Job training is only half the battle

February 10, 1994|By Robert Kuttner

THE CLINTON administration has put great emphasis on job training, as the cure for multiple ills.

In its welfare reform, the administration hopes to train welfare recipients for jobs to lift them out of poverty. Mr. Clinton's trade policy promises training to re-educate U.S. workers displaced by low-wage foreign competition.

Since the defeat of his economic stimulus package last spring, Mr. Clinton's employment policy generally has emphasized improving the supply of workers rather than increasing the demand for them. Lacking the votes to create jobs by boosting public investment, Mr. Clinton hopes to upgrade workers' skills to meet the anticipated demands of the high-tech economy. Workers gain, industry gains.

It's hard to argue with the ideal of a more highly skilled work force. But a growing body of economic evidence suggests that training, unless accompanied by other complementary strategies to create jobs and raise wages, is the wrong cure. At best, it is an incomplete cure.

The reality is that throughout the economy, skills and productivity have been steadily rising. But for the most part wages have been stagnant or falling.

After more than a decade of corporate downsizing and investment in better production technology, it takes far fewer workers to make an auto or a ton of steel. Each steelworker, in other words, produces much more steel. Yet steel and auto workers make a lower real wage in 1994 than in 1984.

The same story applies in services. A retail clerk using an optical scanner to ring up sales and a computer program to track inventory has skills and productivity unimaginable a generation ago. And a lower real wage.

Between 1977 and 1992, the productivity of the average worker increased by more than 30 percent. But average real wages fell by about 13 percent.

How can that be? There are three reasons.

The first is macroeconomic. If growth is slow and unemployment is relatively high (which has been the case for a generation), wages and productivity can diverge.

When work is scarce, plenty of unemployed workers are happy to take your job for a lower wage. As a defense against unemployment or salary cuts, skills take you only so far. Just ask a former Eastern Airlines mechanic or IBM engineer.

In most manufacturing industries, it is precisely the fact of rising productivity and better trained workers that has made millions of workers redundant and allowed managers to play one factory off against another to see who will take the steepest wage cuts.

Absent a full employment cure, a more highly skilled work force actually worsens the problem. It is only when jobs are plentiful and workers are scarce (rather than vice versa) that wages rise with skills.

jTC The second reason for the wage-skill mismatch is the weakening of institutions that give workers the fruits of their skills. A generation ago unions were stronger; also the real (inflation-adjusted) minimum wage was higher.

"Concession bargaining," in which managers play off different factories to take wage cuts, was unheard of. There was less non-union competition to break union pay scales, and even non-union companies often paid union wages to deter unionization. As a result wages tended to rise with skills.

Today in the telecommunications industry, where unionized phone company workers who lay cable or string lines earn about $15 an hour, employees performing the same work for non-union cable companies earn about $9 an hour. Though thousands of new jobs are being created building the information highway -- at rising skill levels -- there is relentless pressure to lower wages.

This inequality has been compounded by hostile corporate takeovers and kindred financial manipulations. When a takeover artist goes deeply into debt to buy a company, he typically recoups by slashing wage costs. Though ordinary employees have indeed become more highly skilled during the past decade, the rewards of that increased productivity have often gone to financial middlemen.

The final reason for the gap between skills and wages is trade. In a global market, American workers are not the only ones with high skills. As advanced machinery migrates globally, so do skills. Korea, for example, began turning out highly skilled production workers as it became a world-class competitor in steel, autos and ships.

In most of the world a dollar an hour looks like a pretty good wage, and American workers have no unique purchase on advanced skills. India, an extremely poor country, now turns out some of the world's most advanced software engineers. They earn about $200 a week.

American productivity in textile production is roughly twice the productivity of Asian textiles. But Asian textile workers earn less than one-tenth the wage. So in terms of labor costs, they are more "competitive" even though our workers are better trained. Until we figure how to buffer low-wage competition, there will be an undertow on American wages, rising skills or not.

To get plentiful jobs at rising wages, it will take more than skilled workers. Higher skills will not bootstrap the economy to full employment. Neither will they solve the trade problem, nor the other sources of inequality. Indeed, compared to these conundrums, worker training is easy. Perhaps that's why the administration keeps emphasizing it.

Robert Kuttner writes a regular column on economic policy.

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