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Investing in People: Strategy to Address America's Workforce Crisis.

A prescription for solving the crisis in the work force

On Labor Day 1989, the Secretary of Labor's Commission on Workforce Quality and Labor Market Efficiency issued its report titled. Investing in People: Strategy to Address America's Workforce Crisis.(1) The Commission, which consisted of leading representatives of industry, labor, universities, and research institutes, had been established in July 1988 by former Secretary of Labor Ann McLaughlin.

The report deals with the intensifying needs of the workplace for basic knowledge and skills, and to an extent contrasts these needs with the inability of much of the work force to meet them.(2) It attributes this inability to the inadequacies of high school education, and, as is implied by the numerous remedies it recommends, to the insufficient involvement of business and industry in the educational effort. It discusses the obstacles to training in specialized (or job-related) skills, and the possibly even larger impediments to the retraining of workers whose skills and experience no longer fill workplace needs. Here, too, it urges a much more active role for busines than business has hitherto been willing to assume.

It also addresses questions of what it terms labor market efficiency, although here the report is less comprehensive than in its discussion of schooling and training. It argues for greater supportiveness of the work environment in mitigating conflicts between family needs and the requirements of the workplace for stable attendance, punctuality, and attention to the tasks at hand. It suggests a mix of public and private policies - a mix that applies to most of its recommendations - that would necessarily extend the conventional horizons of business operations to matters of social policy. It also advocates greater scheduling flexibility, a matter more readily resolved within the authority confines of business.

In its proposals for matching jobs and jobseekers, the Commission advocates a more active role for the U.S. Employment Service; changes in the experience rating system of unemployment insurance; and programs that facilitate nationwide job search and worker relocation. It also calls for encouraging worker participation at the workplace and innovative compensation plans, although this call takes the form of recommendations for government research and the exploration of "best practice" plans. In the final part of its report, the Commission offers a human resource research agenda for the Departments of Labor and Education, and urges adequate funding to carry it out. In what follows, some of the themes and policy recommendations of the Commission are detailed.

The Commission's work draws upon a large volume of monographs (49 altogether), reflecting the current state of knowledge pertaining to its concerns.(2) In addition, Commission members listened to the testimony of 116 expert witnesses at its public hearings, and gathered additional statements from another 105 persons. The Commission also interviewed an array of representatives of labor, business, education, employment and training centers, and other organizations, eliciting their insights and ideas.

The forces that make for the urgency of the Commission's report have been analyzed in detail in Workforce 2000.(3) The authors base their analysis on the economic trends they foresee or project over the coming decade, as well as upon the evolving demographics of the labor force. Essentially, they argue that, inasmuch as the dependence of the American economy upon the world economy at large will grow, and as the continued growth of the former hinges upon its interlinkages with the latter, the United States must attain and maintain competitiveness in the widening range of export industries which its leadership position demands.(4) They offer two definitions of competitiveness. One is that the United States can lower the costs of its goods and services so as to make them pricecompetitive on international markets, and thus pay for imports. This would entail lower wages and salaries, hence lower living standards. The other is to achieve international price competitiveness by raising productivity. This would permit wages and salaries and hence standards of living, to rise. "Competitiveness is really another way of looking at national productivity," they write. A fundamental condition of productivity improvement, and hence a means to increase international competitiveness - rather than forcing wages down to world market levels - thus is the nurturing of human resources. It is in this sense that the Commission's report prescribes ways in which some of the chief challenges posed by the authors of Workforce 2000 may be met.

A basic argument of the Commission's report is that a growing gap exists between the capabilities of much of the American work force and the requirements of productivity improvement. The Commission speaks of a "work force crisis"; the near certainty that the gap referred to will widen rapidly in the decade ahead - the reasons are detailed below - unless remedial steps are taken soon, justifies the use of that term. The Commission accordingly offers "a national strategy to avert economic decline by improving the quality of the work force."(5) We now turn to some of the specific aspects of this strategy, and the reasons that led to its adoption.

Three problems

The Commission sees three related problems pertaining to low work force quality: (1) High school graduates fail to attain the education of which they are capable; one-fourth of all high school students drop out, that is, fail to graduate. "Employers report that alarming numbers of young job applicants have such poor reading and computation skills that it is impossible to provide them with job-specific training."(6) (2) A growing proportion of workers either lack the skills required by technological or organizational changes at the workplace, or have skills made obsolete by such changes (or by declining industries and shrinking product markets). These workers must be retrained. Yet, retraining of workers below the managerial, professional, or technical levels is generally inadequate or unavailable altogether. (3) Vast numbers of adults - estimates range between 20 million and 40 million - lack literacy, numeracy, and cognitive skills without which they cannot be trained or retrained except at great cost to employers.(7)

These problems are likely to be exacerbated in the years ahead by the changing demographics of the labor force, and by what the Commission believes will be accelerated technological changes accompanied by the shorter life cycle of products, conditions to which much of the work force cannot readily adapt.

