Employment derivatives: Difference between revisions

Different types of firm were “long” or “short” this babbling hysteria, which he labelled ''π'', at different points in the hype 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, the lunacy levels off, reality sets in and employment relations [[Mean reversion|revert to mean]], whereupon the ''π'' curve flattens and then eventually inverts.  

If one could only match off long and short exposures, Barkley realised, firms on either side of the bid could hedge their exposure to π.   

If this seemed like a bad trade for lexrifyly, in actuality it was not: firstly, it didn’t care: what was money, when it came to it? Secondly, Barkley’s models demonstrated that the economics could change in any number of circumstances: for example, a market crash, hawkish monetary policy, the dissipation of mass hysteria or incipient tech winter. For these continencies the ERS was a natural hedge.  While widescale 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 startup that was short negative ''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.   

The market needed an observable, objective measure of “prevailing startup insanity”, which Barkley approximated for “''[[π]]”''. Barkley supplied it. Under the auspices of the British Human Capital Managers’ Association (BHCMA), a committee of fashionable startups would meet each afternoon in a WeWork in Shoreditch and over kombucha martinis to state publicly, in front of a panel of [[venture capitalist]]<nowiki/>s, how much they would be prepared to pay an underperforming settlements and reconciliations clerk to join them and drive customer engagement. They expressed this as a premium or discount to ''π''', being the equivalent value for the preceding day.

The BHCMA would weight the submissions by reference to the volume of cash the venture capitalists lobbed at each startup, trim the top and bottom estimates, average the remainder and compile and publish the trimmed arithmetic mean rate as the [[London Inter-Employer Basic Offered Rate]]. Quickly, [[PIEBOR]] as it became known became the ''de facto''  measure of  ''π'' and was soon factored into the “floating” leg of [[employment rate swap]]s as standard.

Individual workers began to buy π-linked [[contracts for difference]] as a way of laying off their own intrinsic [[loyalty discount]], a sort of negative carry that comes from unreflective devotion to a single monolithic corporation. This restricted the need to quit to a narrow run of unmanageable idiosyncrasies such as cultural fit, business relocation and visceral hatred of the boss.

So began the sad chronicle of employment rate swap mis-selling. In this dark episode, banks would separate the employee’s fixed rate, and pay that under a physical employment contract, then separately hedge out their π risk with a linked derivative. Before the emergence of ERS, the π risk was intrinsic to the employment contract and could not be abstracted and traded separately.