On Skills and Careers
from The Jobs Letter No.109 / 11 October 1999
LESTER THUROW argues that the biggest unknown for the individual within the
"knowledge-based" economy is how to have a career in a system where there are no careers.
In his new book "Building Wealth", Thurow describes how the new economy is dismantling
the old foundations of personal, business and national success. For the individual, this has meant
that the old career ladders are disappearing. And just what they are being replaced by ... is still
The individual hears the constant words of advice on what they will need for the
"information age": skills, skills, skills. But, to Thurow, if our nations do not also re-organise themselves
amidst this new economic landscape ... then people will be unable to make rational choices on what
skills to invest in.
In this special feature, The Jobs Letter presents Thurow's views on how skills and careers
are faring in the new "knowledge" economy.
- ON EDUCATION AS AN INVESTMENT
Education has always been a high-risk investment for the individual. More than 20
percent of all college graduates will end up making less than the average high school graduate.
They invested and it did not pay off. But recently it has become even riskier. How does one plan
the investments necessary to have a career in the face of corporate downsizings at profitable firms?
For my generation of high school graduates, the concept of a career had meaning.
During the 1950s in Montana, where I went to high school, many high school graduates started
as laborers in the copper mines. Starting wages were good, and one could count on annual raises
of two or three percent. There was a skill ladder. Laborers moved up to operating
underground trains or other kinds of heavy equipment, learning the necessary skills by working as assistants
to the operators. Someone who demonstrated intelligence and judgment could be given
responsibility for setting off underground explosions. Each promotion meant higher hourly wages.
When a worker reached his mid-thirties, he could expect to take the last step on the
earnings ladder and become a contract miner, who was paid for each foot of tunnel dug rather than by
the hour. He was no longer a wage slave. On this career ladder high school graduates could
match college graduates in earnings.
But that's all gone now. Those mines were shut down. The thousands of people who
worked there were laid off.
What used to be true only in declining industries that skills suddenly become valueless
is now true everywhere. Downsizing is a way of life even in good times. In a global economy,
if skills are cheaper somewhere else in the world, companies will move there to lower
production costs. They aren't tied to any particular set of workers. When new knowledge makes old
skills obsolete, firms want to employ workers who already have that knowledge.
Something is happening in the 1990s that has never happened before, and its part of
this knowledge economy. In the past, if a company was going broke, it always laid people off
that's the American way. But we didn't have people laid off and downsized in profitable companies
until the 1990s. Today, about 800,000 Americans a year lose their jobs despite the fact that their
companies are profitable and they personally are doing good jobs.
"With career ladders in place, the ambitious worker of the 1950s or 1960s could figure out
what skills were needed for advancement. But without career ladders, how does anyone rationally
plan an educational investment?"
Now that's a brand new world, and it makes it very tough to have a career, because what
happens to you when you are laid off at 35, 45 or 55? How do you get back onto some reasonable
Explicitly or implicitly, today's high school graduate is given a message: "You are
unlikely to have a lifetime career in any one company. You are going to have to learn to take
responsibility for and manage your own career. Regular annual wage increases are a thing of the past.
Paternalism is gone." If they are honest, employers themselves deliver the message. But how does
anyone follow this advice?
- ON CAREER LADDERS
If career ladders don't exist within any one company, maybe they exist across
different companies. This would mean that a good initial performance at Company A would lead to
training opportunities, a better job, and higher wages at Company B. But the world doesn't work
that way for most employees.
Companies don't tell other companies who their good employees are even if they have
no promotion opportunities to offer those employees. They don't want to lose them. Similarly,
they don't tell other companies about their bad employees. They don't want to open themselves up
to lawsuits. If asked, and they seldom are, companies are willing to tell other companies just
one thing about a worker seeking a new job: Yes, that person did work for us.
In this context a good performance at Company A doesn't matter, because it does not lead
to opportunities for training and promotion at Company B. When workers move from one
company to another, they simply start over at another entry-level job; there is no progress up a
career ladder. The rational strategy is to keep moving until one finds a company that still has
internal career ladders. But as such companies become fewer, the number of high school graduates
with real career opportunities ahead of them declines to the vanishing point.
A cross-company career ladder runs into other problems. After age forty-five
cross-company career moves are difficult, and after age fifty-five they are impossible. (Those
tracking downsized workers find that after age fifty-five they seldom find good jobs with good
Age-discrimination laws can protect older employees against being unfairly dismissed from
their old firms, but they cannot get them a good job at a new company. Employers have the right
to hire the best workers available. In a fast-changing world older employees too often bring
obsolete experience and out-of-date skills. There are always a lot of young potential employees who
look more promising.
