You know, there are many things that you can learn from physics and other sciences when speaking about social interactions, humans, and markets.
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Two years ago, I had a very interesting discussion with a good friend of mine that told me that the theory of systems works very fine when dealing with teams. According to Ziegler–Nichols method, a system can be characterized (that is to determine its parameters), by applying a step input. It is a long story about what this means, but to make it easier comprehensible, L. said that you can see how a team behaves when a significant event happens: the boss is replaced, there is a high fluctuation ongoing, a new project has to be tackled soon. Basically, under stress, all behaviors are exacerbated and small thing you would not care usually become a big deal.
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Than, I noticed that other laws of physics can be applied in the management of human resources. The best one that depicts a free market is the principle of communicating vessels. According to Wikipedia, the principle has been used starting with ancient Rome for indoor plumbing, as follows: Water will reach the same level in all parts of the system, which acts as communicating vessels, regardless of what the lowest point is of the pipes – although in practical terms the lowest point of the system depends on the ability of the plumbing to withstand the pressure of the liquid.
What does it actually mean in a free labor market: the offer (need of jobs) and the demand (number of existing workers) are working in the same way like the air and water. Let’s take some examples:
A small company is winning a very competitive contract with a company located in a different market. The competitive advantage is the cost of work on the local market, which seems to be at most one-third of the cost from the remote market. As a consequence, the pressure from this company to the local market will increase and will generate some movement from one company to another. If the pressure is kept on short term, than only a few workers, the people on the move, will be affected by the situation, while the companies are not affected too much. This is a natural situation and actually, it is sometimes healthy for the market. Take, for instance, the examples with rivers and lakes. If the water in lakes is not refreshed from time to time, it’s smelling bad and is not oxygenated well enough to foster enough the life. In the same time, the rivers have more interesting forms of life and the water should be cleaner. So, to say it loud and clear, there is no labor market without a little fluctuation, which can become healthy, when we speak about low numbers.
What happens when the pressure is high? Usually, there can be two approaches:
On one hand, the other companies on the market start to develop counter-measures on the pressure from the market, to decrease the attraction to the new positions. These countermeasures can include but are not restricted to, salary increase, new benefits, new HR policies to make jobs more flexible and attractive. Actually, there is no sure recipe, it strongly depends on where the company affected by fluctuation starts and who is the competitor.
On the other hand, the competitor is so strong, that cannot be implemented any reasonable measure. Or so weak, that to implement new rules simply makes no sense. It is just a matter of time to let the market cool down. In the first situation, it helps a lot to have a great contingency plan. In the second situation, it is great to have patience and a great business intelligence. Intelligence like agent 007. Being well connected in the market, you can easily learn what is the actual threat and react with calm.
There is a matter of time until the demand is somehow equalized by the offer. And I have bad news for IT industry. When a market cannot meet the demand on long-term by increasing the offer, the demand will move to another local market. It is obvious for any of you, that when you dont find the needed groceries nearby and with the expected cost, you move a little bit away from your area, even going to hypermarket.
Actually, the little drawing from the beginning of the article is much more complex and actually, there is no local market anymore. Of course, the vessels communicate through thicker pipelines and it takes a while to feel the pressure from one vessel to another. Yet, the vessels are surely connected, especially when speaking about highly sophisticated jobs like medical doctors, IT, telecom, scientists. In these cases, we speak about a global market, whereas the carpenters, plumbers or salesmen are more localized.
In the end, everything is influenced by everything and all the vessels communicate with all the vessels.
Keep calm and enjoy your job…