2015: A New Year’s Note of Depreciation

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DEPRECIATION 2015The New Year, 2015, has arrived. So, like a new car, does it immediately begin to depreciate in value the minute you make it yours by shouting “Happy New Year!”?

Assuming it does, and that you are now a “shareholder” (along with the billions of the rest of us), what are the consequences—logical and practical—for job and head hunters?

And how could the new year depreciate in any way like the way your new SUV (if you’ve ever bought one) instantly depreciated when you drove it off the lot? If it does, it is worth considering whether there is anything to be done to offset or cope with the depreciation and its negative impacts, assuming there are any.

Depreciating Employment Contracts

To start with, seriously consider the idea that a new year, like a new car or many other tangible assets can depreciate. Certainly, a 1-year employment contract depreciates in value from the perspective of hours of labor-denominated value it represents. If company B wants to buy out somebody’s contract from company A—say these are two football teams, clearly, from purely the owed hours of service remaining, the player’s contract and remaining time should be cheaper, i.e., worth less than the original contract, the more time has expired on it.

On the other hand, if observed improvements in the player’s on-field performance and seasoning suggest greater performance gains in the time frame ahead, appreciation of the value of future contract periods can be anticipated—which is one of the reasons for mid-season trades.

Clock Time vs. Contracted Time

To abstractly orient yourself to the concept of “new year depreciation”, just follow this simple (admittedly over-simplified) logic:

1. Time is money.

2. Money is an asset.

3. Assets can depreciate.


Therefore, time, as an asset, can depreciate.

You may object to this line or theme of argumentation and argue that the contract and the time remaining on a contract are two different things, that while the contract itself depreciates, the time remaining on it does not and serves merely as a measure of the contract’s time-denominated value, just as the dollars that denominate the value of your depreciating SUV do not themselves automatically depreciate as the car does.

But although the ticks and tocks of a clock are likewise in fact different from the time that they measure, they are nevertheless quantitatively equivalent. Hence, it may be retorted that a key component of a contract (apart from the quality of service owed) is the time it specifies as equivalent to that component of the contractual obligations. Therefore as that time diminishes, the value of the contractual obligation diminishes (in the absence of separate contractual offsets, such as, from the employee’s perspective, completion bonuses as incentives).

Moreover, if the asset is defined more narrowly and specifically as “contractual time”, then, from the conceptual standpoint, it can be a depreciating asset, even if the generic time units used to measure it do not in any sense depreciate.

You may further argue that even if time is money, and that time is therefore a dollar-denominated asset, it nonetheless as such is used only to measure the value of other things, but not of itself. So how could the units of time, e.g., a year (like the units of money that they are proverbially equivalent to) depreciate just because the other asset , e.g., a car or a contract, whose value they are a measure of, in fact depreciates?

Moreover, if a dollar, a minute or a year depreciated in tandem with the tangible asset, that would make the concept of depreciation either unintelligible or exponential.

That’s because if the yardstick (dollars or time) is worth less as that which it measures depreciates, i.e., the value of time (remaining) depreciates along with the value of the contract or the car, the effect would be to compound or accelerate the overall depreciation. The tangible asset, such as the car, would be depreciating over time that is itself depreciating over time! Worse, over the same time period, we may have to deal with the bizarre concept of reiterated calculations of the depreciation of the depreciated time over depreciating time. (No, thanks. The concept gives me a headache1)

Of course, the depreciation of a car and of an employment contract differ in at least one key respect: The car depreciates relative to the moment of purchase, not to the any contractual “remaining” time (the way an employment contract depreciates without offsets, such as completion bonuses, which may in fact, as time passes, increase the value of the contract to at least the signee). Yet, a remaining time is implicit, since a key reason for depreciation of a degrading asset is its life expectancy, which means its remaining useful time (an attribute that non-depreciating gold does not have when its price is stable, since, it doesn’t automatically depreciate in value just because you bought it).

