get out of the habit, and your skills will go stale. If you concentrate on finding work, you will find it is all around you. Pick the work that best improves your skills, and soon people will be bidding for your time.
Why I believe there is no shortage of work:
My big break came in the summer of 1972 when I was a student at Rutgers.
My computer class ended, and the computing center removed the system we were using because IBM charged $5,000/month in license fee.
But I was not about to quit learning how to program.
The inventor of the computer language had written a textbook for high school students. I called and asked if I were to round up 10 kids for a summer class, would he give me free copies of his book. They arrived four days later.
A local school teacher told her classes that I’d be offering a free class that the summer. Soon I had my students.
The computing center agreed to waive the $5/hour connect charge if IBM waived their license fee.
When I told IBM that they were the only missing piece, they fell in line with $10,000 in free software.
That is how I learned to program – one chapter ahead of my students.
My new computer skills led to a part-time job as a student, then full-time positions at: American Airlines, Mobil Oil, Chase Manhattan, Morgan Stanley, and C. S. First Boston. That technology is at the core of four corporations and a hedge fund that I’ve founded.
That experience changed my life, yet I neither received nor paid a dime.
That summer I learned:
- The best way to learn something is to commit to teaching it.
- Be generous with others and they will be generous with you.
- It is seldom a matter of money as much as it is a matter of will.
Yet, I learned many more things that I was unaware of.
Until the morning of May 6, 1982…
THE SPEAKER SAID, “THERE IS NO SHORTAGE OF WORK.”
In 1982 I started my own firm and went to a conference looking for business tips.
The first speaker said, “There is no shortage of work.”
This didn’t make sense. The economy was a year into the worst recession in decades, and jobs were hard to find.
But I kept listening, and this is what I learned:
During good times there is plenty of money to hire people, so jobs are plentiful. Because so much work is being done, unmet needs are harder to find. But during hard times, there isn’t enough money to hire enough people to do everything that needs to be done, so the work piles up.
People don’t even realize they need work done because they are too focused on the fact they don’t have enough money.
Think of my business at that time…
If I had been making money hand-over-fist, I might have hired people to create a marketing campaign, design a brochure, cold-call prospects, and answer my phone while I was at the conference. Instead, I had no income, so I had nobody doing those things for me precisely when I needed help the most.
“So what,” I thought, “How does knowing this help me?”
He went on…
IT IS ALL A MATTER OF PRICE
That morning I learned how markets set prices. Imagine you just bought a painting at an art auction. You were willing to pay $20,000 but end up paying $12,300 instead. Who determined the price?
If you think you did, you would be wrong.
The only price you set was the most you would pay. You bought the painting because when the auctioneer said, “$12,200” someone touched his nose, and when he said, “$12,300” you pulled on your ear. At “$12,400” nobody moved – and you became the new owner.
Likewise, if you have something to sell, like a house, or your labor, you only set the least amount of money you would accept. When prices drop, home owners whine that they can’t sell their house. That’s not true. They just do not want to drop the price enough.
The Great Depression was caused, in part, by unemployed laborers. Prices dropped rapidly by 27% which meant that producers could not earn a profit unless they cut expenses by the same amount. But labor refused to lower their price enough.
Had everyone cut their pay by 25%, they would have had a 2% increase in real dollars. But they didn’t. Instead, they stopped working at any wage, and because they could no longer buy stuff, even for a 27% discount, the economy spiraled downward. (Economists call this kind of irrational thinking the Money Illusion.)
There is another factor at work… and that is the cost of doing something. We are not talking about what people normally think of, but rather a different kind of cost that is mentioned in the first week of Economics 101 and then never discussed again.
If you don’t know what I’m talking about, don’t worry; economists don’t know what they are talking about either.
THE COST OF NOT UNDERSTANDING OPPORTUNITY COST
Consider this problem.
Every day you go to the store and buy 100 apples for 40 cents and you sell them on the street for 50 cents. One day, Sally offers to give you 100 oranges for free, but if you drive to her house you won’t have time to buy the apples and you will only be able to sell the oranges that day.
How much do the oranges cost?
You might say your oranges cost you nothing, and in one sense, you would be right. But, let’s say you arrived at Sally’s to discover that the oranges were rotten, and so you couldn’t sell them. Although the price is still zero, now what would you say the oranges cost?
To make it easy for you, we’ll give you only four choices:
A. $0
B. $10
C. $40
D. $50
Before I tell you the correct answer, you should know that when a variant of this question was posed to economists, the right answer was chosen only 21.6% of the time. People who do not study economics get the right answer about 25% of the time because they are just guessing.
The answer is $10 because, had you not accepted the free rotten oranges, you could have bought the apples for $40 and sold them for $50, making $10. Instead, you are making $0.
The fact is, if you could make a $10 profit on the apples, then doing anything else has an opportunity cost of $10. Whether the oranges are free or cost $100, a decision not to trade in apples costs $10 in what you don’t get to do.
