Thursday, Mar. 12, 2009

Jobs Are The New Assets

Remember when jobs weren't worth your small talk? Think back a year or two. Picture yourself at a cocktail party or maybe picking up the kids from soccer. How did the conversation go? You talked about your house. A new deck! You talked about your portfolio. Gotta go small cap. Did you mention how much pleasure you derived from bringing home a steady paycheck? Probably not. "Land was valuable, and capital was valuable, and labor — who cared?" says David Ellison, a Boston-based money manager. "The attitude was, As long as I buy a few homes and invest in a hedge fund, I'm done. I can sit in my chair and watch football games."

We now know how that ended up. Your portfolio is down 50%, your mortgage is worth more than your house, and your savings account is barely visible. The job, meanwhile, is making a roaring comeback. Not in a statistical sense, of course. We are in a recession, after all: at 8.1%, unemployment hasn't been this high since 1983. But in terms of the American psyche — and a household's balance sheet — we're rediscovering the job as the most valuable asset a person can have.

For years, we felt quite the opposite, and understandably so. From 1999 to 2006, the value of real estate owned by individuals more than doubled as the homeownership rate hit a record high. The money the typical family had in the stock market soared from just 28% of financial assets in 1989 to a full 53% in 2007 as the percentage of families in the market jumped from 32% to 51%.

Houses and stocks — those were the things we paid attention to, the things that gave us the confidence to be good American consumers (hello, home-equity- lines of credit). At the same time, the percentage of income we saved dropped and dropped and dropped -until, thanks to the power of credit cards and other debt, it went negative in 2005. That was neatly explained away by the "wealth effect": we spent money we didn't have because we felt — and technically were — richer because of our assets.

All the while, we blissfully ignored a little concept economists like to call human capital. The cognition you've got up there in your head — your education and training — it's worth something. We can extract value not just from our homes and our portfolios but from ourselves as well. The mechanism for extracting that value? A job. "The income you earn from working is like the stream of interest income you might get from owning a bond," says Johns Hopkins University economist Christopher Carroll. "Think of it as a dividend on your human wealth."

Human capital is worth quite a lot. Gary Becker, the Nobel Prize-winning University of Chicago economist, figures that in a modern industrialized economy, 75% to 80% of a person's economic output comes from human capital (as opposed to, say, land or machinery). Of course, during the bubble years (first stocks, then housing), the noneconomists among us didn't exactly think about it that way. "People became mesmerized by how rich they were," says Becker, "and didn't realize the crucial asset they had in their earning power."

The tide is now turning. To see how, let's check back in with the savings rate. After it went negative in late 2005, it meandered back into minimally positive territory. Then, last year, it started bounding upward. By the fourth quarter, we were saving 3.2% of what we brought in. In January we hit 5%. No longer are we disrespecting our paychecks, treating employment income as an also-ran source of wealth. "People are realizing their job is their real source of financial stability," says Ellison, "that they have to live within the means of their job, not within the means of their assets. We're relearning how to create wealth."

As we do this, we'll start looking at our jobs differently. If that thing you do at the office every day is suddenly your sole financial lifeline, you'll approach it more cautiously. When you've got only one chip left, you're much less willing to put it on the table. In this new era, a predictable salary is more appealing than the chance of scoring big with bonuses and stock options. And having a government job — one of the last bastions of security — looks even better. One day soon you might find yourself perusing a list of the fastest-growing, best-paying professions, trying to picture yourself as an actuary. And instead of spending thousands of dollars to build a new deck, you're more likely to use that money to take a class.

Careers expert Dick Bolles sees another shift coming. If as a society, we turn our attention back to work — if we dote on our jobs as much as we did on our homes and portfolios in an earlier era — then we'll have to start asking deeper questions about why we do what we do. In December, Bolles noticed that a book he wrote in 1970 was back on the best-seller list. What Color Is Your Parachute? is about job-hunting and career-changing, but it's also about figuring out who you are as a person and what you want out of life. "Why are people rushing out to buy a book that talks about more meaningful work?" asks Bolles. "They're realizing they have to rethink work if they've got no Plan B. It reframes the whole issue of, What type of work am I willing to do?"

That almost sounds like a happy ending: the flagging economy has finally set us straight on how valuable our work is. Too bad it has also made work that much harder to come by. So often we don't know the true value of what we have until it's gone.