Restructuring and the American Labor Market: What Are Firms Doing and What Does it Mean for American Youth?
A Forum — October 17, 1997
The activities of the labor market have a tremendous impact on organizations working in the employment and training community. In preparing young people and adults for employment, training programs and service agencies must be aware of the skills employers require of new hires as well as the stability and structure of the firms with which they do business. This need for awareness of labor market activity is growing increasingly critical as the American economy undergoes a reconstruction period, notes Paul Osterman, Professor at the Massachusetts Institute of Technology's Sloan School of Management. According to Osterman, the "old" labor market structure is rapidly evolving into a yet-to-be-determined "something else." The demands of the marketplace, combined with new and forthcoming public policies, will largely determine the shape and structure of the "new" economy.
The Changing Economy
Understanding the "new" economy requires knowledge of the what the "old" labor market structure looked like. From roughly the end of World War II through the mid-1980s, the firm for which an employee worked dominated most aspects of community and family life. New employees expected to stay with the firm for the long-term and had clear career channels to better and more rewarding jobs within the firm. There was relative equity among wages; that is, the "gap" between the wages of white collar and blue collar workers remained stable, as all benefitted from firm successes. In this society, the employment and training system had a limited role as firms generally recruited and trained their own workers. This system helped develop a sense of loyalty between the firm and the employee and vice versa.
This structure has fallen apart in recent years, as evidenced by layoffs, job tenure, dislocation rates and temporary and part-time employment. Layoffs, for example, at one time occurred only during economic downturns, but now occur at any time and at any level of prosperity for a firm. Workers are also staying with a firm for shorter periods of time, as four year job retention rates for employees with nine to fifteen years of tenure fell from 86 percent from 1983 to 1987 to 74 percent from 1991 to 1992. Dislocation rates have increased steadily since 1986, and more firms are using temporary and contingent workers for positions formerly staffed by full-time employees. This has led to an economy in which firms are growing less and less attached to its employees.
This restructuring of the economy has led to changes in the general operations of firms. While relative pay equity was the norm from 1950 to the mid-1980s, today this pay structure has been "blown apart," according to Osterman. For example, today there are different types of pay increases. "Across the board" pay increases, in which all workers benefit from firm gains, are generally limited to blue collar, front-line labor employees, while white collar administrators operate on their own pay schedule. "Group" pay increases occur when workers are placed into smaller work groups and are rewarded for their work as compared to their co-worker groups. Finally, "individual" pay increases are increasing in frequency, as firms are now more willing to reward the efforts of one or a few employees rather than the workforce as a whole.
What Is Really Happening In the Workforce
In a 1992 survey of for-profit employers, Osterman identified key practices used to enhance performance and efficiency. At the time, 40 percent of employers placed employees into work "teams," 25 percent had workers complete "rotations" through various aspects of the firm and 27 percent had implemented "quality control" measures or programs, such as Total Quality Management (TQM). In a 1997 follow-up survey, Osterman found substantial growth in these practices. Such growth is significant, notes Osterman, since much of it occurred during the restructuring period described earlier--as firms sought to reduce their workforce, they remained committed to seeking methods designed to enhance performance.
What is unclear, however, is whether these work systems benefit employees. For example, "high performance" firms in both 1992 and 1997 experienced greater layoffs, increased wage inequality and decreased the pace of salary and wage increases. Workers in firms implementing TQM practices also experienced higher layoff rates, but found more opportunities for pay raises. At the same time, nearly 50 percent of workers were in firms engaged in at least two of the three following activities: layoffs, outsourcing and the use of contingent workers.
Policy Options
Osterman contends that there are four main policy options regarding employment and training in this restructuring economy, two that are "individually-oriented policies" and two that involve "changing the rules." The individually-oriented policies include the "pick your own parachute" approach, in which individuals maintain "training accounts" that document their individual skills and allow them to seek their own employment, and the "safety net" approach that provides benefits as they are needed.
One way to change the rules, according to Osterman, is to take a "governance" approach that would fundamentally restructure how managers work and how businesses measure success. Examples include a de-emphasis on stocks and an increase in employee-owned organizations. A final approach involves the use of "new labor market institutions," or intermediaries, whose role of connecting potential workers and employment and training organizations to employers was not needed in the "old" labor market structure. Intermediaries can range from providing one-to-one matching of employers and employees to developing customized training programs for large numbers of employees.