Almost one-half of the increase in the labor force between 1986 and 2000 will consist of blacks and Hispanics.(8) The importance of this large minorities component in the growth of the labor force derives from the lower education levels of blacks and Hispanics than of non-Hispanic whites. According to one of the monographs that underlie the Commission's report, 40 percent of all Hispanics ages 25 to 29 were high school dropouts in 1985, compared to 20 percent of all blacks and 13 percent of whites.(9) Forty-seven percent of all black ages 21 to 25 and 29 percent of all Hispanics in the same age group have been found to read below the 8th grade level, as against 15 percent for all young white.(10)

Another factor that is associated with low levels of educational achievement is the rising proportion of children living in poverty (from 15 percent in 1970 to 20 percent in 1985), together with the increase in singleparent households (from 12 percent to 23 percent). As much as one-third of American youth is thus estimated to be "at risk" of educational failure.(11) Failure on so massive a scale must be viewed as systemic rather than as individual. And it cannot be remedied to any large extent at the workplace, which cannot normally impart more than job-related skills. Yet, even these cannot often be learned by persons lacking the "threshold" or "basic" skills mentioned earlier. Absent appropriate remedies, such as the Commission recommends: "The seriousness of the problem is increasing because of the massive rise in the numbers of students who are at risk in the schools and who will ultimately join the labor force.... The response must be substantial and fundamental, moving away from remediation as a strategy and in the direction of acceleration of learning."(12)

Training and retraining workers is frequently intertwined with the need to teach basic skills - reading, figuring, inferring. The Commission's report divides the pertinent discussion between employer programs and government programs, the latter being concentrated upon more or less severely disadvantaged persons, including those with "the most severe skill deficiencies." However, there is evidence that employers' training (or retraining) programs, insofar as these are designed for the lower level work force, do not escape the difficulties which government programs are meant to remedy. In one case, for example, one-fifth of hourly employees who were to undergo specialized courses in a nearby technical college were unable to meet the college's minimal reading and mathematics entrance requirements - although these workers firmly believed they had no basic skills problem.(13) In another case, one-fourth of the quality circle groups organized in a manufacturing firm had no employee - member capable of taking notes that could clearly communicate to an outsider.(14)

Employer training

What is the extent of employer training? Who is being trained? Is the training adequate in terms of the emerging needs of the economy? The Commission reports that employers spend about $30 billion on formal training, provided either by themselves or by outside suppliers.(15) This, however, is the upper end of a range that begins with an estimate of $12 billion. In addition, expenditures for "informal" training range between $90 billion and $180 billion.(16) The wide ranges cited reflect the lack of firm data in addition to differences in estimating approaches. More definitive results have been obtained about the extent of employer training from the Current Population Surveys of the U.S. Bureau of the Census. According to these surveys, employers accounted for the qualifying or skill upgrading of 10 percent of all workers in 1983; or for about one-third of the roughly half of all workers who stated that specific training was necessary for them to qualify for their job.(17) Informal on-the-job training qualified 28 percent of all workers, and upgraded 14 percent. Notwithstanding these data, employers exercise considerable selectivity in whom they train and upgrade. Employer-based formal training "is disproportionately present in industries with high concentrations of managers, professionals, and technicians."(18) Furthermore, blacks and Hispanics receive only about 15 percent and 3 percent of employer-based training - roughly half their share in the labor force at large. And finally, the likelihood of receiving such training increases with the formal schooling which the trainee has received so that college graduates, for example, have a 50-percent better chance than high school graduates of being selected for employer-sponsored training.(19) It is, therefore, not surprising that per-employee outlays for inhouse training are significantly higher for the upper levels of the work force than for lower levels.(20)

It is evident that the Commission does not believe that employers' training efforts are adequate, and that they are suboptimal from a social perspective. It advocates a tax credit to encourage employers to raise educational and training outlays, its reasoning being that the requisite employer investment is retarded by workers' taking their skills, learned partially at the employer's expense, with them when they quit. Average tenure at a job in the United States is low compared with other major industrial countries; apprenticeships are limited to a few construction trades; and job turnover is high. Thus, employers find it difficult to recoup their human capital investment. "Public policies are needed to encourage" such investment, states the Commission.(21)

