How economics can help us pick a job or an industry

Generally speaking, it pays to be in industries where prices and demand are going up.

Economics 101 tells us that prices generally increase due to low supply and high demand, more suppliers enter the market attracted by high returns.  Eventually competitively reduces returns and prices will stabilise, acting as a disincentive to new suppliers.  Alternatively, or synchronously, demand may also drop away as people find substitute goods and services.

So rising prices and rising demand is the ideal scenario.  But what about an industry where you have either prices or demand going down?  Well, typically, the decrease in one needs to be less than the increase in the other.  I’ll give some examples.

Prices declining, demand increasing

Information Technology is a good example of extreme price decline, but massively increasing demand.  Computers have also been able to innovate and increase demand over many years.

Prices declining, demand flatting

Retail is an example of an industry where demand is flattening out and prices are going down.  For a long time demand was enough to compensate for the declining prices.  Also, by contrast to information technology, retail is – arguably – less able to truly innovate.  Fashion trends are innovation in retail clothing but the real ‘innovation’ in retail has so far been to replace bricks and mortar with online shopping, which has just exacerbated the downward pressure on prices.

Prices and demand declining

And when you have prices and demand going down, get out.  I’ll try to think of some industries that fit this and edit this post when I do.

The stable option (accounting and law)

Exceptions to the above are accounting and law, professions that are largely sector agnostic.  They will always exist so long as we trade with one another (accounting) and murder and assault are illegal (law).  So they’re pretty safe industries to work in but may exhibit ups and downs along with the broader business cycle.

 

Conclusions

I don’t claim to have the answers but I do like farming and food production.  Increasing demand and increasing prices over potentially a long time, with declining supply of the factors of production (namely land, fertiliser and water) make this an attractive area to me.  And if you don’t want to read the tea leaves and divine the future, just become an accountant or lawyer.