How to Succeed in the Modern Economy

Neil Irwin of the New York Times published a very interesting article on rising income inequality in America earlier this week.

The article was published by the Upshot, a team of wonks over at the Times who write nerdy, in depth, data driven policy articles. My favorite type of article.

The article took a nuanced look at the evolution of corporate culture and the rise of income inequality. It is worth a read in its own right.

But today I want to pull out just one piece of that story. A part of the story that struck me because it is a drum that I keep beating.

We are living and working in a fundamentally different economy than our parents.

A Tale of Two Janitors

The Times article compares two janitors.

Ms. Evans was a janitor at Kodak 35 years ago. Ms. Ramos is a janitor at Apple today. After adjusting for inflation, their pay is just about equal.

Ms. Evans had four weeks of paid vacation every year, college tuition assistance, and annual bonuses. When the building that she was paid to clean shut down, Kodak helped her find work in another part of the company.

She used her tuition assistance to go to school at night. She finished her degree and moved into an information technology position. She kept working hard and getting promoted until eventually she became the Chief Technology Officer for Kodak.

Ms. Ramos has no paid vacation, no college tuition assistance, and no annual bonuses. If she needs to skip a day of work, she has to lose a day of pay. She has no opportunity for advancement, because she is an employee of an independent contractor hired by Apple rather than an employee of Apple.

A Race to the Bottom

This is part of a larger trend in the American economy.

Companies are outsourcing to contractors for work far more often than they used to. Contractors, in an effort to secure as much work as possible, keep their prices as low as possible. The biggest tool for lowering costs is to decreasing the pay and benefits of their employees.

Companies want cheap contractors, so contractors want cheap workers. It becomes a race to the bottom.

Another downside for contractors (and upside for companies) is that companies can end your contract at any time without much fanfare. Laying off employees is seen as a big deal. Firing contractors is not.

This contributes to an increasing instability for workers. Irwin’s article compares computer programmers today that need to jump from company to company every few months to a forklift operator in the old economy who had far more job security.

Outsourcing to contractors allows companies to decrease their overhead costs and increase their profits. Like much of the rest of the economy, this rewards shareholders at the expense of workers in a way that was unthinkable in prior generations.

A Complex Problem

This is not as simple as telling companies to treat their workers better, however.

Companies across the world are lowering their costs and maximizing their profits. It is not easy to buck that trend and succeed.

Apple is one of the largest companies in the world. Kodak used to be, but has gone through bankruptcy, extensive layoffs, and a severe drop in stature and market share.

Shareholders are profiting at the expense of workers. The people that actually show up and do the work are struggling while those of us who invest and make money off of their labor are doing fine.

It shouldn’t work like this. It never used to work like this. It needs to be fixed.

But there is no simple solution.

Adjusting and Adapting

We need policy changes at the governmental level. We need corporate leaders to find ways to help their workers while helping their companies. We need big changes to fix the economy.

In the meantime, we need to do what we can to help ourselves and others succeed in a broken system.

We need to recognize that we are not in our parents’ economy anymore, and our parents’ career choices are not going to work for us.

Our parents could often go to a company for life right out of school. They were loyal to the company and the company was loyal to them. They could work hard and the company would give them opportunities to advance.

That isn’t true at the vast majority of companies for us. We need to recognize that our companies are not loyal to us. They are not giving us opportunities to improve ourselves. They are not giving us opportunities to advance.

We need to make those opportunities for ourselves. We need to find time to improve ourselves on our own. We need to find time to hunt for opportunities on our own.

We need to be prepared to live in a world with less stability. We need to build up the financial resources to be prepared if our paychecks stop suddenly. We need to learn how to make more money in unorthodox ways. We need to be prepared to up and move if our only opportunities are farther away.

It is much harder to have a successful career than it used to be. We need to recognize that and adjust accordingly.

We Need to Invest

I’ve pitched this idea many times before, but we also need to be investing.

Companies are rewarding their shareholders at the expense of their workers. Become a shareholder and get some of that reward.

The earlier you can get in on that growth, the better off you will be. So get your expenses down and get your investments up. 

This isn’t our parents’ economy anymore. Let’s recognize that and find a way to make it work for us.

28 thoughts on “How to Succeed in the Modern Economy”

  1. Ayuuup. These days companies care far more about their bottom line instead of caring for workers. That’s interesting to me, though, because from the data I’ve seen, happier employees stay longer and do better work. I guess that’s one reason companies prefer to outsource for cheaper labor. Ugh.

    I used to be a contractor and I know how HORRIBLE it is. You get all of the cons of being an employee, with absolutely zero perks other than a paycheck that you’re told you should be grateful for.
    Mrs. Picky Pincher recently posted…How to NOT quit your job in a blaze of gloryMy Profile

      1. If you have inelastic demand for your product and don’t have a lot of competition, it’s easy to sell a crappy product made by crappy, unhappy employees! Which is why I’m always skeptical of consumerism – which makes everyone feel like they need everything – and government intervention in economy – which creates a lot of opportunity for bad apples to exclude good competitors from business (“crony capitalism”).
        The Vigilante recently posted…Practical Empathy (with Zombies!)My Profile

  2. It certainly is a changing landscape. We all need to do our best to insulate ourselves from it. Building a great professional network, don’t get complacent, always look for new opportunities, and have a solid financial plan.

    Some contractors command high pay but have no job security and no health benifits. It’s a risky game.
    Brian recently posted…Net Worth Update: August 2017My Profile

  3. “We need to make those opportunities for ourselves. We need to find time to improve ourselves on our own. We need to find time to hunt for opportunities on our own.”

