SKILLS, TRAINING, AND HUMAN RESOURCES: COMPETING AND SUCCEEDING IN THE MODERN ECONOMY

Paul OstermanNTU Professor MIT Sloan School of Management

October 6, 2015

FOUR FACTORS ARE RE-SHAPING EMPLOYMENT IN THE UNITED STATES

CONTEXT

SOURCE: OECD

TECHNOLOGY

Source: David Autor

THREE IMPACTS OF TECHNOLOGY

Changes job content

Facilitates organizational redesign

Reduces the cost of distance and hence stimulates globalization

BALANCE OF POWER

IMPLICATIONS OF SHIFTING POWER BALANCE

Work can be reorganized more easily and also (potentially) more detrimentally to the workforce

It becomes easier to weaken labor market regulations and limit protections

The benefits of productivity growth become more unequally distributed

COMPETITION AND DISRUPTION(domestic as well as globalization)

IMPLICATION OF INCREASED COMPETITION

Firms are pressed to cost minimize which in turn leads to efforts to

seek out low cost production locations

to outsource as much work as possible

to reorganize and reduce reduce headcount

THESE FOUR FACTORS IN TURN HAVE LED TO FOUR BIG WORRIES WITH RESPECT TO EMPLOYMENT…..

FIRST WORRY: STAGNANT WAGES AND INEQUALITY

AN ASIDE: WHAT’S THE PROBLEM WITH THIS?

Answer:

And Brexit

WORRY TWO: DUMB JOBS, DUMBED DOWN BY TECHNOLOGY

OFTEN FORGOTTEN: RETIREMENTS WILL CREATE MANY MIDDLE SKILL JOBS

 

OCCUPATION NET EMPLOYMENT CHANGE TO 2022

REPLACEMENT OPENINGS TO 2022

PRODUCTION 75,000 1,800,000

Source: MonthlyLabor Review

EVIDENCE: DO FIRMS IN FACT REQUIRE SKILLS THAT ARE OUT OF THE REACH OF MOST PEOPLE?

Survey of manufacturing firms in the United States

Asked very concrete questions about skill needs

DEMAND FOR BASIC SKILLS AMONG “CORE” WORKERS: PERCENT OF ESTABLISHMENTS

Basic Reading Basic Math Basic Writing Use Computers Several Times a

week

56%

58%

60%

62%

64%

66%

68%

70%

72%

74%

76%

DEMAND FOR EXTENDED SKILLS: PERCENT OF ESTABLISHMENTS

Extended Reading Extended Math Extended Writing Extended Computer

0%

10%

20%

30%

40%

50%

60%

70%

PERSONAL SKILLS

Cooperate with Colleagues

Work In Teams Abililty To Learn New Skills

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

WORRY THREE: TOO MANY LABOR MARKET DROPOUTS

WORRY FOUR: FRAYING (or changing) TIES BETWEEN EMPLOYEES AND EMPLOYERS

WHY TIES MAY FRAYSub-contracting and networked production

Gig jobs

Loss of commitment

Sub-contracting and networked production: a hotel example

Source: Batt, Bernhardt, Houseman

ALTERNATIVE EMPLOYMENT: PERCENTAGE OF EMPLOYED WORKERS

LOSS OF COMMITMENT

SYMPTOMSReduced internal training investments

Increased job insecurity

Lifetime employment is a feature of the past, not present

Tougher performance evaluations, more use of contingent pay

THE CHALLENGEThe new world is here to stay

There are many important benefits:flexibilityinnovationopportunity

So how create institutions that support these and that address the challenges

FOR FIRMSFocus on speed of delivery, customization, quality: work organization

Difficulty getting up-to-date skills

Worries about commitment given shorter tenures and less secure jobs: motivation

FOR PEOPLEObtaining skill

Finding jobs in turbulent job market

FOR SOCIETY/GOVERNMENTLabor market institutions for the old world need to be updated

Training

Definition of employee and protections for new forms of work

Effective matching mechanisms

Restore balance of power

MOVING FORWARD: FIRMSAdopt new forms work organization and modern HRM

Renew commitment to internal training

WORK ORGANIZATION: THE CHOICE

NARROW JOB DEFINTIONS

MANAGERS THINK/EMPLOYEES EXECUTE

NO EMPLOYEE ROLE IN GOVERNANCE

OR

FLEXIBLE JOBS, TEAMS, PROBLEM SOLVING

EMPLOYEES PARTICIPATE IN DECISIONS

HIGH LEVELS OF TRAINING

SOURCE OF GAINS FROM HIGH PERORMANCE SYSTEMS

Tap into workforce ideas and creativity

Build commitment and effort

More nimble/flexible

Eliminate layers (e.g. quality supervisors)

Speed up and peer pressure

EVIDENCE OF GAINSMIT Auto Study

Steel

HRM research correlating investments in human capital and use of teams with productivity and profits

APPLIES TO SERVICE INDUSTRIES AS WELL AS MANUFACTURING

Studies of retail show that training is directly related to:

Phantom stock-outs (or not)

Inaccurate promotion compliance (or not)

Poor customer service (or not)

Source Ton

©Zeynep Ton 2015

©Zeynep Ton 2015

Mercadona & The 2008 Economic crisis

2008 2009 2010 2011 20120

5

10

15

20

25

MercadonaCarrefourDiaEroskiAuchan

% o

f Mar

ket

Shar

e

Source: Kanter Worldpanel, The Wall Street Journal

INVESTMENT IN YOUR WORKFORCE PAYS OFF• HR Magazine reports that companies investing $1,500 or more

per employee per year on training average 24 percent higher profit margins than companies with lower yearly training investments. The American Society for Training and Development (ASTD) collected training information from over 2500 firms and found that companies that offer comprehensive training:• Have 218 percent higher income per employee than those with

less comprehensive training,• Enjoy a 24 percent higher profit margin than those who spend

less on training, and• Generate a 6 percent higher shareholder return if the training

expenditure per employee increases by $680.

BUT HARD QUESTIONSIf it is so great why doesn’t everyone do it???

Weakness in the literature on impact (selection)

Internal obstacles

External obstacles

PUBLIC POLICY

IMPROVING SKILL SYSTEMS: COMMUNITY COLLEGES

1.200 Community Colleges, virtually all public

42% of all undergraduates: 61% part-time

Two thirds in vocational tracks

Additionally 5 million in non-credit certificate programs

Many of these programs organized in cooperation with employers

IMPROVING SKILL SYSTEMS: SECTORAL PROGRAMS/INTERMEDIAIRES/SECOND CHANCE SYSTEMS

Traditional second chance programs

Dual customer sectoral (or intermediary) programs

The central idea: employerswork with public agencies to both trainemployees and new hires and to also upgradetheir internal career ladders

SUPPORTING AND DIFFUSING MODERN PRODUCTION SYSTEMS

Manufacturing Extension Service

Regulation/Incentives/Industry Associations

MODERNIZING EMPLOYMENT LAW

For example:

Is an Uber driver an employee? What protections are appropriate? What restrictions are outdated?

RESTORING BALANCE OF POWER

Revive unions?

Support new forms of employee voice?

WHAT DOES THIS ALL ADD UP TO

The “new world” is here to stay. So:

Firms: Modernize production systems Invest in your workforce

Public Policy: Modernize employment regulations Restore balance of power Invest in human capital

THANK YOU!