Government-sponsored training

If private-sector training efforts lag in meeting the emerging needs of the workplace, the success of government-sponsored programs is no less in question, in large part because they lack firm links with employers. The Federal Government funds more than a dozen major training programs, but "few of the programs....have formal links with employers to assure that the training and related services meet employer needs."(22) Notable exceptions are the private industry councils which review local programs under the Job Training and Partnership Act (JTPA), thus tending to integrate the programs with workplace needs. Mandated program performance standards also help focus upon this objective. The Commission endorses the JTPA but is critical of the severe funding losses the act has suffered (constant-dollar expenditures run 25 percent below the levels of 1982, when the act was passed); as well as of the small part of the eligible population of disadvantaged persons which the programs reach (5 percent).(23) Furthermore, while placement rates of those who completed the programs have been high (70 percent), only 58 percent have remained on the job in which they had been placed for more than 4 months; 26 percent have been unemployed. The great majority (70 percent) earned $5 per hour or less.(24) There may well be a relation between the ultimate success of these programs and the wage rates which their graduates can expect.

Linking basic-skills (or "second chance") education with the world of work appears also to be a key to success (or its absence a cause of failure). The Commission reports that only 1 or 2 percent of eligible adults are served by such programs, and that waiting lists for adult basic education classes average 35 percent of enrollment.(25) However, annual dropout rates are high; only 20 percent of leavers persist a year or longer.(26) Yet, "it may take several hundred hours of instruction before a worker who can barely read a product label is able to trouble shoot using a manual for computerized equipment."(27) Nevertheless, the likelihood of such a worker's ultimate success - or that of his perhaps slightly more literate counterpart - is enhanced precisely because of its being employment-related: it has been documented "that learners who master basic skills with materials related to their jobs retain most of what they have learned, while more than half of the gains made with ordinary learning material disappear within 8 weeks."(28) The effectiveness of government-sponsored education and training programs thus depends in large measure upon their links to the workplace, hence upon the appropriate actions of employers. The Commission recognizes this relationship by urging the creation of a permanent tripartite committee (including representatives of business, labor, and the Secretaries of Commerce, Education, Health and Human Resources, and Labor) "to coordinate human resource policy on a continuing basis."(29)

A far closer relation than hitherto between employers and high schools is implicit also in the Commission's pertinent analyses and remedial recommendations concerning the secondary educational system as "the foundation of work force quality."

Citing a study of 13-year-olds in the United States, Canada, the United Kingdom, and Korea, the Commission states that U.S. students are last in average math proficiency and homework, nearly last in average science proficiency and homework; and first only in the percent watching 5 hours or more of TV a day.(30) It concludes that "students lack sufficient incentives to inspire their wholehearted engagement with learning and, furthermore, that many aspects of the American education and employment systems are inconsistent with the interests of learning."(31) It is noteworthy that the Commission places the burden for the inadequate preparation of youth for the workplace equally upon business and the educational system. Its remedial recommendations, only a few of which can be dealt with here, suggest the extent to which the two systems have failed one another.

Creating incentives

Why is the performance of American high school students so weak? It is weak because adequate economic incentives to study harder and more effectively are lacking, ". . . Students who choose to go directly to work rather than to pursue post-secondary education find that their immediate earnings prospects are unrelated to their school performance, and, hence, see little reason to study."(32) This is the Commission's central argument in affirming the relation between education at the secondary level and the labor market, and is the rationale for its urging greater business involvement in the educational process.

John Bishop, author of an important monograph on this question, writes that "the lack of true engagement in learning and the apathy of local political systems regarding the quality of local schools is to an important degree a consequence of the failures of employers to reward students for real learning achievements."(33) Subscribing to this view, the Commission reiterates its call that ". . . Business must play a significant role in creating incentives for (academic) achievement."(34) Being reflected by transcripts and test scores, such achievement should be made a selection criterion when hiring recent high school graduates.

The Commission wants business to aid in the development of classroom instruction, and it is of particular interest to note the emphasis on the nature of the aid which the Commission expects of business. In defining emerging workplace needs, the Commission stresses less personal competition, and more cooperative effort, together with greater problem-solving, abilities.(35) The recommendation draws upon a thoughtful monograph by two researchers.(36) The schools, they write, emphasize individual learning and abstract knowledge. Yet, more and more the workplace requires shared knowledge, generated by teams of workers rather than individuals. Learning there comes from personal application to the tasks and the problems at hand - it is concrete. Moveover, students do not possess the "technological literacy" to understand the world around them, and reakily to adapt to the workplace.(37) The Commission accordingly recommends that course work be combined with applied training "that gives meaning to . . . studies."(38) It also supports pending proposals to make use of broadened vocational technical education as a vehicle for basic skills instruction - implicitly recognizing here that a work-oriented environment lends meaning to the acquisition and retention of basic skills.

