Returning to Investing in Employees for Growth and Global Competitiveness

During this time of tremendous growth and opportunity for the United States, companies invested deeply in their employees—and employees repaid that loyalty by committing themselves to the success of their companies and industries.  People would often spend their entire career at bedrock A few generations ago, after the end of World War II, our nation entered a 30-year period of prosperity, where the real income of nearly all workers doubled from the late 1940s to the early 1970s.[55]  As American companies thrived and expanded, and the United States government passed sweeping legislation to support the reintegration of service members into the economy, the United States emerged as the dominant global economy.[56]

companies like General Electric, Coca-Cola, and Eastman-Kodak, and these companies benefitted from the stability of their workforce and the increasing productivity and innovations that come from having employees spend years learning and perfecting their area of work.[57]

But women and people of color were largely excluded from these careers, and thus deprived of the opportunity to participate in the largest expansion of prosperity in United States history.[58]  By the time that the Civil Rights Act of 1964 and the Fair Housing Act of 1968 were enacted—prohibiting discrimination in employment, education, places of public accommodations,[59] and in housing[60]—the nation was in the final few years of robust economic mobility for workers.   

By the mid-1970s, companies changed the way that they viewed their employees—from assets to liabilities.[61]  In response to growing international competition, companies began shifting production and distribution to other countries, cutting their domestic workforce.[62]  At the same time, large companies began a single-minded focus on increasing shareholder profit that has continued to this day, rather than their traditional focus on employees, customers, and shareholders.[63]  This focus on shareholder value, driven by the CEOs whose pay packages tied into this short-term stock value, led to significant reductions of the workforce and efforts to keep pay down to maximize value and share dividends for investors. 

Simultaneously, union membership decreased in the United States, weakening the collective bargaining power of workers.  Union membership grew post-World War II, peaking at nearly 30% (28.3%) in 1954, but it has declined for nearly the past four decades.[64]  Now, unions represent only 10.7% of workers.[65]  The significance of this decline extends beyond union members to non-unionized employees.  Union members are typically paid higher wages and receive better fringe benefits than non-unionized employees in the same field,[66] but they also help increase the wages and benefits of non-union employees.[67]  In fields with strong unions, non-union employers must track the approximate pay and benefits provided so that they can stay competitive in recruiting and retaining employees.[68]

Despite low unemployment and a tight labor market, wages have barely kept pace with inflation over the past decade.[69]  In fact, wage growth has not yet recovered from the Great Recession of 2007 to 2009,[70] although corporate profits recovered several years ago, and our unemployment rate is about the lowest it has been in two decades.[71]  Since the number of job openings (6.6 million)[72] surpassed the official number of unemployed people (6.3 million)[73] in March 2018, employers will have to raise salaries to attract both employed and unemployed people to their openings—particularly if the job involves a specific or limited skill set.

However, it is also critically important for companies to invest in their current and future employees as a matter of business necessity.  During the post-World War II years, when U.S. companies dominated every industry—including manufacturing—companies invested in what were essentially apprenticeship programs for entry-level employees and in on-the-job training for people throughout the company, including middle management.[74] 

The decline of several major U.S. manufacturing companies over the past few decades coincided with their dramatic reduction in employee training and focus on short-term profits for shareholders.  This is a foreseeable consequence, because true breakthroughs in nearly every industry require years of research and development, typically with a dedicated and cohesive team of people working steadily towards a goal—and this requires a high degree of loyalty and commitment from both the employees and the employer.  

By contrast, German manufacturing companies have flourished during a time of rising innovation and increased international competition, even though they face comparable labor cost challenges to U.S. companies.  Germany is home to half of the world’s mid-sized manufacturing firms.[75]  They have grown by 10% annually on average, created 1.5 million new jobs, and registered five times as many patents per employee as large corporations.[76]  The major factor distinguishing these businesses from their counterparts in the United States is employee training and loyalty—and the German apprenticeship system is central to their business success. 

As the world economy enters the Fourth Industrial Revolution, these international pressures on businesses to innovate and attract employees with very specific skill sets will only increase, and the ability of U.S. companies to maintain or grow their market share will depend on their ability to train and recruit employees—especially through apprenticeship programs. 

A national study of companies currently running federally-registered apprenticeship programs by the U.S. Department of Commerce found that the companies typically began apprenticeship programs because they could not find employees with the skills they needed, and that the program gave them a pipeline of employees with the specific skills set needed for current and future job openings.[77]  In addition to the talent pipeline, companies also receive the productivity of the apprentices during their training, and reduced turnover and errors once the apprentices are fully trained.[78]  Apprentices were identified by the companies as potential future managers, who learned flexibility and problem-solving, and could work more independently.[79]  Further, the apprenticeship programs generated more employee engagement from both the apprentices and their mentors in the company.[80]  The companies unanimously agreed that their apprenticeship program improved their overall company performance and gave them a competitive edge over others in their field.[81]

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