Creative Class

About 14 months into the downturn in Canada, about 20 months in the U.S.A., and I’ve been examining how the recession has affected workplaces and what some longer-term implications may be. Today, I offer a Canadian perspective. I invite you to add your own. Next week I’ll try to create an American list, or compare and contrast the recessionary experience in the two countries.

Four ways the recession may have changed creative class workplaces in Canada

1. The rapid spiral from booming economy to downturn in the fall of 2008 both forced and allowed many companies to re-focus, fast. Many quickly removed employees not seen as having a long-term future with the firm; they also sharpened scrutiny on various business lines or projects, canceling those not deemed likely to be profitable in the short term. In Canada, economists now say the job shedding happened much faster than in past recessions.
2. For some employees, the “golden hand cuffs” came off and they have had an opportunity to move. For staff with bonuses tied to the profits of particular projects or the company generally, a down year can mean you’re not leaving as much money on the table if you quit. The significant increase in self-employed workers is likely a consequence of this. People are going out on their own.
3. The government “may” start to recognize that North American economic future is in knowledge-work, high technology, more than old-style industrial manufacturing. In Toronto there are now more jobs in the Finance Insurance Real Estate sector (FIRE) than manufacturing (324,000 vs 316,000), and by early 2010 there will likely be more in Professional Scientific & Technical Services as well (at 315,000 now).  Already, the financial services industry in Toronto has created an alliance to educate and lobby the government to provide a further boost to this successful sector.
4. As in the U.S., women’s jobs have tended to be less affected by the recession, which hit manufacturing and resource industries harder than service and knowledge work. This may be the start of a big shift in how families with children live and work as well.

What else?

As previously discussed on this blog, in Canada this recession has pushed a number of people into self-employment. In the U.S., the trend has been less pronounced. Yet I suspect one part of the trend is happening, or soon will, in America – the move by many firms to hire “contract” employees who technically are not employees in that no deductions are taken from their pay and no extended medical or dental benefits are offered.

In Canada, some of the newly self-employed are launching new entrepreneurial start-up businesses that eventually may hire dozens of people or more. Entrepreneurship seems to be doing better in Canada than it has in a while.

But many “self-employed” persons are working on contracts in positions that were formerly salaried. A corporate recruiter recently explained the trend in the Globe and Mail:

Jeff Aplin, Calgary-based executive vice-president with David Aplin Recruiting, has also noticed a shift to more temporary work. Across Canada, he’s seen a surge of demand for contract consultants in accounting, engineering or IT to work a fixed term with a fixed task. “There’s definitely more appetite for a flexible work force” he says.

Because the 21st century economy will likely require the ability to adapt and change quickly, successful companies will likely want a certain percentage of their staff to be on fixed term contracts. Contractors may be a larger part of the future workforce.

Just because employers prefer it doesn’t mean those with talent to “sell” will want it. (And the unemployment rate in many skilled areas isn’t that high so, even in this down time, employees have some power here). Presumably, contractors receive some advantages, such as increased pay to compensate for the lower benefits.

So, for contractors, what are the advantages? What will employers need to offer in the future to have a healthy pool of contractors to choose from when they need them?

Do you primarily work on contract, doing work that others are paid on salary for?

Do you like the freedom? Or would you prefer a salaried position with set vacation allotments, benefits, etc.?

From WSJ writer Sue Shellenbarger’s Work & Family column (sub):

In the broadest, most-comprehensive survey yet of how occupation affects happiness, business owners outrank 10 other occupational groups in overall well-being, based on the landmark survey of 100,826 working adults.

The piece goes on to describe why, even during a stress-filled recession, business owners are generally happier than other working adults.

The findings, psychologists say, reflect the importance of being free to choose the work you do and how you do it, the way you manage your time, and the way you respond to adversity. Regardless of occupational field, the survey suggests that seeking out enjoyable work and finding a way to do it on your own terms, with some control over both the process and the outcome, is likely for most people to fuel satisfaction and contentment.

Does this sound like what you are seeing from entrepreneurs around you?

Check out the press release for more data and information from the Gallup-Healthways Well Being Index.