Workplace-family balance

On the more effective uses of the quality of the existing work force, the Commission discusses three somewhat disparate themes - the "balance" between workplace and family; the role of the Employment Service in matching obseekers and jobs; and employee involvement in workplace decisions as a means to improve productivity.

The Commission argues that one of the ways to promote labor market efficiency is to create "supportive work environments that ease the tension between work and family responsibilities."(39) It holds that conflicts between the two sets of responsibilities may arise from the lack (or inadequacy) of child care facilities, resulting in excessive absences, tardiness, lower productivity, and misuse of worktime. The problem is of course intensified by the rising proportion of women in the labor force who have children age 14 or younger. Such women account for roughly one-half of the total female labor force. Yet, less than 10 percent of all large employers, and less than 1 percent of all employers provide any kind of child support.(40) Two reasons are given for this - one, the absence of a coherent "infrastructure" of child care, which employers might support; the other, the absence of firm evidence regarding the cost effects of child care support on earnings.(41) In other words, for any one employer, the favorable effects of attractive recruitment, low turnover, low absenteeism, and high morale from providing such support may not offset the higher costs.

The Commission recommends such measures as grants to States to spur community-based child care efforts; a refundable child care tax credit to poor parents; and others. Also, it advocates flexible work schedules and other kinds of scheduling arrangements to better meet parents' child care needs. It is important to recall the context in which the Commission addresses this particular theme. The link between greater labor market efficiency and evolving demographics - and not least perhaps the pressure of advocacy groups - compel business to become increasingly involved with child care support questions.

Employee involvement

The Commission deals relatively briefly with worker participation, innovative compensation schemes, and their relation to productivity. Participation, the Commission states, typically lowers turnover, and hence encourages more employer investment in training. Participation may therefore be "an essential component in creating a more productive, high-wage economy."(42) The diffusion of worker participation at workplace decisions has been impeded, said the Commission, by lack of information concerning the kinds of programs that work in various workplace environments. There is a role for the Department of Labor to gather such information, and make the results of "best practice" programs broadly available.

While firmer evidence than currently available is needed to judge the effectiveness of employee involvement in raising productivity, some of the monographs underlying this part of the Commission's report muster a substantial body of experience with this type of organizational innovation. The breadth of business interest was indicated by a New York Stock Exchange survey in 1982, which found that 44 percent of the respondents reported some degree of quality circle activity (a form of employee involvement); a similarly high level of job design or redesign effort; and significant proportions of job enlargement. A 1985 survey of large firms corroborated the earlier findings.(43) The authors of one of the monographs write: "There is a growing consensus among scholars and practitioners that as an advanced industrial society, the United States must achieve and sustain a comparative advantage by developing and fully utilizing its technological and human resources. This, in turn, requires changes in industrial relations and human resource practices to achieve and sustain a highly skilled, motivated, and committed work force; flexibility in the organization of work and the deployment of human resources; and a high level of employee participation and labor-management cooperation."(44)

Yet, employee participation in and of itself has few significant effects upon plant productivity. It needs to be combined with work design and new technology; experience demonstrates that only such a combination raises productivity on a sustained basis. That, it is argued, is "the central lesson that is emerging from the debate over Japanese management practices . . . it is no single technique or practice that produces significant and sustained differences in outcomes but rather the totality of the approach to integrating technology and human resources with the long term strategies and values of the firm that appears to be important."(45)

The fourth and last part of the report calls for a much expanded data collection and diffusion effort by the Bureau of Labor Statistics, and a significant increase in the requisite funding. The Commission is particularly critical of the sharp budgetary cuts the Bureau of Labor Statistics experienced in the early 1980's, which led to the elimination of 19 data collection programs in 1982 alone, and made new initiatives and improvements in methods much more difficult.

The Commission also complains of "The dearth of reliable information on many important questions," which "impeded our deliberations," and which it traces mostly to "low levels of government funding for human resource research," stating that since 1975, inflation-adjusted funding levels for such research and evaluation have receded by 52 percent in the Department of Labor, and by 63 percent in the Department of Education.(46)

The Commission wants human resource programs sponsored by governments to be much more closely scrutinized for their effectiveness, so that what works and what does not work will be known. Also, the Commission recommends that emerging labor market trends, among them in particular the growing proportion of minorities men earning low wages, be intensively researched. More generally, research should be reviewed "as a major component of the missions of both the Departments of Labor and Education," and be funded accordingly.