Let’s try another puzzle.
You are making $50,000 and someone offers you the identical job for $40,000. What does it cost you to take the $40,000 job? Most people will say that it costs them $10,000 to take a cut, but what they mean is that the opportunity cost is $10,000.
Now, imagine you are making $50,000 and you lose the job. What is the opportunity cost of taking the $40,000 job?
DOING NOTHING COSTS THE MOST
In 1982 I knew people who had lost $50,000 jobs and refused to accept $40,000 jobs, preferring to remain unemployed because it would “cost” them 10 grand. I then saw the flaw in their thinking.
When your alternative is $0, taking the $40,000 job costs you zero. Not taking the $40,000 job costs you exactly $40,000.
The speaker continued.
Imagine you had a $50,000 job you hated and there was a $40,000 job you would consider bliss. Not taking the pay cut means you are unwilling to pay $10,000 for bliss. But if you lose the high paying job, not taking the blissful job costs you $40,000.
So, when nobody is paying you a cent, it costs you nothing no matter what you choose to do. Remember that, during hard times, needs go unmet, so there is more work available than normal. And if you are unemployed, the cost of taking ANY job is zero. Because so few people know this, you have even less competition for doing the work that needs to be done.
I thought back to my summer job teaching the class. The economy wasn’t so hot in the waning days of the Vietnam War.
If things had been booming, the book author could have easily sold his books, so the opportunity cost of giving them to me would have been higher, and he might not have. If the computing center had been overbooked, they might not have given me free access, and IBM might have insisted on being paid $10,000. The parents of my students might have preferred to spend a few grand on sending their spawn to a “gifted and talented program” instead of entrusting them to an uncredentialed 19-year-old.
And, had someone been offering me more than minimum wage, I probably would have taken their job.
The argument was convincing. But, what should I do differently in the future?
Our speaker said that every morning he goes to work, whether he has a client or not. People don’t pay him to work – he will be working anyway. They pay him to make whatever he would have been doing that day his second best choice.
An example: Bob has been building web sites for $50/hour and loses his client. He begins fund raising for a non-profit. A paying customer comes along offering him only $30 to build a web site.
Some people might say, “I won’t do that… it costs me $20 to take the work because I am worth $50.” Bob says, “Before it cost me nothing to give my labor away for free, but now it costs me $30 to continue to do so.”
For most of us, it is more gratifying to do things for others than for ourselves. And, if you want to be paid some day, that pay will come from others. Many people start doing low-value things for themselves (for no pay) instead of high value things for others (for no pay). A computer programmer might spend weeks refurbishing a basement instead of building a system for an impoverished entrepreneur with a good idea.
When I returned home I wrote to everyone I knew (about 200 people) to say I was unemployed, which meant it cost me nothing to work for them for free. Many friends offered to let me run errands, but Morgan Stanley described two weeks of documentation that absolutely nobody there wanted to do. The pay was $20/hour – much less than I had been making. Before the conference, I might have been insulted, but now I realized that running errands for friends would cost me $20/hour.
Morgan paired me with a professional editor, and I discovered something: I couldn’t write. They realized that too, but they figured out that I was a good APL programmer, so they offered me a full-time job.
However, Mobil Oil heard I was working at Morgan Stanley, and they made me a better offer.
My life changed on that morning in May, and now I look at every setback simply as a lowering of the opportunity cost of doing something different.
And I rejoice in the fact that there is no shortage of work… because I love to work.
To recap:
- There is no shortage of work, or things to learn.
- The best way to learn something is to commit to teaching it.
- Be generous with others and they will be generous with you.
- It is seldom a matter of money as much as it is a matter of will.
- Opportunity cost is more important than direct cost.
- Don’t kill yourself looking for a job when there are few of them.
- Concentrate on looking for work instead.
- Look for work with the highest value – not just the work that pays the most.
- Find work of value to others, not just yourself.
- Be willing to work for free because sometimes there just isn’t money to pay you.
- People might pay you to do what they want instead of what you want.
- If you are not doing anything of much value, people do not have to pay you much to do what they want instead.
- It is hard to enjoy your life if you do not like your work.
How about you? What work do you love?
Now you are ready to go to our Philosophy Page and begin exploring how we might benefit you.
This article is about every-day situations and problems most of us experienced/know themselves but with quite unusual explanations and opinions. Amazing.