How Your New Year Can Depreciate

Consider the case of the remaining time of your professional career. The depreciation of your career, the new year, and of its remaining time can be conceptualized in more than one way:

1. DIMINISHING MARGINAL UTILITY OF CAREER TIME: From the abstract mathematical economic perspective, it can be argued that the time remaining in your career depreciates as an asset when the marginal utility of a unit of time (of your career or your life) diminishes. It need not necessarily do so, but can. (“Marginal utility” is just a fancy way of saying “the value of the next unit obtained”, where the unit can be a unit of a resource, a service, a product, etc.) If the marginal utility of your year doesn’t diminish at some point in 2015, it may do so in some subsequent new year or block of years or months, especially since marginal utility tends to diminish eventually.

For example, if some modern Einstein’s research project can achieve its target results only after a decade of experimentation, testing, etc., and it is clear he will succeed, buying out the remainder of his employment contract will be a smart investment on an asset and time period of increasing utility— delivering very attractive total, average and marginal utility.

On the other hand, in careers in which age and experience take a toll that is, on average, predictable, e.g., the eventual decline in a pro football player’s speed, reflexes and strength, the marginal utility of another contractual month or year will diminish at some point. In other words, the monthly units of “contractual time”, e.g., ” contract period March 2015″ (measured in non-depreciating clock time) will depreciate in value. The same goes for the effects of psychological burnout of the sort physicians, teachers, telemarketers, etc., commonly experience.

2. UNDER-PERFORMING DEPRECIATING CAREERS: Imagine an employee whose performance meets the job description requirements, but without exceeding them. From the standpoint of contractual time, subsequent months invested by the employer in that employee are not a depreciating asset. However, should the company suddently need to promote someone on a performance basis in order to fill an unexpected vacancy or have to otherwise raise the performance bar, that employee’s remaining contractual time may be viewed as a depreciating asset, even if only relative to the revised, stricter performance yardstick.

Although in some sense this case is an instance of diminishing marginal utility, it is distinctive in that the depreciation is due to a change in the standards of evaluation rather than to a decline in performance relative to an unchanged standard.

3. MARKET-VALUE DEPRECIATION OF YOUR NEW YEAR: Your “shares” of the new year can depreciate in value if you do not “trade” them, e.g., do not exchange them as blocks of labor time for employment income because you are still unemployed. In the eyes of some employers, a November 2015 monthly block of your 2015 time will be worth less than a January 2015 block, because you will have been unemployed far longer, making you (as far as they are concerned) a less attractive candidate.

They assume that, the longer you are unemployed, the more any given month of your 2015 time depreciates relative to January and to every month before November. Employers and their jobs are the market,so their reluctance is a measure of the market-value depreciation of your new year and its blocks of time.

4. MIXED APPRECIATION AND DEPRECIATION OF YOUR NEW YEAR: if we reflect on the depreciation of a new car, it can easily be grasped that while the car’s value will depreciate relative to the used-car market, it can appreciate relative to the owner’s other values and priorities, e.g., sentimentality, proven reliability, or as an object of affectionate tinkering and proud customizing. Although these alternate measures of worth may not be market-based or dollar-denominated, they nonetheless represent utility. The same is true of your career.

Should you choose to spend the second half of 2015 in a “Elizabethan Poetry 101” course instead of remaining at your Starbucks’ barista or High Street barrister job, your 2015 will undergo dramatic depreciation from the job market standpoint, but equally dramatic appreciation from your personal non-financial perspectives. What you will have to decide, of course, is which should matter to you more: the appreciation or the depreciation of your July-December 2015 time asset.

Completion or other bonuses can serve as a further illustration of mixed appreciation-depreciation scenarios. If an employer’s 2015 targets are met early and remaining deals collapse, paying the employee who closes the successful deals a huge completion bonus may be less attractive than finding an equally capable replacement (at contract renewal time) who will sign with a much smaller bonus.

In that case, from the employer standpoint, the original employee’s remaining, post-success contract month-blocks represent a depreciating asset (relative to employee replacement), because of the costs of buying them from the deal-closing employee.

Looking Ahead

So you can see how your 2015, as an asset can depreciate or appreciate, depending on the market, your efforts, perceptions, etc. No matter how mine turns out, I’ll be content if it neither depreciates nor appreciates…

…as long as I get some appreciation.

By Michael Moffa