    This is so true. People are much more in control of their own destinies than they like to admit. Political/government actions won’t have nearly as much impact on us as our own decisions and actions.
    Brad – recently posted…Understanding Investing Risk and Your Risk ToleranceMy Profile

  4. This is literally why I started writing and blogging full time. Contractors started underbidding the union. I was at the very bottom of the list, being young, and am not a huge fan of contracting in that field. Not only is the pay worse, with no expectation of benefits, but depending on the agency you work with, there’s not as much back up to help you do your job ethically. The union literally protected you legally, so when I said I couldn’t do something out of my purview, I knew I wasn’t crossing ethical lines AND could keep my job. I still side hustle with the union every once in a while when they really need something covered, but working for less without those protections made the field a lot less desirable. I was fortunate to have something I could build into my own business. Personal accountability is huge, and I’m no stranger to adapting to changing circumstances, but, man, do we need to do something about the proliferation and lack of protections for 1099 workers.
    Femme Frugality recently posted…Get Solar Energy Without Solar PanelsMy Profile

  5. Very good topic and a very nice article.

    In India currently, the income disparity is 90 years high. It’s Shocking! Ain’t this something similar to what you have mentioned in your article.

    Perhaps, lowering income is tad so difficult becuase of the rising inflation. There is a limit to how much you can reduce your expenses. But there is no limit to your earnings.

    Thanks for writing such a nice article.

  6. The two janitors is a great example. I think this “modern economy” is something that a lot of people “feel”, but maybe can’t articulate why they feel how they do about it. Some of the reasons – lasting effects of the great recession, higher college costs and job experience requirements, lessening of labor unions, and automation are the ones usually talked about.

    But I think the biggest factor is the trend of capital being more valuable than labor. And this will only continue to grow. Since capital is becoming more complicated to acquire (making more money is becoming more reliant on living efficiently and building alternative income streams (using capital) and less reliant on the labor you have to give. Automation is only going to reduce the fields where labor is actually still valuable) we have to be more savvy about how to acquire it and how to use it to build wealth.

    Using labor is easy – it’s what we’re taught in school – work hard, show up on time, respect others, keep learning – all these make your labor more valuable. But very few of us were taught personal finance in school – and personal finance, at the end of the day, is simply about how to use capital to achieve your goals.

    1. I am very big on talking to anyone who will listen about the capital/labor value trend. It shows no signs of slowing down and a lot of people are at risk for being left behind. I think you are absolutely right that automation is going to keep piling on here and things will get more difficult for a lot of people.

      You are definitely right about learning labor and not capital. It is even baked into our culture. “Work hard and play by the rules and you’ll be successful.”

      Thanks, Matt!
      Matt recently posted…The Productivity Benefits of Letting Your Mind WanderMy Profile

  7. “We have to make those open doors for ourselves. We have to discover time to enhance ourselves all alone. We have to discover time to chase for circumstances all alone.”

  8. I think there is both good and bad to the modern economy. The push to cheap labour and hiring out jobs through contractors is a challenge for sure. You no longer have the job stability, benefits, and living income that were more common in early generations. However, I believe there are more opportunities than ever to earn money outside of the normal job force. Side hustles are becoming the new norm and they are changing the working landscape. If you can find a successful side hustle then you can limit or even completely eliminate the need for a regular day job. That’s something that was really rare not too many years ago.

    1. I agree, although I wonder if the side hustle is actually easier now or if it is just more common because it is more necessary. I do think that we are now in an economy where thinking outside the box and trying new things are rewarded more than staying put in a comfortable day job. The hustle is rewarded.

      Thanks for the comment, Sarah!
      Matt recently posted…Why We Need To Fail MoreMy Profile

  9. I’m sorry I missed this earlier. It’s interesting to read posts like this in light of all the dismanteling of unions. I’d bet that is at least part of the difference between those two janitors. As a union worker, though, I must admit that our union is much weaker than people think. When I see people, especially finance bloggers, supporting right to work states and calling out unions, I can’t help but wonder if people don’t fully appreciate their history and how they help people who aren’t even in them. Of course it’s a highly imperfect system but so is the new economy that you describe, IMHO. Thanks for the brain food, Matt!

    1. I’m always surprised by the hate that I see towards unions. You are definitely right that they are much weaker than their image. I feel like anti-union folks won a PR battle long ago that the unions didn’t even realize was happening. Now when people think of unions they think of protecting bad teachers and bankrupting governments. They don’t think of salaries keeping up with the cost of living or increased opportunities for education and advancement. The current economy is definitely far worse than it would have been if unions had stayed strong and prominent.

      Thanks for the comment, Penny.
      Matt recently posted…Why We Need To Fail MoreMy Profile

  10. The industrial revolution is over. It is now the internet age. Companies are not loyal to their employees. I also see that employees are no longer loyal to their employers. We are in a free-agent market. That is mostly due to the decline of good benefits that you mentioned. I don’t know what the solution is. I do know that my solution is to become FI and always keep the ability of walking away from a negative situation as an option.
    Dave recently posted…How to Invest A Million DollarsMy Profile

  11. This is a great perspective – I just spoke to my husband who works in tech and honestly I think being in tech is probably the only good job left now (unless it starts getting more saturated). Contractors have no security what so ever. Many tech companies hire contactors. If they work in the Google kitchen, it doesn’t mean they work for Google or any of the benefits with working at Google.
    Lily @ The Frugal Gene recently posted…A (Very Late) 4th Month Blog Report – Hello Mr. Monotony 😴My Profile

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