The same principles apply to business price standards and the current economic stall. Prices are staying too high, based on a more stable and flush economy. People cannot afford to pay the same prices now, but services and goods will not lower their prices. So, they go without anything. As an example: My lawn/tree service will not lower their prices. They offered to cut a small limb and sweep off a roof for me for $80. I would have to work four hours at my current job to pay that. I cannot, and will not, and am giving the jobs to someone else who works by the hour. So, who is the loser and who is the winner? Another example: There are three convenience stores in my immediate area. All three of them sell cat food in small cans. Two sell them for .99, the third sells it for .75. The third also sells most items cheaper than the other stores. I told him I appreciated his prices, and he said, “It makes good business, because people come to me. I don’t make as much on each item, but I make it up in volume.” This principle is lost on many people, and in the refusal to see where loss and gain collide, we all lose. We refuse jobs, refuse business and complain about everything. True, if no one is lowering prices, some businesses cannot continue to pay high overhead while taking a beating on their own goods. However, small margins are often made up in volume, and word spreads fast. Pride and principle can be an expensive lesson. Thank you for an excellent article on issues I have been pondering for a long time but when I try to talk to others about these principles I get a long, hard look of incomprehension. Well written and expressed. You ARE a good writer!
leave it to a hedge fund manager to blame the Great Depression on the greediness of labor.
Dear tRex:
Our comments are moderated. Usually, we want to keep the discussion on topic, and while we encourage people to attack ideas expressed, we dislike attacks against people (especially me).
But, I realized you might be putting into words thoughts that many people might be having.
Regarding the Great Depression, my goal is not to lay blame, but to explain.
And the goal of NSoW is not to argue what is the best economic policy that should be implemented by others, but what is the best approach to dealing with our own circumstances – concentrating on what we can do as individuals.
In the late 1930’s, my grandfather wrote to a friend about how good the Great Depression had been to them. By volunteering for pay cuts, he helped keep his employer alive. Because brokers were going bust, they were able to rent a huge home for very little. Because they had so much extra space, they took in a young couple, exchanging babysitting for room, board, and clothes. With the free time, Grandmother went to work for a housing developer, and because money was so tight, she took compensation in the form of a house built at cost. In a few years, they owned a home free-and-clear and Granddad’s career took off since there were so few experienced people still around when opportunities opened up. Free of the burden of meeting day-to-day costs, the young couple were able to save enough money to buy their own business.
Rather than grouse about who caused the sorry state of the economy, or try to find someone to blame, they all went to work – and were rewarded for doing so.
You can read the entire story here.
As for being a hedge fund manager, I was one from 2000 to 2006, but am no longer. I am not a fan of that industry – but that is a separate discussion.
There is a flaw in your advice that one has nothing to lose by taking a low-wage offer when unemployed.
In 1991 I had almost the exact experience you describe. I was laid off from a job paying 55K/year, and after a few months of unemployment I was convinced by a small company (using essentially the same arguments that you do) to accept a job that paid 41K/year. It took me about seven years to get back to the 55K level. If I had held out for a year to get a 55K job, my earnings over my lifetime would have been much greater. (New employers will always base your starting pay on your current salary if it is below “market price”.)
Sanford,
You have a point. It is possible that if you discount your price during a weak market, you may have a hard time raising your pay in a strong market. This is particularly true if you do not try to.
Let’s analyze this: Going from $41K to $55K in 7 years is slightly more than 5% compounded increase which yields a total 7 year income of $334K, while 6 years at $55K is $330K. So, getting “back to the 55K level” isn’t the issue. You’d have to land a job paying $55K and that also gave significant raises to be better off.
But, my story and yours are quite different.
I am advocating both accepting what the market will bear, but also asking for it. So, if you became worth $55K one year later, you should ask for that.
In my case, I only worked at $20/hour for 2 weeks.
When I went to Mobil, it was on a 6 month contract making $30/hour as a subcontractor to a prime contractor who charged Mobil $50/hour. Two months before the contract ended, I did another marketing campaign to make sure I had excess demand for my services. Mobil wanted me to say, so I renegotiated with the prime contractor a deal where I charged Mobil $50/hour and paid the prime $15/hour finder’s fee. At the end of a year I got to bill Mobil $50/hour directly and keep it all to myself. Six months after that I raised my rate to $60/hour and they accepted it. Had they not, I had another employer who gladly would have taken me.
The job that I lost when this story began paid $28K (plus benefits). Within two years I was billing more than $100K and my benefits did not cost me more than $6K. Times were very hard then, and I had friends who were unemployed during those years who said they could not imagine taking the risks that I was. Risk? At the end of two years, I had enough money in the bank to take a 2 year vacation and still be ahead.
I am 57 years old now, and I know tons of people my age who where making big bucks when they lost their job half a decade ago, and they are unemployed to this day. I will be surprised if they get another job paying anything like what they made – ever. Their old salaries were often a function of longevity, not inherit market value. Today their skills are ancient and they have gotten out of the habit of working.
But, if you believe that new employers will always base your starting pay on your current salary, then employers will treat you as if that were true. Under such circumstances, your analysis is correct.
Even so, I recommend that you keep your skills current by working for free rather than discounting your rate. A $350/hr lawyer who cuts his rate to $200 might have a hard time getting back to $350. But if he does lots of pro-bono work, nobody thinks he is no longer a $350 lawyer. Instead they think he is so successful he can afford to be charitable with his time.