Employment derivatives: Difference between revisions

{{Drop|W|hen yet another}} junior customer services manager quit for a crypto startup, Hunter Barkley had an epiphany. His own salary, he knew, was an unhedged contingency apt to rain disappointment across his meagre aspirations. However much he liked his job — it had its fleeting moments of passable distraction — and however good he was at it, he had little practical control over how much he was paid to do it. He was, in the argot, structurally long an option to the market. In a time of expansion or innovation, when demand was high, his salary would ratchet up in pleasing annual notches. In times of recession it would not. The record of his own payslips reflected a great preponderance of stagnation.  

This dispiriting experience, he supposed, was common to the great, dreary sweep of humankind that clambered blearily across the clanking gears of industry. There was only one way to medicate, and that was to quit, and catch one of the waves of hysteria that periodically swept the market.

That was not the revelation, but this: just as the collected horde of wage slaves were, severally, at the whim of wanton Gods, ''so too were their employers''. Logically, they ''must'' be: the firms were on the other side of the same option.

Firms — particularly boring ones — were ''short'' what their servants were ''long'', only ''at far greater scale''. As the hype-cycle crested and troughed firms bobbed ineptly upon Hysterion’s fickle ebb and flow.

One who deploys a turgid multitude to turn the tiring wheels of business administration — a good-sized bank, for example — is locked in constant struggle against that batty tide of expectation just to prevent its personnel from being washed to sea.   

The foe, upon this reckoning, were the exciting but stupid enterprises whose sails the prevailing delusion filled. Invariably, they had to do with new technology.<ref> Inventions like the internet, web commerce, credit derivatives, [[distributed ledger|distributed ledgers]], [[large language model|large language models]] are typical examples.</ref>

At the height of a given craze, stemming the outward stampede toward the latest thing could cost a bank ''billions'' of dollars. Then, as the inflated expectations of the nascent sector foundered, the tide would come back in. Throngs of good workers would be suddenly available on the cheap. The usual means of rebalancing this by tactical redundancy, but that was expensive and prone to dent the morale of even those who got to stay.

In any case, this employment cost volatility bore little relation to the bank’s own performance and none at all to its employees’. It was a simple measure of that background market euphoria.  

{{drop|H|unter Barkley’s experience}} as a junior [[interest rate swap]]s trader gave him an idea. ''Why not hedge away this volatility?'' Different types of firm were “long” or “short” this babbling hysteria, which he labelled ''[[π]]'', at different points in the cycle. “[[Π]]” came from the Greek παράνοια, (''paranoia''), and conveyed the pleasing idea of not just madness but circularity, running on a hamster wheel and so on — all fundamental properties of the employment relationship.

At its onset, “[[Trad fi|trad-fi]]”, “bricks-and-mortar” firms are [[Short|''short'']], and delusional start-ups, [[Long|''long'']] ''[[π]]''. Eventually, as the lunacy levels off, reality sets in and employment relations [[Mean regression|regress to mean]], whereupon the ''[[π]]'' curve flattens and then inverts.  

“Employment derivatives” would lie fallow while he served out his porridge. But their time would come.

{{Drop|A|s she neared}} her [[gin horizon]], HR manager Anita Dochter embarked upon an elliptical disquisition to her old pal [[Cass Mälstrom]]. Dochter was, as usual, agitated about the unstaunchable stream of defections from her firm, a sleepy mid-market broker headquartered in Peterborough. Wickliffe Hampton was haemorrhaging hundreds of compliance and onboarding staff each month to venture capital-funded dotcom start-ups.  

Indeed, Mälstrom herself was an example: not three months earlier she had been bid away from a [[workstream lead]] role in the firm’s client money compliance change management programme. She was now [[Co-head|Co-deputy CIO]] of [[legaltech]] darling [[lexrifyly]].

[[lexrifyly]] was flush with stupid amounts of cash and a great elevator pitch but had no product to speak of, no business model, no customers and no obvious plan beyond an unshakable conviction in a healthy burn rate. Poaching ex-colleagues turned out to be Mälstrom’s sole function.

For her part, Dochter was livid. “But, Cass, we actually ''need'' our people. They do productive things for us. You know, [[MIS]] reports. [[Steerco]] [[deck]]s. Operational [[deep dive]]s. [[Netting]] audits. Look: who will lead the client money remediation programme workstream? Who will manage the [[risk taxonomy]]? But unless we pay ''your'' stupid rates, which we cannot afford to do —” at this point, she fell off her stool briefly — “and give everyone free fruit, safe spaces and a soft play area, they won’t stay with us. But, ''you'',” she hissed, clambering back up and jabbing [[Cass Mälstrom|Mälstrom]] on the lapel, “right now, ''you'' don’t need ''any goddamn'' staff. You just need to show your investors you are imaginatively on point doing fashionably insane things. That does not take actual staff. So stop taking ours.”

Mälstrom shrugged. “Well, how else am I meant to splurge away all this free money?” She lit a cigarette with a fiver.

As luck would have it Hunter Barkley, fresh out of gaol and making ends meet waiting tables, was rostered on their table for the evening. Presenting them with the check and some after-dinner mints, he cleared his throat.

“Forgive me for imposing, but I could not help overhearing. If you don’t want to lose staff, and you don’t need them, why not hedge your employment rate risk with a swap?”

Barkley dropped a slim document on the table. Mälstrom prodded it.  

“What’s this?”  

If this seemed like a bad trade for lexrifyly at the outset, it was not: firstly, cash was cheap, and lexrifyly didn’t care: what was money, when it came to it? Secondly, Barkley’s forward curve models suggested that the looney bid could invert in any number of circumstances: a market crash, hawkish monetary policy, the arbitrary dissipation of mass hysteria or the sudden onset of incipient tech winter.  

For these contingencies the ERS was a natural hedge. While wide-scale redundancies and hiring freezes gripped the fintech sector, the boring old banking industry would box on as it always had done. At that point, a fintech that was short ''[[π]]'' under an [[Employment rate swap|ERS]] would have a sensible amount of cash coming in from its bank counterparty to keep the lights on.