Investing In People

Last month, on Labor Day, we honored the U.S. work force amid growing concern about its quality and its future. We can change that future, but we must act now.

October 1 1990 by David L. Crawdord


In Labor Day 1989, the Secretary of Labor’s Commission on Workforce Quality and Labor Market Efficiency (Workforce Quality Commission) began its final report saying, “America‘s ability to shape the course of the twenty-first century will depend largely on the productivity of the American workforce. Competitive advantage has replaced military might as the principal source of global influence.” Those sentences were written before the walls came tumbling down, but recent developments in Eastern Europe only reinforce the argument.

Our concern about work force quality is motivated in large part by our fear that our nation’s standard of living is in jeopardy. Today we enjoy a standard of living that is very high relative to other nations, but without aggressive corrective steps, the traditional American dream of a more prosperous life for each successive generation may prove unachievable for large numbers of our children.

DEMOGRAPHIC AND ECONOMIC TRENDS

As we look to the future, we see demographic and economic trends that pose significant threats to our global influence and standard of living. Many of these trends were described in Workforce 2000.

The Aging Work Force. As the “baby boomers” age and the “baby busters” enter the labor force, the average age of the labor force will increase. There will be a growing need to retrain experienced workers in order to meet requirements for new skills because new workers will be in short supply. A few employers are already responding creatively to the aging work force. Days Inn, for example, has hired and trained retired persons to handle computerized reservations. Unfortunately, a new survey conducted by Towers Perrin and the Hudson Institute shows that most employers are doing little or nothing to respond to the aging work force.

The employed percentage of the total population will shrink soon after the turn of the century, when the baby boomers begin to retire. Since the employed must produce all the goods and services consumed by the population, the productivity of the future work force must increase to carry a heavier burden. If productivity does not increase quickly enough, the average standard of living will fall and intergenerational political debate will become much more heated than it is today.

The Feminization of the Work Force. More than 60 percent of the people entering the labor force between now and the year 2000 will be women. The continuing movement of large numbers of women into the work force will cause more stress for workers, both male and female, who have to cope with both family and job demands. To attract and retain the desired skills in tight labor markets, employers will feel pressure to provide “family friendly” work environments featuring schedule flexibility, dependent care programs, leave programs, and the like. Some employers, particularly some large employers, have already begun to introduce such innovations. IBM, for example, provides employees with schedule flexibility, dependent care referral services, and extended personal leaves. In addition, IBM conducts training programs that sensitize managers to problems that employees may encounter as they try to balance family and job demands. Unfortunately, as many have suspected and the Towers Perrin/Hudson survey confirms, many employers are doing little or nothing to help employees balance the demands of work and family.

The Growing Minority Role. Minority group members, particularly blacks and Hispanics, will be the other major source of future labor force growth in many parts of the country. It will be increasingly important to improve the labor market skills of minorities and to remove any remaining labor market discrimination. If we can accomplish the former, the latter is likely to be easier than ever before because of anticipated shortages of skilled workers. There will be a real opportunity to bring formerly disadvantaged populations into the economic mainstream, but only if we, as a nation, invest in their labor market skills.

Freer World Trade. There seems to be a general trend toward more open world markets. As U.S. firms face more and more foreign competition, the productivity of their workers will become more and more important. Adaptability of U.S. workers will also become more important when changes in world markets lead to rapid changes in the skill requirements of U.S. employers.

Technological Change. We expect that technological change will increase the skill requirements of many jobs. Already, some truck drivers are asked to operate handheld computers; some janitors are asked to operate complicated machinery and deal with fractions in measuring cleaning materials. The days when illiterates could easily have high-earning careers in manufacturing and other industries are gone forever.

In a valuable new book, Leadership for Literacy, Forrest Chisman reports the unfortunate fact that “at least 20 to 30 million adults do not have the basic skills required to function effectively in our society.” Each year more such adults leave our high schools as both dropouts and graduates. Millions of adults are almost unemployable because they are unskilled and untrainable-untrainable because of illiteracy and innumeracy.

To make matters worse, many people believe that technological change is accelerating, so that the life cycles of products, technologies, and industries are becoming shorter. Shorter cycles will result in more rapid obsolescence of workers’ skills, heightening our need for retraining systems. Illiterate workers may be able to do some of today’s jobs, but they will be very difficult to retrain in the future.

The Skills Gap. The confluence of these trends is going to produce a “skills gap”-too few people who have the skills that employers want and too many people who do not. Some employers will not be able to hire the types of workers they need to compete in international markets. Employers will bid up the wage rates of the skilled workers they can find, thereby creating higher production costs and diminishing competitiveness. At the same time, many unskilled workers will be unable to attain the standard of living that they have come to expect.

The number of high-skilled, high-paying jobs will not grow as it would if skilled workers were plentiful. Some employers will be tempted to relocate production to foreign countries. Other employers will “downskill” jobs-that is, redesign production processes to accommodate low-skill workers. From a national perspective, these are not attractive solutions. Downskilling on a widespread basis would increase the number of low-wage jobs. The preferred solution is to increase the skills of U.S. workers so that good jobs can be created and filled.

WHAT WE CAN DO

The important question is, what should we do to close the skills gap? Many people have sought simple, quick, and preferably inexpensive fixes. Such “silver bullets” do not exist, and we must stop wasting time and energy looking for them.

