Is the Experienced Indian Middle Class the Proverbial ‘Frog in Hot Water’?
The opening up of the India economy in 1991 drove job creation like never before in the history of India’s economy, and led to burgeoning of the middle class. Three decades on, it is fair to say that the middle class has substantially increased, and been both a driver as well as a benefactor of the economy. There is an ongoing debate on how big the middle class (including upper middle class) really is? The answer widely varies depending on the income threshold we choose to apply. While that’s a debate for another day, a fair(er) representation, and closer to the global benchmark, is have 3% of India’s population or 40 million people. A large part of this 40 million people are in white jobs. Today, I want to focus on something that I have noticed heuristically as I speak with colleagues, friends, mentees and mentors. It is the omnipresent sense of financial and career insecurity for people in the working middle class, especially those in the 30s-50s age group. People in their 20s are insulated from this issue as they battle challenges of getting a job, paying off education debt, and adjusting to the work life. Equally, people in their 60s have a different set of challenges more around retirement planning and sustaining in the job market.
As I talk to people in their 30s to 50s, there is clear trend centred on financial and career insecurity that emerges. The articulation varies from vague to vivid, depending to who you talk to, but is palpable once the veil of weather conversations wears out. To be clear this isn’t a situation that’s restricted to those at the middle or lower end of the bell curve, but equally applicable to those at the top of their game. A look back at news coverage of the last 24 months alone is enough to highlight a trend of widespread lay-offs and ‘right sizing’ in ITES behemoths, captives and star-ups, retailers, tech product companies, etc. The layoffs that largely impact the mid to senior cohorts (manager to SVPs), typified under the guise of restructuring and realignment, often go under the radar as these companies continue to hire at junior levels in parallel. Some managers at the mid-level find the right role soon enough, while some are still are working through LinkedIn Premium to find the openings. Talking of the VPs and SVPs, the reality that’s panned out is a bit grimmer. A lot of them are still trying to find the right role, struggling to come to the realization of what hit them – how can they go from leading a large team (or even a site) to suddenly leading a large search operation to land the next role. A few others, who are more dynamic, have ventured out to with their own start-ups. I am making a wide generalization, but please bear with me as I look to illustrate and deduce what it means. Let me make this a bit more real and relatable using a couple of example.
Example 1 –Mr. X is a senior manager with a Bangalore based financial services captive, leading a part of the technology team. He brings 13 years of experience to the table, having started his career in 2007. He became a people manger within 5 years of working (in 2012), which in turn meant that by 2016 his primary skill set was business and people management rather than technical software languages. In 2017, his way of working further got disrupted when the firm he has been with for last 6 years pivoted from a waterfall mode of working to an agile mode. As this pivot happened, he did manage to get the agile certification, but in reality he still remain partly rooted in the traditional waterfall mode. Today he draws an annual package of INR 25 lacs. After paying for the schooling of kids in decent private schools, the one annual vacation, and EMI of his house, and SIP investments of a few thousands, there isn’t much left in the bank monthly. The bonus at the end of the year is something he looks forward to add to his corpus of wealth. He still has 7 years (of the 20 years) of EMIs remaining on his home loan account.
Come 2020, the firm he has decided to automate a part of the technology testing, while reducing the layers of people managers. If X is lucky he will have the wind to last a few more years in the workforce, and if not he will be asked to leave, at best with a severance package of 3-6 month. In case of the latter, his employability for a similar job or pay scale may become questionable as he isn’t the most hands-on or up to date with the latest technology. Career shift or settling for lower paying job are two possibilities that will likely stare him in the face in this situation.
Example 2 – Mrs. Y is a SVP with a leading Retailer, managing operations for the firm. She has over 25 years of experience, dating back to 1996 when retail expansion started. She has been with her current firm for the last 5 years. She has one kid, a working spouse, and one of the surviving parents to take care of. Her annual package is 60 lacs. Her household has two houses (including one in which they live), and liquid investments in capital markets to the tune of 20 lacs. She is currently paying EMIs for their 3rd house, and is in year 3 of 10 with regards to its financing. With kids in college, there are relatively limited financial liabilities for her to take care of.
With the brick and mortar fashion space getting disrupted by online channels, together with the margin pressures on physical retail stores means that the current employers wants to optimize and digitalize operations. As a part of this exercise, the management decides to bring in a younger, more technology savvy operations leader to help make the pivot to online cum offline brand. Mrs. Y may likely find another role; however, it is unlikely to be at the same compensation levels. Realistically, though she could take a lot longer to find another role of her liking, and there is a possibility of her venturing to try out something on her own. Perhaps joining forces with some likeminded folks in a similar life stage to start a retail operations company, or a tech start-up is something that she might explore.
So what’s driving this middle class dream to collapse, and is it over? I wouldn’t go as far as saying that the dream is over, but rather it is hitting a road bump in certain cohorts. Some of the service class, with over a decade of experience, is getting jolted with what’s transpiring and jittery of how the remainder of their careers may pan out. The good news from an economy (not the individual’s standpoint) is that this dream will continue to take shape for more and more young people that join the workforce till they hit their mid-career mark. There is a multitude of factors that are coming together for this dream to get derailed. To analyse what’s making this happen, let’s take a look at some the fundamental shifts that have happened socio-economically over these three decades.
