Wednesday, December 4, 2013

Terms and Conditions Subject to Change

I teased a post on how flu shots are a scam a little while back. The trouble isn't with the shot itself but rather that medical providers are increasingly mandated to obtain an annual flu shot or lose their job. It seemed a straightforward coercion topic, but it got me thinking about decision-making under uncertainty.

Specialized professions frequently require quite a bit of up-front investment. Workers have to be educated, trained, filtered, sorted, and assigned to tasks. This is neither cheap nor painless. And before any of that is done, workers-in-the-raw have to peer down a hazy game tree and evaluate if it's worth it to even start. One of the easier guides to action is the set of terms in a standard employment contract for the position they're gunning for.

Strictly speaking, that's wrong. What you actually want to aim for is the standard terms you're likely to get over the course of your employment, which is some stochastic transformation of the existing rules. Longitudinal analysis and an appreciation for uncertainty or ergodicity are particularly valuable for this task. Should I train to be a CFA? What do I think the regulatory environment will be like in 2033? What role will alternative currencies play? And even if I can figure that out to my satisfaction for the world of finance, to be unbiased, I have to apply the same analysis to every other potential field I might consider.

Sounds like a daunting task, doesn't it? Gives you an appreciation of the importance of regime certainty for individuals, not just firms.

And when push comes to shove, employment contract terms are softly coercive in the sense that career switching costs are pretty high for established professionals. A 45 year old nursing manager will probably just absorb an extra insult or two to the original bargain rather than walking.

I think that's why Darth Vader's little hallway exchange with Lando Calrissian resonated so well with audiences. Yes, AT-ATs on Hoth were loads of fun, but the political economy of Bespin is what really sold the film to working stiffs.

So the funny bit, to me anyway, is that firms are enabled to make these thousand-cuts insults to their employees by multitude labor market regulations. It's harder to opt out of your job when your boss indulges a taste for petty tyranny if you're bound in red tape when jumping ship.

So I think I was a bit off the mark. It's not so much that flu shots are a scam, it's more that unexpectedly mandatory flu shots in a non-ergodic labor market with high switching costs and bureaucratic sclerosis is a scam. I perhaps should not have sacrificed accuracy for pithiness. Words are cheap. Unless they're written down by a legislature. In that case, they're anything but, and it is we that must pay their price.

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Do you have suggestions on where we could find more examples of this phenomenon?