Economic experts say it all the time: Amid the fierce competition of the new global marketplace, job one for America is getting the most out of our human capital. Yet even as this asset is deemed of high importance to individual companies and the overall economy, managers have become increasingly reluctant to invest in employee education and training.
Labor Day's arrival can serve to remind employers that such investments are critical to an economy whose competitive advantage stems not from how inexpensive our labor is relative to other countries', but rather how capable it is of doing complex work with cutting-edge technology. But, as a large body of academic research has shown, many employers just aren't buying it. They believe that workers won't stay in their jobs long enough to make investment in human capital worthwhile (in some cases because managers aren't sure how long they plan on holding onto workers), or that training only makes employees ripe pickings for poachers from other firms.
In addition, employers generally have been unwilling to help workers balance home and work through flexible work arrangements, including day-care benefits and telecommuting. This places a particularly heavy burden on female workers. Women have become the clear majority of college graduates over the past two decades, so any employment policy that risks alienating female workers threatens to squander their potential as economic contributors. But in a classic case of being penny-wise and pound-foolish, managers have typically declined to make flex-work benefits available by arguing that doing so would provide a cost advantage to competitors who also avoid the practice.
Then there's the capacity of our economy to innovate production through rapidly evolving technologies. While this is clearly a source of competitive advantage for our firms, companies often introduce technological progress at great expense to the workforce. This is especially true of technologies that lead to automation, thereby dispatching many workers to the unemployment rolls.
So, at a time when labor is judged crucial to competitiveness, why has investment in human capital declined? Because, in large part, American employers have shed the responsibilities they long shouldered for the benefit of their employees and their companies. In the past, firms routinely funded all types of training for their workers, expecting that each worker's long-term attachment to the company would ensure that he or she would continue producing for the firm long after the training ended. Also, there was wide-scale acceptance that the costs of technological change should not be borne by workers alone. Rather, they were often retrained and redeployed to positions in which they could continue to add value. All this was part of a social contract that emerged in the wake of the New Deal — the implicit understanding that performance in an organization was rewarded with wages and job security that grew in tandem with profits and productivity. This social contract was the glue that held our economic system together for decades.
But the system is coming unglued. Globalization has intensified price competition in the market for labor. Furthermore, it prevents national and state policymakers from setting and enforcing minimal standards for investment in, and treatment of, workers. Employers might not have liked such policies, but they did help level the playing field. A company's competitors had to outperform it by building a better mousetrap, not by offering workers less. The fading power of labor unions is another influential factor. Unions managed to remove wages and benefits from competition, forcing employers to compete on quality and uniqueness of product — ironically, the very basis on which the most successful U.S. firms compete today.
What can be done to ensure that our human capital is not wasted? Policymakers must encourage the formation of industry or labor networks that pool investments in training. The central role that women play in today's labor force underscores the need to change traditional assumptions about work and family life; public policies can ensure that flexibility is widely available. And new technologies must be implemented not only in conjunction with the changes in work practices that are needed for these technologies to generate their highest returns, but also in ways that address worker concerns about possible displacement. Technology should be seen as a complement to human capital, not its substitute.
Companies need to recognize that investing in their employees would benefit employers, workers, our economy and our society as a whole. Such a re-examination of employment policy would demonstrate more respect for workers than a few Labor Day parades and a paid holiday.
Adam Seth Litwin is an assistant professor of management at the Johns Hopkins Carey Business School and co-author of a chapter in the newly published "Oxford Handbook of Human Capital." He can be contacted at firstname.lastname@example.org.