In Canada, the number of self-employed people has been rising month after month during this recession. Recently, the thousands going into business for themselves have mitigated many of the employment losses and made the Canadian job numbers look reasonably rosy in comparison to the declines happening in the U.S.

The Globe and Mail referred to this as “The Do-It-Yourself” recovery.

On the one hand, this seems logical in a recession – losing a job can be the spark that pushes people into business for themselves. Yet, on the other hand, the same phenomenon does not appear to be happening in the United States. So, what’s happening and what’s significant?

The divergent self-employment trends may be an indicator of different employment, economic, and workplace trends in the two countries.

It should be noted that some economists argue that self-employment is inferior to full-time, salaried employment and thus should be considered an indicator of economic weakness rather than strength in Canada. However, because the numbers of self-employed are growing so early – when collecting EI benefits would still be an option – it suggests this shift to self-employment is more of a deliberate choice than a move made in desperation.

Also, the 55+ age group has been the dominant demographic group shifting into this category in Canada – it may be that well-educated baby boomers are seeking more flexibility and the option to “cash in” on their years of experience and extensive contacts made over the years. Because basic health care coverage is universal in Canada, the aging baby boomers may feel more free to leave their large employer (or not seek another if their employer laid them off).

Implications:

Could this give the Canadian economy the productivity boost (to catch up to American levels) that has been lacking? That is, in pure economic productivity terms, would it be more efficient for many corporations to hire the talent they need when and as they need it via contracting the self-employed?

From the talent’s perspective, could this be the style that allows much better control over work and life balance?

Can salaried staff and free agents work together on teams (when the free-agents might be working on several projects simultaneously for different companies)?

Flipping the coin, does it matter that the U.S. self-employment rate is not growing?

Your thoughts?

The economic crisis appears to be causing a slight but noticeable shift from the suburbs to the cities, according to an analysis of recent Census data by Brookings demographer William Frey, reported in the Wall Street Journal.

“The central-city population in U.S. metropolitan areas with more than one million people (excluding New Orleans …) grew at an annual rate of 0.97% between July 2007 and July 2008 …That compared with a growth rate of 0.90% in 2006-2007, and growth rates around 0.5% in the years between 2002 and 2005, when the robust real-estate market led to new jobs and new housing developments outside the cities, where open land is more plentiful … Population growth in the cities has translated to slower growth in the suburbs. U.S. suburbs in metro areas greater than 1 million people grew at a 1.11% annual rate in 2007-2008, the same as a year earlier and down from growth rates between 1.29% and 1.48% between 2002 and 2005.”

The combined effects of the recession, job loss, and the housing crisis have made it more difficult for many to sell their houses, in effect locking them in place and slowing rates of residential and geographic mobility. Frey points out that:

“This shows cities were reviving at the end of this decade, and they are also surviving a recession that has been a lot harsher for other parts of our landscape …Cities are big enough and diverse enough that they are able to survive these ups and downs in the economy a lot better.”

And this is especially true of the biggest and most diverse cities, like New York and Chicago, which are hubs of large mega-regions, as well as magnets like greater D.C. and Silicon Valley which continue to draw in highly skilled and ambitious people from the U.S. and the world. Large Rustbelt cities, like Detroit, continue to lose people, and rates of growth in housing-driven Sunbelt cities have slowed considerably.

The June unemployment numbers do not look very pretty for the United States. After four months of improvements in the number of jobs lost, the numbers again increased to 467,000 up from 322,000 in May. The unemployment rate, now at 9.5 percent, is the highest in 26 years. The recession is entering its 20th month and will soon reach two years with little end in sight.

While the great recession of the 21st century grinds on, explanations for it continue to elude us. Some think that it is a depression and they may be right. I suggest that we have at least four issues on our plate that have emerged as a perfect story. The solutions to all are institutional. First, let’s start with the financial crisis. This financial crisis resulted from market failure. The lack of rules or what some like to call regulatory arbitrage, that is, working the rules led to the financial meltdown. We are still not out of the woods on this one because the rules have not been fixed. Without rules markets cannot work.

