So what do you want to be when you grow up?
A movie star?
When Dan’s son was three or four years old, he had his heart set on being a garbage truck driver.
In centuries past, most people were farmers. If you were the son or daughter of a farmer, then you would grow up to be either a farmer or a farmer’s wife. There wasn’t much point in worrying about it. Nobody ever asked, “What do you want to be when you grow up?”
By 1700, people began to have some choices—not all of them good—immortalized by the nursery rhyme:
Rich man, Poor man
Today, of course, there are thousands and thousands of different job titles. A precocious four-year-old today might say, “I’d like to be the database administrator for a large, urban hospital, running Oracle software.” The reason we have so many job titles today is because we’re so much richer.
Actually, it’s the other way round. As the Scottish economist Adam Smith (1723-1790) pointed out, societies get richer as jobs become more and more specialized. We can illustrate this by example.
Farmer Bob goes to Farmer Bill and says, “Hey, Bill—I’ll give you my tomato for your potato.” And maybe they’ll make the trade, but it doesn’t really accomplish very much. After all, both Bob and Bill can grow both tomatoes and potatoes, so there’s really no point in trading. They can help each other out—Amish farmers famously help each other build barns. But if all your neighbors are farmers, then there isn’t very much to trade, and it’s a subsistence level, eat what you grow economy.
Now suppose Doc Charles moves to the area. Farmer Bob has taken ill and says to the doctor “I’ll give you some tomatoes if you can cure my ailment.” Now that’s a real trade—Doc Charles gets fresh tomatoes, and Farmer Bob feels better.
Doc Charles scribbles down a few notes about Bob’s ailment, hoping he doesn’t forget. But he gets pretty busy with all the other farmers in the area, and then he can’t remember if Bob had a knee sickness or an elbow sickness. So he hires Mary to transcribe his notes for him and keep them organized.
That works for awhile, but soon enough there are a lot of other doctors in town. There’s the knee doctor and the elbow doctor, the nose doctor and the eye doctor, and there’s even the head doctor who becomes known as the shrink. Mary can’t keep up anymore, so they hire Jennifer, who administers the Oracle database storing medical records at the large hospital in a nearby city.
Whenever Farmer Bob gets sick, he makes sure to give Jennifer a few tomatoes. Not directly, of course—it’s all mediated by money. Bob has likely never met Jennifer and probably doesn’t even know what an Oracle database is. Still, precisely because they do such different things, the trade is highly valuable to both Bob and Jennifer. He gets much better medical care from a whole army of doctors, and Jennifer gets fresh tomatoes.
Tomatoes and health care—that’s what it’s all about. In order to provide Bob with better health care, this whole complicated supply chain developed—doctors, nurses, databases, syringes and needles, pharmaceuticals, computers, linens, soap, disinfectants, etc., etc., etc. Thousands and thousands of people work hard every day to provide Bob (and people like him) with good medical care.
And why do they do it? Because they want fresh tomatoes. Of course, Bob doesn’t produce tomatoes by himself. He is also part of a very complicated supply chain: fertilizers, pesticides, tractors, seeds, refrigeration, transport, packaging, retailing, etc. Again, thousands of people are working hard every day just so that Jennifer (and people like her) can have fresh tomatoes.
Put more generally, Bob’s supply chain is trading tomatoes in exchange for the medical care produced by Jennifer’s supply chain. They all work hard for one reason: Bob’s people want medical care, and Jennifer’s people want tomatoes. The medical care and the tomatoes are known as the consumer benefit.
Consumer benefit is the net benefit that consumers get from buying your product. Farmer Bob can sell tomatoes only because Jennifer enjoys eating them. Farmer Bob’s goal is to create consumer benefit, from which he can capture a profit that enables him to buy the consumer benefit created by Jennifer’s supply chain.
Consumer benefit is what makes the economy go round. It is very hard to measure directly—that’s why people measure GDP instead. GDP and consumer benefit are similar but not the same thing. Some things, such as Craigslist or Google, contribute huge consumer benefit, but only a little bit to GDP. Others, such as the military or prisons, do not contribute to consumer benefit, but make up a significant part of GDP. These are expenses society incurs because of the failings of human nature.
The economy consists of a large number of supply chains, each of which produces consumer items that they trade with each other.
So, gentle reader, if you are still with us, you are a very industrious and diligent student who will undoubtedly have a successful career. But now it’s time to cash in—we promised to tell you what a job is.