The only promising approach is a national commitment to a broad spectrum of substantial and sustained investments in America‘s human resources. This commitment must be joined by every level of government and the private sector, but the leadership and a substantial portion of the new funding must come from the federal government. (See also, “Can The Work Force Be Repaired?” July/August 1990.) The bipartisan Workforce Quality Commission, appointed by former Labor Secretary Ann McLaughlin, called for such a commitment on Labor Day 1989 in its report, Investing in People: A Strategy to Address America‘s Workforce Crisis. A year later that call seems to have produced very little action.

This country has never had a coherent national program of human resource development; we must establish one now. Our program must address a wide range of problems, from the developmental needs of preschool children to the retraining needs of 55-year-old workers with obsolete skills. Following are some of the most important features of such a program.

Preparing Children for School. Most experts agree that the Head Start program is a cost-effective way to address the developmental needs of disadvantaged preschool children. At current funding levels, however, less than 40 percent of eligible four-year-old children and very few three-year-old children can enter the program. We should move immediately to include all eligible three- and four-year-old children and any five-year-old children who are not in kindergarten.

Incentives for Students. No amount of school reform is going to come to much unless students have incentives to put effort into their studies. New incentives would he created if employers began to use evidence of school achievement to evaluate young job applicants. If good students could count on getting good jobs, we would have more good students, but right now employers have difficulty identifying the good students. The Workforce Quality Commission proposed the development of understandable high school transcripts and voluntary achievement tests to document student achievements in a wide variety of academic and vocational areas. The Worklink project organized by the American Business Conference, the National Alliance of Business, and the Educational Testing Service is already developing a computer system that could make school and test records available to employers. In an important new report, America’s Choice: High Skills or Low Wages.’, the Commission on the Skills of the American Workforce (Skills Commission) has proposed the use of a Certificate of Initial Mastery that would certify basic competencies to employers and others. The use of vocational education can be increased, since many students who do not succeed in traditional courses learn better in applied contexts. All of these promising ideas await government implementation and employer cooperation.

Just as the labor market could provide incentives for some students, the promise of postsecondary education or training could be used to motivate others. If no student or parent thought of cost as a barrier to postsecondary education, academic interests and career aspirations would certainly be heightened. A few philanthropists have created such mindsets for small groups of disadvantaged students and parents, but only a greatly expanded government program of grants and loans could make the mind-sets universal.

Adult Basic Education. No matter what is done to improve the schools, there will always be a need to provide basic education for adults. Some will need a “second chance” to escape illiteracy and innumeracy; others will need an opportunity to learn English as a second language.

This country is strongly committed to public education of children and teenagers, but adult basic education is supplied by an uncoordinated patchwork of ill-conceived and underfunded public programs, untrained volunteers, and corporate programs created out of desperation. Government should take responsibility to provide effective professional basic education to adults on demand.

Government Training Programs. The major government job training legislation in this country is the Job Training Partnership Act (JTPA). Current JTPA programs reach approximately 5 percent of the eligible population, and it is the wrong 5 percent. Less than two years ago I visited a JTPA program that was training people to use word processors. I was told that to enter the program, one had to be a high school graduate and type 40 words per minute. At that time (and still today), employers in most cities were eager to hire such people without benefit of prior training in word processing. This is an admittedly extreme example of what has come to be called the “creaming” problem of JTPA. We must refocus JTPA on the basic skill needs of the disadvantaged population and increase its funding level, which has fallen by over 25 percent in real terms since 1982.

Employer Provided Training. While government should he responsible for basic education, employers should be the principal source of investment in job-specific skills. Some well-known companies are already making substantial investments in their employees’ skills. More than half of BellSouth’s employees participate in training programs in a typical year. Michel Besson described in these pages some of the mangagement initiatives and innovative training programs of CertainTeed (see “Managing The Skills Gap,” July/August 1990). These commendable efforts notwithstanding, the Towers Perrin/Hudson survey shows that many employers are choosing not to make such investments. The reasons for their choices are complicated and not always well understood, but we clearly need more employers to see their employees as opportunities for investment rather than as costs to be minimized. As the skills of trainable, experienced workers become obsolete, employers should see the trainability as a valuable asset that will be difficult to buy on the open market.

Public policy can help create an environment that encourages private investment in workers’ skills. The Workforce Quality Commission proposed a special corporate income tax incentive to encourage employer-provided training. The Skills Commission proposed that the U.S. mandate employer expenditures for training as do most of our major international trading partners. One way or the other, we need to increase private investment in workers’ skills.

BUDGETS AND OTHER REALITIES

In the year since the Workforce Quality Commission published its final report, I have given dozens of speeches on work force issues, and someone always asks about the “budget realities.” We should, of course, be concerned about the federal budget deficit, but we must also be concerned about the national skills deficit.

Amid talk of $50 billion, $100 billion, and even $168.8 billion budget deficits, keep in mind that even an extra $5 billion per year divided among Head Start, student grants and loans, adult basic education, JTPA, training incentives, and related federal programs could produce dramatic improvements in the coming years. Yes, we must have more investment by states and the private sector, but the federal government must provide leadership and new funding. Unfortunately, I see no hope that the federal government will provide either effective leadership or significant new funding unless the business community demands them.

Budget realities are not the only realities. Just as you business leaders have mobilized forces for school reform, so too can you force politicians to recognize the reality expressed by the Workforce Quality Commission: “We must not accept a workforce that is undereducated, under-trained, and ill-equipped to compete in the twenty-first century.” That is exactly what we are talking about if we do not get serious about investing in people.


David L. Crawford is an adjunct associate professor of economics and management at the Wharton School. He is also president of Econsult, an economic consulting firm in Philadelphia and Washington, D.C., and former executive director of the Secretary of Labor’s Commission on Workforce Quality and Labor Market Efficiency.