Tuesday, May 17, 2016

Merit Compensation: Some Nominal Income Considerations

Merit based compensation can also be thought of as asymmetric compensation for skills arbitrage. And it's not always possible to coordinate for a complete services marketplace, when economic activity relies mostly on relationships between resource aggregates and preferential skills capacity. Merit based employment also affects sticky wages, which can lead to further unemployment in recessionary conditions. While asymmetric compensation makes it possible to coordinate some time based services markets at national levels, it can't provide full employment capacity for many sought after time based services.

Nominal income results from both tradable and non tradable sector activity. Tradable sectors are more responsive to market conditions in the short term, because this form of nominal income adapts to ongoing changes in aggregate output. When tradable sector wealth dominates in a given economy, links between time value and resource use can be easier to follow, since the asymmetric compensation involved, directly accrues from marketplace product.

However, the relation of time value to resource capacity isn't quite so simple, in today's non tradable sector employment. In some respects, non tradable sector activity is slower to respond to market conditions, while possibly more responsive to price levels than changes in aggregate output. A number of factors contribute to the difficult to quantify nature, of today's non tradable sector income aggregates.

For one, non tradable sector compensation does not readily correlate to actual product, hence pricing is often politically determined. Since much of non tradable sector income is dependent on a fiscal transmission mechanism, coordination takes place according to available revenues, which in many instances are not immediately obvious. Hence compensation for time based non tradable sector activity, does not exist in direct relation to tradable sector marketplace capacity. Even though service sector activity has outpaced tradable sector activity in developed nations, consumption preferences are highly skewed, due to the non linear nature of this marketplace as compared with tradable sector goods.

As the services marketplace of non tradable sector activity grew, so did its dependence on tradable sector revenue. What no one really knows for certain, is the degree to which governments are still able to provide employment on asymmetric terms, when less revenue is available for ongoing obligations. Are governments meeting budget priorities by substituting other forms of capital, for income compensation?

And if so, would this circumstance have bearing on the gradual loss of nominal income - albeit in slow motion? While one often thinks of the private sector as substituting robots, technology or non time related knowledge product for employees, there's a good chance this process shouldn't just be thought of as a private sector phenomenon.

Even though some forms of non tradable sector product will always be difficult to quantify, time based product can still be locally generated and quantified on more understandable terms than is presently the case. Given today's budget constraints, governments do not always get the choice as to which time based product is best to support, given the way their obligations have grown in recent decades. And what governments provided in the twentieth century, is not always immediately recognized as a valid market on private terms.

The present relative decline in nominal income levels, is just one reason why knowledge use systems are needed. These systems could act as a gradual relief valve for overly monetarily tight conditions, by increasing growth for time based product which could be better quantified locally. By including time based wage compensation alongside merit based compensation, governments would ultimately be able to move nominal income back into a more positive direction.

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