Many people decry the apparent slow job growth and the lack of wage increases for the average American worker. In a recent article for The Washington Post, business and economics columnist Steven Pearlstein talked about this very problem, and the responses of politicians to it, noting that “in Washington, not surprisingly, the instinct is to look for an economic policy solution – tax reform, immigration reform, trade liberalization, deregulation. To a hammer, everything looks like a nail.”
In other words, the solution to the problem of stagnation in job and wage growth may not be for Capitol Hill to step in and force a change. Maybe if businesses changed their competitive models, they might be able to increase jobs and wages, while still making money.
The Common Competitive Model
Currently, many companies treat employees as cheap, replaceable cogs in a machine to be used and disposed of. There is little reason in the eyes of these companies to invest in long-term relations with workers, because front-line workers are easily replaceable. Rather than compete on quality, these companies are focused on price competition, doing things as cheaply as possible, including trying to save money on labor. As noted in the WP article, “the reason we now have a low-growth, stagnant-wage, high-profit economy is because this is the way leading businesses have chosen to compete.”
However, this mentality is not necessarily the result of active avarice, as many company executives, according to the article, have “convinced themselves that anyone who doesn’t compete that way will be driven out of business or taken over by an ‘activist’ investor.” Fear of this eventuality is what drives the decision to limit risks by not investing in assets that might leave the company at any time. Unfortunately, by not investing in human resources and training, not only does employee loyalty plummet, these employees are often left without the tools they need to do their jobs in the most effective manner possible.
This business ideology leaves employees disengaged, driving down productivity and long-term profitability.
Doing Things Differently
During his research for his Washington Post article, Mr. Pearlstein visited the Marlin Steel production facility here in Baltimore, MD. Here, Steven was struck by the way in which Marlin Steel’s employee investment philosophy deviates from the norm. Rather than competing on price and cutting employee compensation and benefits to the proverbial bone, Marlin Steel competes on quality.
At Marlin Steel, employees are actively encouraged to acquire new skills, and then rewarded for their efforts. Using a skills matrix that is posted where everyone on staff can see it during their lunch break, employees can see what skills are needed and who has said skills. By qualifying for needed skills, employees can earn a bonus on their paychecks. This incentivizes the learning of new skills by employees.
Incentivizing new skills benefits both the employees and the company. Employees get:
- Increased pay.
- A robust list of skills to improve future job prospects.
As a company, Marlin Steel gets:
- Skills redundancy.
- Increased productivity.
- Increased employee engagement.
Trained employees are more capable, and having redundancy for critical skills ensures that the sudden loss or temporary absence of one employee doesn’t cripple the company’s ability to operate, as another employee with the same skills can take over until the first employee comes back from vacation or a replacement can be found and brought up to speed.
Through a focus on developing employee skills and giving them the tools they need to be more effective and efficient, Marlin Steel has increased productivity and profits, actively adding jobs rather than performing layoffs.
In his article for The Washington Post, Mr. Pearlstein notes that “it’s perfectly possible to compete on the basis of value rather than price; on the basis of how much you can pay your frontline employees, not how little… If those were the prevailing norms, the terms of competition, the middle class would be growing, not shrinking.” With a larger middle class comes a larger customer base of people who can afford the goods that they produce, increasing demand for products, the tax base, and creating yet more paying jobs as the up and coming middle class finds ways to spend their hard-earned money.