The Department of Labor, through such agencies as the Employment and Training Administration, has conducted a large volume of human resource research since the early 1960's; such research has also been a key function of the National Commission for Employment Policy, of which the Secretary of Labor, among other Cabinet officials, is an ex officio member. A history and evaluation of this research in one of the background papers appended to the report would have been helpful. The Department addressed problems in many ways similar to those with which the report deals, and the question naturally arises why the predicaments of human resource policy which the earlier research confronted have persisted and perhaps intensified.


(1) The full report is available for $3.75 from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402-9328.

(2) The monographs are reproduced in Investing in People, Background Papers, Vol. I (pp. 1-1204), and Vol. II (pp. 1207-2403), and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

(3) William B. Johnston and Arnold E. Packer, Workforce 2000: Work and Workers for the Twenty-First Century (Indianapolis, IN, Hudson Institute, June 1987). Workforce 2000 was written at the initiative of the U.S. Department of Labor. The Commission states that its report "responds to the challenge posed by Workforce 2000."

(4) For a listing and review of 11 national studies on education, many with reference to education's relation to jobs, see Gwen C. Cooke, Toward Excellence in Vocational Education: Improving Teaching (Columbus, OH, The Ohio State University, The National Center for Research in Vocational Education, 1985), pp. 3-8. See also Appendix D, "Selected Bibliography," in Building a Quality Workforce (Washington, National Alliance of Business).

(5) It should be noted that the Commission's concerns have been shared throughout the 1980's by a number of public and private bodies. Perhaps most closely linked to the Commission's work is Building A Quality Workforce, representing a joint endeavor of analysis and inquiry by the Departments of Labor, Education, and Commerce (1988). It was meant to be "the beginning of an effort to identify . . . the needs of the business community for work preparation, and to foster better understanding . . . about the deficiencies in our entry workers . . ."

(6) Investing in People, p. 2.

(7) "Employers' retraining costs are much larger for employees with limited reading and computation abilities. Ibid.. p. 3.

(8) Russell W. Rumberger and Henry M. Levin, Schooling for the Modern Workplace, Background Paper 2, p. 107 and table 5. See also "Outlook 2000: Projections of U.S. Economy," Monthly Labor Review, November 1989.

(9) Rumberger and Levin, Schooling for the Modern Workplace, p. 108.

(10) Ibid., p. 22

(11) Ibid.

(12) Ibid., p. 113.

(13) Larry Mikulecki, Second Chance Basic Skills Education, Background Paper 5, p. 236.

(14) Ibid., p. 237.

(15) Investing in People, p. 16.

(16) Stephen L. Mangum, Evidence on Private Sector Training, Background Paper 7b, presents a range of estimates, p. 342 ff.

(17) Ibid., p. 346.

(18) Ibid., p. 347.

(19) Ibid., p. 351.

(20) Ibid., p. 353.

(21) Investing in People, p. 16.

(22) Burt S. Barnow and Laudan Y. Aron. Survey of Government-Provided Training Programs. Background Paper 9, p. 495 ff: p. 558.

(23) Investing in People, p. 22.

(24) Margaret C. Simms, The Effectiveness of Government Training Programs, Background Paper 10, p. 583.

(25) Investing in People, p. 21.

(26) Mikulecki, Second Chance Basic Skills Education, p. 226-27.

(27) Ibid., p. 237-38.

(28) Ibid., p. 240.

(29) Investing in People, p. 23.

(30) Ibid., p. 8.

(31) Ibid., p. 8.

(32) Ibid., p. 8.

(33) John Bishop. Incentives for Learning: Why American High School Students Compare so Poorly to Their Counterparts Overseas. Background Paper 1, p. 24. Also, James E. Rosenbaum, Empowering Schools and Teachers: A New Link to Jobs for The Non-College Bound, Background Paper 4, p. 202.

(34) Investing in People, p. 9.

(35) Ibid., p. 10.

(36) Rumberger and Levin, Schooling for The Modern Workplace.

(37) Ibid., p. 123.

(38) Investing in People, p. 10.

(39) Ibid., p. 25.

(40) Dana E. Friedman. Impact of Child Care on the Bottom-Line, Background Paper 27, p. 1429.

(41) See Executive Summary of Background Paper 27.

(42) Investing in People, p. 33.

(43) Thomas Kochan, Joel Cutcher-Gershenfeld, and John Paul MacDuffie. Employee Participation, Work Redesign and New Technology Implications for Public Policy in the 1990s, Background Paper 35a, p. 1834.

(44) Ibid., p. 1835.

(45) Ibid., p. 1844.

(46) Investing in People, p. 36.
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Author:Brand, Horst
Publication:Monthly Labor Review
Article Type:Book Review
Date:Nov 1, 1989
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