Posts Tagged ‘empty markets’

The Dark Pool of Empty Markets

Many have commented that the job market has become an enigma over the past few years. The jobless rate is low, but pay has risen slowly. Are we[1] measuring pay imperfectly? Vacancies co-exist with unemployment and the old phenomenon of under-employment and the new challenge of a zero-hours contract have emerged to colour the landscape. Many workers have had no real increase in wages in years. At Starbucks recently the Spanish barista and I chatted about job opportunities. She had an accredited certificate in the teaching of English as a foreign language. Additionally, she and her two friends were recent language graduates who had opted to move overseas to work as baristas in Ireland. They had no job opportunities as teachers in Spain. Coincidentally, a few months earlier, the vacancies page of a national paper carried notices for Spanish teachers at senior level to deliver a course on Spanish language and literature to the level prescribed by the Department of Education. The baristas applied for the vacancies and were not successful. It is not an unusual occurrence in the jobs market except that it was reported that in one of the schools Spanish was discontinued as a foreign language. French and German continued to be on the curriculum.

But why was Spanish discontinued? At one level there could have been a mismatch in the qualifications and skills required in the teaching of the Spanish course. At another level, maybe there was no demand for Spanish language at the school. Or maybe the more senior teachers, including French and German teachers, exercised a ‘hold-up’ on curriculum development until they retire. In a simple twist of fate one of the baristas had heard in the grapevine that there was a staff shortage in the school. On reflection there could be another explanation. Theoretical physicists have long believed that empty space is not empty at all[2]. The theory holds that radiation leaves energy in its wake when passing through the empty space. By analogy, in the economics of the jobs markets, Spanish baristas leave a skills set behind when they pass from one job at Starbucks to the next job at a Spanish restaurant creating an empty market of skills and talent in language provision. The transition creates an empty market of skills and talent in the provision of goods and services.

There are no actual jobs in an empty market. But with retirements and aging populations, Europe, for example, may have to rely on the dark pool of skills and talent in the empty market. It is not about the qualification per se rather it is about the misallocation of resources in an empty market that co-exists with the dark pool of skills and talent. In an efficient allocation of resources an individual with skills and talent enters an empty market at one level, (say) as a barista who is Spanish and qualified as a Spanish teacher, and exits at another level as a Spanish language teacher. It is an optimal outcome in a two-sided market of an aging European population and refugees, refugees that  qualified as doctors, engineers, teachers, nurses, writers, painters, plumbers, electricians inter alia who leave behind a skills set as they pass through an empty market as a doctor or engineer or plumber to become a refugee. Until policymakers accept the empty market phenomenon it is unlikely that baristas or refugees will have the opportunity to secure jobs that match their skills and talents. As Starbucks[3] CEO Howard Schultz commented ‘in a nation of latte makers and latte drinkers, you need more of the latter’. Europe has the demand for skills and talent; there is a dark pool of skills and talent, there is a new phenomenon of the empty market. The existence of an empty market could give rise to a misspecification in the economic analysis of labour data. In the econometrics of a wage equation, for example, the co-integration of earnings, prices and productivity will now require an effective hours’ variable[4] to accommodate hours worked in the new labour market of zero-hours contract,  underemployment and working in the grey and black markets. Otherwise a wage equation is just a re-parameterisation of a regression of the level of wages on the current and lagged levels of predicted wages and excess demand. In our view this could have implications for macroeconomic planning in an age of empty markets. The fact that there is a transitioning of skills and talent into an empty market right now should be recognised by policymakers and they should tap into and legitimise that dark pool, sooner rather than later.

[1] The question posed by Mark Glassman and Peter Coy in their vignette ‘Wages: Another Way to Look at Pay’ in Bloomberg Business Week July 22 2016.

[2] Article in The Irish Times ‘Magnetic Masters Bring Data Storage to a New Level’ by Dick Ahlstrom, July 21 2016.

[3] Cited in Time magazine July 11-18 2016 pp81

[4] Introduced in McNutt (1994): ‘Ownership and the s-firm’ in Andrew Burke [Ed] Enterprise and The Irish Economy Oak Tree Press, Dublin.