bostonbubble.com

[balor123]

The corporate system in this country seems to be broken and I think this will affect housing, especially in places like Boston where homes are held by a large number of older workers.

In the corporate world, when times are good everyone gets raises but not to the same degree. Those who are younger or in their peak years tend to get the greater share of raises because they are earning less than their older peers and are often times producing more. Compensation thus looks like a bell rather than a pear. Add in the cost of benefits like health insurance for works and the bell becomes even more pronounced. In bad times, wages are frozen for everyone equally to avoid layoffs. This doesn't hurt everyone equally but rather those who would have gotten larger raises, which tends to be younger workers who still have a lot of potential.

The impact of this system can be seen on CNBC at night. There are constant calls from people who've recently lost their jobs asking how they can find new ones. Lots of discussion about avoiding layoffs like they're the end of the world. This article even proposes that everyone get paid less, equally of course, so that more people can work, presumably at their former salaries.

For younger workers to get market pay in this environment, they have to switch jobs or threaten to. Given the amount of competition for jobs, this option is becoming difficult. The result is a system where older workers who are still employed get to keep their higher salaries and younger workers stay at lower salaries. You are seeing a lot of older workers unable to get jobs because of cheaper younger workers but those younger workers are only getting the jobs because they remain cheap. The salary growth of a person is heavily impacted not just by the profitability of the companies that they work for but also the timing of when those companies are profitable. I read one study from Columbia around 2000 which found that students who graduated in recessions took 10 years to catch up in compensation with those who graduate in better times.

Anyway, the point is that Boston is a heavily pipelined housing market and I think that this recession is going to produce a generation of lower than typical income earners, which will put further pressure on prices to come down.

[john p]

Great point. What is kind of crazy is when the older generation tries to use kangaroo logic to blatantly ignore the scoreboard. It is amazing to see people get away with doing absolutley nothing and spending all their time politicking.

My hope is that the quality people reform in their own groups and compete and take down those that are keeping them down.

[balor123]

I think every year everyone should get 10% chopped off their salaries and then managers could redistribute income based on performance so that your pay can actually go down! Inflation sort of accomplishes this goal but we don't have any right now and more importantly this approach allows for rapid adjustments in pay, making the market more efficient. This approach allows managers to reward good performance even when pay is being cut for the department, granted it is at the expense of a lesser performing employee.

[WestCoastXPlant]

Well, the 10% cut (or a bit less) has always happened, as you say, via inflation.
This year, it's happening in a more traditional way -- you bet the folks slacking off will be the first out the door, followed by otherwise expensive employees(i.e. older/sick/using other "perks"). A lot of people are getting a straight cut too. Not getting axed in a deflationary environment implicitly equals a raise

So I think corporate america is on to your scheme -- they just like to do it in a more PC way when inflation is positive

[balor123]

Well not exactly. The ratio of pay between workers isn't changing. The salaries of younger workers remains pigeon-holed, granted the ratio of those stuck is better now that older people are being laid off. Inflation has been low for a long time so the cut wasn't very big. But a more significant problem is lack of opportunities to develop useful skills when the recession is over that can be resold and to get your pay up to market, even if market isn't very good.

[balor123]

Let's also not forget that many of these younger workers will be falling for government support of housing right now so even if things improve they'll be stuck. Sure you get $8k and a very low interest rate but to keep the subsidy you have to stay there for several years. You can't take the mortgage with you so you'll have to afford a new house in wherever the new opportunity is.

[WestCoastXPlant]

[balor123]