The writer is executive director of American Compass
Business leaders who constantly complain about “talent shortages” or “skills gaps” may, in fact, have only themselves to blame. Perceived weaknesses among their staff may be the result of overambitious or flawed plans. Anyone can see the folly of trying to hire thousands of experienced biochemists at minimum wage to develop cutting-edge drugs. The problem is not a shortage of biochemists; the problem is the bad idea. Equally foolish is the software manager who expects an unlimited supply of enthusiastic coders, or the plant manager who believes well-trained technicians will be lining up at his door.
Why do employers believe they should have access to the workforce they need, no matter what salary they choose? Maybe the culprit is globalization? Capitalism has generated widespread prosperity for centuries by rewarding the most productive uses of available labor. “Every individual is naturally inclined to employ his capital in such manner as is likely to give the greatest support to national industry, and to give income and employment to the greatest number of people in his own country”, postulated Adam Smith in The Wealth of Nations. The invisible hand aligned private profit with the public interest not by magic, but because the pursuit of the former was best achieved through investments that also advanced the latter.
However, global flows of goods, people and capital have lifted this constraint. Western companies found themselves with a seemingly endless supply of foreign workers, willing to work longer hours for lower wages with fewer protections. The company no longer had to worry about local workers. Entire nations were now vying to supply the necessary manpower. The results have been splendid for corporate earnings; less for the workers, their families and their communities.
Economists and policymakers began to learn from these mistakes and at least consider reinstating immigration limits and trade barriers that would force capitalists to resume partnership with their countrymen. Thus, the growing and somewhat comical cries from the business lobby that one cannot be expected to run a successful operation with these workers. Champions of free markets, creative destruction and competition proudly tout the power of these forces to solve any problem if the incentives are right. But give them the challenge of making a profit with local labor and suddenly all is lost.
New research released Thursday by the Burning Glass Institute, Harvard Business School and the Schultz Family Foundation belies that claim, showing how employers can do better. The American Opportunity Index uses data from millions of online job postings and resumes to analyze the career paths of American workers, typically without a college degree, at the nation’s 250 largest publicly traded companies.
The index focuses on three dimensions of opportunities offered by employers: access (hiring entry-level workers and those without a university degree), salary (median salary offered in each occupation) and mobility (how far and how quickly workers are promoted, how long they stay, and how well they manage to move 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 example, fads such as ‘corporate social responsibility’ and ‘ESG’ have tended to encourage empty signals to progressive causes, having little to do with core business operations. It would be more useful to focus on quantitative measures of opportunities for entry-level workers.
The most important finding is the extraordinary variation among employers, regardless of industry. Those in the top quintile for access hire four times as many candidates with no 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 vacancies by promoting from within and twice as likely to have senior managers following this route. In short, most companies could expand their hiring network, offer better wages, or invest more effectively in worker success and progression.
Researchers ask soft questions like, “Would tapping into a larger pool give you access to more talent?” and “Have you thought about how to better assess the talent and skills of the workers you have?
Business leaders need to start answering these questions. Policy makers need to make sure they have no other choice.