Jobs, Supply Chains and Specialization
A job is a step in a supply chain (or chains) that produces consumer benefit.
- When you are looking for a job or a career, there are several questions you should ask.
- What is the consumer product your supply chain will ultimately produce? Is it medical care, agricultural produce, entertainment, transportation? Will consumers buy it? Will they still be buying it twenty years from now?
- How valuable is the consumer product you will be making? You will earn more money in a high-value market than a low-value one. Medical care is more expensive than tomatoes, which in turn is more valuable than pet rocks.
- How long and complicated is the supply chain? Generally, expensive products (such as automobiles) have very long supply chains that span the globe, while vegetable produce tends to be more local. The longer the supply chain, the more valuable the product, but the more susceptible your job will be to technological or economic disruption.
- What is your role in the supply chain? A farmer plays a central role in food production and is unlikely to ever be completely unemployed. Dan is a chemistry professor, and so plays a tangential role in medical and engineering professions, along with whatever supply chains they might be part of. But the role is so slight that employment as a chemistry professor is probably much less secure.
Some examples may illustrate.
Many students major in computer science, including our fictitious database administrator, Jennifer. But computer science is not a consumer product—when was the last time your parents brought some computer science home for dinner? Instead, computer science is a remarkably flexible tool that can be used in any number of supply chains. Jennifer uses that tool to provide medical services to consumers. Her income comes from medical services, not from computer science.
As she advances in her career, her expertise will become increasingly specialized within the medical industry. As previously described, specialization makes us richer, and in particular it will make Jennifer richer. That is until technological change renders the job of medical database administrator obsolete. At some point Jennifer may be too specialized to easily shift careers into some other supply chain. She may end up unemployed.
Dan’s daughter majored in English. She didn’t aspire to become an Englishwoman, or an English teacher, or even an English professor. Instead, her education, interest in writing, and good fortune led her to become a journalist for a trade magazine. Analogous to Jennifer, writing is a tool. Her income comes from the trade she writes about, not from her English degree. She’s part of the supply chain whose product you consume whenever you tip back a glass of beer or open a bottle of wine. Cheers!
This is why the question What are you going to do with an English degree? is so nonsensical. Dan’s daughter sells booze with her English degree—who woulda thunk? Like computer science, English is a very flexible tool that will fit into any number of different supply chains. Some college majors are similarly flexible: political science, philosophy, mathematics. Others are much more limiting: hospitality management, engineering, medicine.
There is a trade-off between specialization and flexibility. English is probably a more flexible major than computer science—Dan’s daughter, by virtue of being less specialized, will have an easier time shifting to a new supply chain than Jennifer. By the same token, his daughter doesn’t earn so much. The extra salary that Jennifer earns can be thought of as a risk premium. She adds more value because of her technical specialty, but she’s at much greater risk of future unemployment. Dan’s daughter is unlikely ever to be unemployed.
Some jobs seem like sure things today, but they probably aren’t. Medical doctors have many years of education and training, and are in highly specialized fields. Accordingly, they earn high salaries. What is often not realized is how susceptible that profession is to technological disruption—in our view, medicine is a very high-risk profession precisely because it is so specialized.
You may have heard of IBM’s Watson computer, the one that became the Jeopardy champion. IBM didn’t build that computer just to play Jeopardy, but rather to make medical diagnoses. Indeed, Watson now turns out to be better at diagnosing cancer than most humans.3 We only hope those humans are current on their unemployment insurance premiums!
So you have a choice. You can major in a very specialized subject like medicine or engineering (or specialize in a particular application of computer science). You will earn a higher salary, but you may also be at much greater risk of unemployment later in life. Or you can major in something more generic and flexible, like English or philosophy. Your starting salary will be a lot lower, but your ability to move within and between supply chains will be greater. You’re less likely to be unemployed.
There is a second choice you have to make. Should you major in a tool, such as English or computer science, or in a supply chain, such as medicine, education, or hospitality management? The latter is preparation for a job in a specific industry, but locks you into it right away. Your future career will depend entirely on the economic fortunes of the consumer good that supply chain produces—imagine if you’d studied newspaper reporting. Studying a tool, on the other hand, is much more flexible. But because you are less specialized, you will earn substantially less on your first job, and you may have a hard time finding that first job. Either way, at some point you are going to have to decide what supply chain you want to attach yourself to. That’s the really important decision, because that’s going to determine how you earn your money for your career.
