The froth of creative destruction has earned a column from Robert J. Samuelson. He starts by noting:
A puzzle of our time is why the economy has become increasingly stable
while individual industries have become increasingly unstable.
He comes to the reasonable conclusion:
Why does an economy of greater stability have industries of lesser
stability? The answer is competition. An intensely competitive economy
enhances overall stability by holding down inflation (which is itself
destabilizing) and spreading economic disruptions throughout the
business cycle (rather than letting them accumulate for periodic,
massive downturns).
Along the way, he presents some research that backs this up,
including some lessons about compensation that the state could stand to
learn:
Feeling threatened, corporate managers have altered pay and employment
practices. In 1994, economists Peter Gottschalk of Boston College and
Robert Moffitt of Johns Hopkins University showed that annual wage
gains also had begun to bounce around more in the 1980s (in technical
lingo, there was more variation around the average). Now, [Diego] Comin and
Erica Groshen of the Federal Reserve Bank of New York and Bess Rabin of
Watson Wyatt Worldwide have connected these erratic wage increases to
firms’ fluctuating fortunes. In good years, companies enlarge the pot
for wage and salaries, says Groshen; in bad years, the pot grows less
or shrinks. About four-fifths of big U.S. firms also resort more to
bonuses, personal incentives and stock options, Hewitt Associates
reports.
Another recent paper
by Paul Oyer of Stanford Business School studied the way for-profit
companies compensate their employees with different benefits packages
than the government, and so get a different type of employee. At some
point, however, governments and their employees will have to accept
some volatility as well (maybe even merit pay).