Second, we now have a global recession with falling demand and rising unemployment. A classic case of underused resources. The recession was in part caused by the financial crisis, but only in part. It is clear now that at least two interpretations are in order. First, it was a classic case of over-investment in housing. We have about two to three million too many houses. It will take about six years to work this off through population growth and attrition. This “inventory recession,” to use an old phrase, is nothing new, only the sector is – housing. The other interpretation is that it was caused by imbalances in the global economy between rich and poor countries. In either case, as Richard Florida pointed out with housing, or Business Week with global imbalances, new rules are needed.

Third, we have finally realized that we do indeed have a sustainability issue in the environment. It is both about the carbon footprint and about the type and amount of energy used. This is not a cause of our current financial and economic problems but it impacts it directly since it is about investment, and with a huge amount of uncertainty where to invest it is also putting a drag on the economy. Rules would help.

Finally, we are just realizing that globalization that started a few decades ago might be a dead end. It is a dead end not because the world does not want to globalize (most do) but because markets cannot work without rules. And in a global economy we need global rules. Here is the rub. All of the above problems in some way suffer from having a global economy without a set of global rules. When the last era of globalization ended at the dawn of the first world war, the rules that governed up to then also evaporated and it took decades to put them back in place after the second world war.

We are now into the second decade of the second globalization of the world economy. Until we are able to put the “rules of the game” in place markets, I am afraid the economy, and the financial sector, cannot be expected to lead to growth. The environmental rules are even more onerous. We just might need to start working on the rules of the game sooner rather than later. This seems like a task for the creative class. What is needed is talent and honesty in order to put a global structure in place where all can prosper. This is no small task.

In an intriguing post, Stirling Newberry suggests that Reaganism set in motion basic economic and geographic forces that have led to a “self-inflicted recession” and shaped the demise of the conservative movement.

[T]he epicenters of that “Reagan Democrat” revolt are now the areas that are hardest hit by the present depression: California, the Upper Midwest, and the Sunbelt South. This is not an accident …

The only places that are doing well in the Republican universe are those strongly associated with mining, plus Republican metro centers such as Phoenix and Salt Lake City, which are the recipients of the labor draining from the rest of the Republican heartland. Resource extraction is the only bright spot in the Republican world …

The Bush boom produced a moment where it seemed like the producers of Residential Real Estate, the back bone of the Republican donating and agitating base, were finally at their pinnacle. Truck Dealers, Home Builders, Real Estate Agents, and the Small Business class that catered to the people who lived in the “boomburgs” saw rapid increases in employment, wages, and social power. They had the money and the confidence to try to press their social agenda on the rest of the country. It was, of course, doomed to failure; since none of these people made anything that could be exported; or if they did, it came at the costs of increased imports that counter-balanced them.

The New York Times asks artists how the recession is affecting their lives and work (h/t: Alison Kemper). Money quote:

“I love it. The only thing that makes me sad is that I can’t make a living right now.”

While the responses comprise a small, ad hoc sample, my read is that the artists in major centers like NYC and San Francisco seem more upbeat than those in harder-hit Rustbelt communities.

Housing starts dipped to record lows in April. Just 357,000 single family homes were started last month, while total starts feel to 458,000 – an all-time record low. Calculated Risk charts the trend.

The Financial Times highlights the global scale of the real estate crisis:

The slump across global commercial property markets has accelerated since the turn of the year, with the emerging markets in particular struggling under the combination of capital value and rental falls. The pace of decline in capital values accelerated in the first quarter, while almost every country in the world is reporting a slide in rents …

Business Week’s Michael Mandel crunches the numbers and turns up some disturbing results. While recession has hit hardest at blue-collar workers, it is taking its toll on professional jobs as well. Unemployment for professionals overall increased by roughly four percent between August 2008 and April 2009. But the recession is hitting much harder at certain types of professionals. Computing and mathematical jobs (heavy on software engineers, computer scientists, and systems analysts) are down 9.3 percent; engineering and architectural jobs (two-thirds engineering) are down 10.3 percent; and “creative professional” jobs – working artists, musicians, dancers, entertainers, reporters, editors, writers, and other media types – are down 11.3 percent.