The writer is executive director of American Compass
Business leaders who complain constantly of “talent shortages” or “skills gaps” may, in fact, have only themselves to blame. The perceived weaknesses among their staff may be the result of overambitious or flawed plans. Anyone can see the folly in trying to hire thousands of experienced biochemists at minimum wage to develop cutting-edge drugs. The problem is not a biochemist shortage; the problem is the bad idea. Equally foolish is the software executive who expects an unlimited supply of eager coders, or the plant manager who believes well-trained technicians will line up at his door.
Why do employers believe they should have access to whatever labour they need at whatever wages they choose? Perhaps the culprit is globalisation? Capitalism generated widespread prosperity for centuries by rewarding the most productive uses of available labour. “Every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country,” posited Adam Smith in The Wealth of Nations. The invisible hand aligned private profit with the public interest not by magic, but because pursuing the former was best achieved through investments that also advanced the latter.
However, global flows of goods, people and capital released that constraint. Western corporations found themselves with a seemingly inexhaustible supply of foreign workers, willing to work longer hours for lower wages with fewer protections. The enterprise no longer had to care about local workers. Entire nations now competed to deliver the needed labour. The results were splendid for corporate profits; less so for workers, their families and their communities.
Economists and policymakers have begun learning from these mistakes and at least contemplating the re-establishment of immigration limits and trade barriers that would force capitalists back into partnership with their countrymen. Thus the growing, somewhat comical cries from the business lobby that one cannot possibly be expected to run a successful operation with these workers. The champions of free markets, creative destruction and competition proudly tout the power of such forces to solve any problem if incentives are right. But give them the challenge of turning a profit with the local labour force and suddenly all is lost.
New research published on Thursday by the Burning Glass Institute, Harvard Business School, and the Schultz Family Foundation gives the lie to this claim, showing how much better employers can do. The American Opportunity Index uses data from millions of online job ads and CVs to analyse the career paths of US workers, typically without college degrees, through the nation’s 250 largest publicly traded companies.
The index focuses on three dimensions of opportunity that employers provide: access (hiring of entry-level workers and those without college degrees), pay (median wage offered in each occupation) and mobility (how far and fast workers are promoted, how long they stay and how successful they are moving on to other companies).
This quantification of employment outcomes has revolutionary potential for workers choosing where to apply, managers improving their performance and third parties evaluating social impact. For instance, fads such as “corporate social responsibility” and “ESG” have tended to encourage empty signalling toward progressive causes, bearing little relationship to core business operations. A focus on quantitative measures of opportunity provided to entry-level workers would be more useful.
The most important result is the extraordinary variation between employers, regardless of industry. Those in the top quintile for providing access are hiring four times as many candidates without prior experience as those in the bottom quintile. Those in the top quintile for mobility are two-and-a-half times more likely to fill openings by promoting from within and twice as likely to have senior management following that route. In short, most companies could be casting a wider net in hiring, offering better pay, or investing more effectively in workers’ success and progression.
The researchers pose gentle questions such as, “Would drawing from a wider pool allow you to access more talent?” and, “Have you considered how to better assess the talent and skills of the workers you have?”
Business leaders need to start answering those questions. Policymakers must ensure they have no other choice.
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