- ON FALLING EARNINGS
The issue is not jobs. It is high wages and careers. If wages fall to be commensurate
with skills, jobs are always available. That is what the American experience proves. Jobs have
never been more plentiful than they are in the 1990s, yet wages have been falling for more than half
of the work force. In contrast with jobs, careers are in very short supply in America.
With career ladders in place, the ambitious worker of the 1950s or the 1960s could figure
out what skills were needed for advancement. He or she knew what to take in night school.
But without career ladders, how does anyone rationally plan an educational investment? What
skills will pay off? No one wants to waste investment funds on skills that will go unused.
"The system is evolving toward less commitment and less investment in skills just as it should
be moving in the opposite direction..."
The lack of career opportunities is dramatically visible in earnings data. The gains in
real annual earnings of high school graduates aged twenty to forty are much smaller than they used
to be. There are lots of jobs, and unemployment is low, but opportunities to acquire skills and
the higher wages that go with them don't exist. As a result, earnings profiles are flatter. The lack
of on-the-job opportunities to acquire new skills is another reason that the wage gap between
high school graduates and college graduates has gotten much bigger in recent years.
Real wages have also been falling for most of the labour force. At the same time, wage gains
for those in the top 20 percent of the work force have never been larger. The widening disparity
in earnings and wealth doesn't create problems for the economy (it simply produces more
luxury goods and fewer middle-class goods), but it probably does create long-run political problems in
a democracy. How does one preach political equality in an economy of ever-growing inequality?
- ON TRAINING ON-THE-JOB
Historically, on-the-job training has been central to skills acquisition for much of the
population. But with downsizing, the days of extensive on-the-job training have ended.
What replaces it? In economics textbooks workers start to pay employers for the training
they used to get free, when they were expected to be lifetime employees, by working for wages
below what they could get from an employer who was not providing training. This has not
happened. Judging what skills to buy from one's employer is no simpler than judging what skills to buy
from an outside institution.
Paradoxically, just when one would think that firms would be building closer
relationships with their key knowledge workers, in order to keep them committed to the firm, they are
smashing the implicit social contract with these workers.
Knowledge workers, like other workers, are now fired when not needed or when their
skills become obsolete. They, too, see a reduction in their real wages when cheaper alternatives
are found elsewhere in the world. Firms invest less in on-the-job training for knowledge workers
even when they want them to stay around, because they know that in the future fewer of them will
stay around. If workers are laid off when not needed, the smart ones know that they should
leave whenever an even marginally better job opportunity presents itself.
As job uncertainty rises, the numbers of those with a strong interest in the success of
their current employers dwindle. Surveys show that although attachment to their occupations
has remained constant for American workers over the past two decades, the number of those with
a strong attachment to their employers has gone down by a fifth. The system is evolving toward
less commitment and less investment in skills just as it should be moving in the opposite direction.
The basic problem is that every employer wants a free ride in the training system:
"You train, I'll hire". Whenever unemployment is low, employers who themselves do no training
bitterly complain about the shortage of trained workers. They see nothing strange about their complaints.
As for the employees, without career ladders they cannot intelligently acquire the right skills
on their own. Since they will be switching employers frequently, they don't know what skills they
will need or how long those skills will be relevant to their earning opportunities. As a result
rationally they don't invest in skills.
When it is clear that something must be done but rational individuals and companies
won't do it, society has to reorganize itself to make what is individually irrational into something that
is individually rational.
There is a simple solution. For example, France levies a training tax of 1.5 percent of payroll.
The purpose is not to collect taxes but to make it rational for every employer to train. Employers
can deduct their expenditures for training from that 1.5 percent tax. Thus if they spend 1.5 percent
of their sales on training their work force, they pay no tax. Since the money will be taken away
from them if they don't train, training becomes a free good as far as the firm is concerned.
No one tells employers what skills to teach their workers, but they are effectively being told
that they must teach some skills. Such a system aids everyone. It makes employers invest as if
there were career ladders even when these have been abolished. If all employers have to invest, no
one gets a free ride.
Source Lester Thurow "Building Wealth The New Rules for Individuals,
Companies and Nations in a
Knowledge-based Economy" as extracted in The Atlantic Monthly June 1999.
Full text is available on the Altantic Monthly website
at www.theatlantic.com/issues/99Jun/9906thurow.htm .
Also interview with Lester Thurow at www.amazon.com "Economies
The New Rules for Individuals,
Companies and Nations in a
by Lester C. Thurow
(pub 1999 by Harpercollins)
- LESTER THUROW INTERVIEW ON THE INTERNET
A RealAudio interview (40 mins) from NPR Public Interest archives is
available on the internet
- Lester Thurow's
website is at http://www.lthurow.com/
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