In the last chapter, we discussed hedging your risks. If you are risk averse, we suggest you study a tool, such as math or English. If, on the other hand, you’re really passionate about a particular topic and willing to put it all on the line, then by all means go for a supply chain, like medicine or engineering. Other disciplines, such as chemistry or business, hang somewhere in the middle between those two poles.
Case Study: Social Media
An employment agency called The Creative Group (TCG) hosts a superb webpage with lots of information about social media jobs. This includes position descriptions and even salary ranges. Let’s look at some of that information using the tools we’ve developed in this chapter, beginning with the four key questions.
What is the ultimate consumer product your supply chain will produce?
Social media is a form of advertising that is most useful for what is known as the consumer discretionary market. These are items that people enjoy buying, but don’t consider necessities. It includes things like restaurants, gourmet food and drink, fashion and cosmetics, vacation travel, and home decor. By contrast, few people consult social media when buying groceries, car tires, gasoline, or workaday clothing.
Consumer discretionary is definitely a durable market and will be around for a very long time. However, it is not a rapidly growing one—and is definitely hurt by the decline in GDP. Further, growth depends on population growth, which is slowing. On the other hand, growth in emerging markets such as China and India increases the number of people who buy things for fun.
How valuable is the consumer product you will be making?
Most people don’t have a lot of money for discretionary items. Yes, there are a few people who can spring for a Mercedes or a Ferrari on a lark, but most are content with going out to eat once or twice a week. So, this tends to be a low-value market.
How long and complicated is the supply chain?
Defining supply chains is usually pretty ambiguous, and where you draw the line is a bit arbitrary. Restaurants, for example, depend on the entire agriculture industry, and that supply chain is incredibly long. But let’s restrict our attention to the part that makes it discretionary, i.e., the part that is specific to restaurants. So the local farmer’s market selling fresh produce is part of the supply chain, but the large food processing plant in the Midwest is not. With this caveat, the supply chain is relatively short, consistent with the fact that discretionary items are relatively low-value.
What is your role in the supply chain?
Social media people are a core part of the consumer discretionary supply chain. By definition, these are things that consumers do not have to buy, and hence advertising is extremely important. The cynic will say you are trying to talk people into buying things they neither need nor want. Our view is more generous: you are giving people an opportunity to have fun. Either way, your career is most secure when the people who buy your product enjoy using it.
Consumer discretionary is a very durable market that will make for a successful career over the long term. It depends crucially on advertising, of which social media is an important part. However, the product is of relatively low value, and the industry looks to grow slowly. Therefore, you won’t get rich.
So what’s with this highfalutin social media term? In part, it’s just employment agency hype—they are trying to convince their customers (employers) that their people have some special, rare talent. Accordingly, they greatly exaggerate how difficult it is to find people—looking at the TCG webpage you’d think there was a huge shortage of social media professionals. Almost always, you can’t trust employers’ descriptions of the labor market—they always think there’s a shortage. On the other hand, social media does represent a new employment opportunity—what used to be advertised on the radio now shows up on Facebook.
TCG provides a long list of job descriptions. Let’s look at three of them and see how they fit into the ideas of this chapter.
A blogger is “responsible for opinionated, stylish writing and frequently posting new content to the internet.” The key requirement is “must demonstrate an ability to write professionally for varied audiences and meet tight deadlines.”
A blogger’s job is really about good writing, something that was important long before there was social media, and will be necessary long after the social media fad has faded. Somebody who can write well will always have a job. But this is not a specialized position—the salary is relatively low. Their salary guide (Creative Group 2015) quotes a range from $43K to $65K.
This is a highly specialized, technical job. It did not exist ten years ago, and it likely will not exist ten years from now. Consistent with our above analysis, we would expect a significant risk premium, and hence higher pay. We can’t find that specific job title in the salary guide, but an interactive producer earns between $73K and $103K.
Finally, consider a leadership position, such as a director of social media. This person is “responsible for developing and overseeing the execution of strategic social media and digital initiatives, including developing and managing viral marketing campaigns, creating and supervising high-profile channel accounts, and integrating interactive media into the overall business strategy.” The quoted salary (as best we can determine) is between $100K and $135K.
Compare a computer science major and an English major, both starting out in social media careers. Give reasons for your answers.
Who will earn the highest initial salary?
Who will have an easier time finding the first job?
Who will learn more about the consumer discretionary market?
Who has the greater job security? What could the other person do to increase job security?
Who is more likely to move into a management position? What could the other person do to create a better path to management?