Workforce Development

Did Short-Term Thinking Harm the Long-Term Success of U.S. Workers?

November 2, 2015  • Maureen Conway

The American workforce started out as the goose that laid the golden egg for American business, but now it is suffering a death of 1,000 cuts. Americans work harder than almost anyone else in the world, putting in more hours per week and more weeks per year than workers in most other developed countries. This hard-working, well-educated workforce contributed to successful and prosperous American businesses in the post-war period and beyond. But from the late 1970s into early 1980s, the economic growth America’s workforce powered stopped benefiting many workers. Businesses used a range of strategies to hold down wage growth — outsourcing, subcontracting, avoiding union organizing and more. Technology allowed companies to pit workers in disparate locations around the globe against each other. Market forces that normally kept prices in check were now helping to drive down wages.

The Tom Bihn factory in Seattle, Wa. Photo from Flickr used under Creative Commons.

Holding down the cost of employee benefits was another strategy for reducing labor costs and improving profit margins. Shifts from pensions with defined benefits to retirement accounts with defined contributions helped lower overall compensation costs for corporations, but left working people with an often confusing responsibility to manage their own retirement account. The result was an American workforce with fewer resources set aside for retirement.

The American workforce started out as the goose that laid the golden egg for American business, but now it is suffering a death of 1,000 cuts.

From a societal perspective, this shift to individually managed accounts reduced the ability to both pool risk and to get expert help for fund management. That means the overall efficiency of the U.S. retirement system is likely diminished, even if individual companies are saving money. Workers are also less likely to have employer-provided health insurance than in the past, leaving more workers uninsured which has clear consequences for the mental and financial health of working people, even if the effect on physical health is debated.

Given the increased use of credit scores in hiring decisions, it is clear companies recognize the importance of financial health in their workforce, and the implications of improved mental health for workforce performance are obvious. And yet, companies frequently choose to organize work in ways that add stress to working people’s lives. Companies often tightly control hours, leaving working people with erratic and unpredictable schedules (and incomes). Employers sometimes reclassify segments of their workforce as contractors in order to avoid the costs of disability and life insurance, paid sick or vacation time and other benefits that can be critical sources of economic stability for a working family.

While the immediate value of reducing these costs is easily seen on the company balance sheet, the lost revenue of reduced worker performance goes uncounted. What’s worse, all of these practices create arms-length relationships between employers and workers, weakening trust and dampening enthusiasm for the work. This in turn reduces the likelihood that businesses will invest in productivity-enhancing training of the workforce. Recent research bears this out, noting that an “easy hire, easy fire” policy leads to diminished worker productivity and innovation.

Disinvestment by the business sector has been accompanied by flat or declining investment by the public sector as federal, state and local governments have sought to reduce tax burdens. We are unique among developed countries in our lack of public health insurance. And though the Affordable Care Act took an important step forward in expanding insurance coverage, health care is still too expensive for many working families. The American workforce spends more money and experiences worse health outcomes than other developed nations.

Programs to that help working Americans such as food stamps have been expanded, but these additional expenditures are often offset by declines in cash benefit or other programs for the poor. More importantly, where investments like this occur they are characterized not as investments, but as unaffordable social programs. Our poverty policies are frequently tied to work — and indeed the poor are often working. The fact that work in America is too often coupled with poverty is the problem. It’s impossible to ameliorate poverty with policies that encourage work when so many working Americans remain in poverty or on the brink of poverty.

It’s impossible to ameliorate poverty with policies that encourage work when so many working Americans remain in poverty or on the brink of poverty.

It doesn’t have to be this way. First, there is a range of research that is now getting attention that looks at how investment in workers can pay off for companies in the long term. Zeynep Ton’s book The Good Jobs Strategy details how four retailers — who compete fiercely in their segments and seek to keep prices low — succeed by investing in their workers. This investment can mean:

  • training workers so they are well-prepared to contribute
  • offering compensation packages and schedules that workers perceive as fair and that give their employees a measure of economic stability and security
  • empowering workers to make decisions, solve problems for customers, and contribute to the business in meaningful ways.

The Hitachi Foundation has documented many firms, especially in the healthcare and manufacturing sectors, that outperform their peers but still manage to provide quality jobs. These firms believe in the old adage that people are their best assets, and in turn they invest in their people. As a result, they see a strong return on that investment. Many businesses demonstrate that human-centered strategies can build long-term value for a firm. These business models offer the kind of benefits Americans believe in: the businesses are profitable and prosper, they provide opportunities for their employees to develop their skills and potential, they innovate and provide important products and services to customers, and they create the kinds of jobs that support individuals, families and communities. We need more of these “pioneer employers” to lead in business.

In addition to better business leadership, we need public policies that reflect our societal belief in the value of work. Enforceable standards would level the playing field and stop rewarding businesses for short-term, race-to-the-bottom human resource policies. Many state and local areas are experimenting with new laws and rules. California, New Jersey and Rhode Island have paid family leave laws to help address the challenges many families face when work and family needs conflict. San Francisco is experimenting with policies to deal with the challenges of unstable and unpredictable schedules in a 24/7 service economy. Nick Hanauer and David Rolf propose the idea of a Shared Security Account as a new way for workers to accrue employment benefits despite the changing organization of work and the shifting lines of the employer-employee relationship. Our laws were made for the industrial age. They need to be modernized, but that does not negate the need for standards. We need laws that support both strong business and strong values about work.

Many in the business community have raised their voices to decry a “skills gap” in the American workforce. Ironically, all of this disinvestment in America’s workers — reduced wages, benefits and training — has likely helped to create this problem. Living in poverty, with its attendant instability, undermines worker performance and productivity. As Mullanaithan and Shafir laid plain, poverty itself can cause poor cognitive performance. Thus the common idea that poor individuals should build skills and then work their way out of poverty may not be practical when poverty itself impedes the development of skills and the ability to perform well in the workplace. Moreover, families living in poverty cannot invest in the education and development of their children, which as Robert Putnam has so eloquently described, augurs poorly both for the quality of future generations of workers and for our future societal health. While disinvestment in the American workforce had a short-term benefit to business profits, we are now in the longer-run. The reduced productivity [workforce capability] created by that disinvestment has weakened purchasing power and undermined families and communities so much that they’ve become a drag on the American economy and a substantial stress in American society.

How do we turn this around? How do we encourage re-investment in the American workforce in the private sector? How do we support productivity-enhancing investments in the public sector? How does the social sector help those who are struggling so that they can regain their footing and contribute to our economy and society? How do we get the best out of a competitive market-economy while guarding against short-run profit taking that creates long term challenges? The solutions aren’t easily available. We know very well what doesn’t work, and we have some tools that have shown promise in highlighting a better path. But we need a sea change in business practice aligned with a more vigorous public policy and an engaged effort from our social sector to put America on the road to sustained growth that lifts the fortunes of companies and the people who make them run. We’re seeing now that we can’t have one without the other.