1. Move from public to private jobs – As compared with our parents’ generation, where a large proportion of the workforce was employed in the public sector, today a majority of us are in the private sector. This in turn means, a large proportion of us do not have the financial security of pension that the previous generation enjoyed. Further, while theoretically in the private sector one can continue to work for much longer, in most private companies (both Indian and MNCs) the retirement age is between 55-60 years of age.
2. Talent Oversupply– The demographics that works to the benefit of the economy, with the largest and youngest working population with a mean age of under 30, do take their toll on the experienced middle class workers as well. A constant supply of young and cheaper talent pool being churned by engineering and B-schools poses threat to the experienced worker as companies are faced with a need to manage rising costs.
3. Low Skill Differentiation – A lot of the workforce, whether in manufacturing, retail or knowledge services, has a low level of skill differentiation. It mean, few of those in the 10+ years of experience bracket, bring a skill set that continues to remain critical to the firm. Lack of differentiation in turn means, that employees are the risk of replacement by younger, and cheaper resource options.
4. Technology Disruption – Across sectors, a lot of jobs are being replaced through automation and algorithms, and the same is likely to intensify. I am not a pessimist who believes that technology disruption will lead to job losses, but rather lead to higher job creation, though of higher skill mix. However, the latter is good news for the economy in general and for the upcoming workforce rather than those who are already in the workforce. In other words, there is a high likelihood of getting disrupted out of a job unless we upskill. Now, while the online learning market is growing exponentially, a look at their user base does suggests that a lot of the participants are in the 0-10 years’ experience bracket, and fewer in the 10+ years experienced bracket.
5. Narrowing of the Pyramid – The trend of being hands-on that’s been in vogue globally is fast catching up in India too. Not only are there are fewer jobs at the top, the jobs in the middle tier are also shrinking.
So what will be the likely impact of all this, and why aren’t most people doing something about this. The answer lies in two points. The day to day hustle of work and family, together with the gradual pace of change has led us down the frog in a hot water syndrome. Further, a lot of us continue to be in denial feeling while this is happening to others around it won’t impact us. This is the same syndrome that’s leading to global concerns such as climate change. The impact as I see is going to be threefold.
Contracting will pick-up, as it is in other parts of the world. Companies will recognize that they do not need to necessarily have all senior and experienced employees on a full time basis, but rather on a contractual and time bound basis. This will see a lot of seasoned professionals straddling multiple jobs than, and accepting the reality of no job security.
Jobs in the semi-organized sector are likely to pick up as well, as the organized sector turns a half blind eye to the experienced workers. Examples will be more Uber drivers, managers at restaurants, etc. coming from the experienced worker set.
The economy, despite the growth, will continue facing a dichotomous situation that will lead to a structural imbalance. At one end, a lot we will see a lot of the middle class that’s experienced struggling to stay relevant at their current pay packages. On the other end, more and more people will continue joining the workforce and get added to the entry level while collar jobs. This will mean the on one hand the economy will continue to be punctured by the fading (even if temporarily) experienced workers, while being boosted by increasing number of workers continue to join the workforce. This is likely to create a structural weakness in the economy. The weakness could get grimmer if recession kicks in.
The eventuality that we will be physically capable of working for much longer than our parent’s generation, but will probably stay relevant to work for a far shorter time frame is something we do need to come to terms with. For coming to terms with something is a first step to a preparing yourself to manage the situation. Here are some thoughts on potentially managing this.
Deliver at least 5X return on your current CTC
While this sounds simplistic and obvious, it is important to try and quantify the impact/ results you are delivering in your current job and how that benefits the organization. I acknowledge that it is not going to be easy, but doing so can make you “restructuring proof” in many ways. Also, if there is limited opportunity to do so in your core line of work, think of other areas/ opportunities within the larger firm to create this value.
Embrace the unlearn and relearn philosophy to stay relevant
The sooner we come to terms with the fact that we will need to reskill ourselves, not once but multiple times over during the course of our career, the better place we are going to be at. It is important to take time and list out the possible disruptions that could happen in your line of work over the next 5 to 10 years – automation/ outsourcing/ in-sourcing back to the home country/ potential reductions in roles and functions. This can then be used as a starting point to identify which areas to upskill towards.
Develop multiple sources of income
One of Warren Buffett’s most referenced piece of advice is never put all your eggs in one basket. Simple to understand, it can be fairly difficult to implement when it comes to the career. Having a side gig can be another approach, though may not be feasible for most. What maybe more feasible is to try and build some kind of financial back-up in the first few years of working that we invest to gradually build out a parallel income stream (even if small to start with). Another approach that experienced financial planners recommend is to keep funds worth one year of household expenditure as reserve to prepare for unanticipated left field events, thereby buying some time to thoughtfully respond.
Don’t let your current role define what you are willing to do
Far too often we get constrained by our qualifications and comfort zone in roles we take up. Increasingly, as new roles (that didn’t exist in the past world) come up, it is important to explore them and take leap of faith if there is some match (vs. a perfect match) in skillset and aspirations. An employee who is flexible to step up and explore different roles, even if they aren’t aligned with the traditional career growth path, remain valuable to companies in today’s evolving work scenario.
