Finding the Balance Between Wages, Entry-Level Skills and Opportunities for Advancement

by Dean Prigelmeier, President of Proactive Technologies, Inc.

During the path toward recovery after the Crash of 2008, many employers that had to lay-off skilled workers tried to find some of those workers (in whom a great investment was made) and bring them back for rehire. Some were not needed, some could not be found, some moved on to what they thought were safer career tracks and some inexplicably “dropped out” of the labor force.

Concurrently, employers continued a push to drive wages down. Some of it was rationalized by the swollen labor pool, some of it was to take advantage of the economics of desperation due to job loss and some, it was said, to position the company competitively. Some was because everyone else was doing it, and some of it was because the investors demanded it.

The result is a world in which economic theory no longer supports reality. For example, unemployment is reported at a celebrated low 4.1 percent through December, 2017. Yet wages continue to decline in many areas. Most credible economic theories state that when the supply of labor becomes scarcer, wages tend to increase to reflect that scarcity. This is simply a supply and demand issue.

So, there must be other than economic reasons for this. It brings into question how employment is defined; what is considered a job, full-time employment, part-time versus seasonal employment, contract versus temporary employment. On the one hand we are told that skilled workers cannot be easily found, often citing the shortage of workers as suggested by the low unemployment number. Yet, reports state that youth unemployment is at a seriously high level of 9.6 – 10 % (some say higher) and older workers are postponing retirement, or returning from retirement, as they find financing a retirement with rising prices (but reportedly low inflation) and fixed incomes (sliding backward in real dollars) increasingly harder to endure. So, it seems the number of unemployed, underemployed and retirement-aged workers are there to fill the available jobs but, but employers say they cannot find the skilled ones.

When you hear of an unemployed Engineer, previously making $100,000/year, who now has 3 jobs and makes $40,000/year, that may be considered employment, but each job can also be considered “underemployment.” Maybe if the trained engineer was able to find one engineering job that paid enough to allow them to support themselves and their family, that would free up two jobs for others still looking.

The nature of the employment is important to understanding its effect on the worker. We hear employers report on the “skill gap,” saying “we just can’t find the skilled workers we need.” You have seen, heard and read that for years. But what does that mean? Is it hard to find the skilled workers, or the skilled workers we want at the wage level we set? Are the educational institutions failing to develop the labor supply needed? If that were the case, the shortage would drive wages up. Are qualified applicants rejecting the low entry wage, limited benefit package and lack of opportunities for real advancement? Are applicants unable to qualify for employment for reasons unrelated to the work they would be expected to perform?

Many of these reasons I have heard. And there seems to be enough blame to go around to this state of employment malaise. It doesn’t help matters when the metrics utilized in employee recruiting and employment search are unreliable. It also doesn’t help that employers are less likely to take a job posting down for fear of rapid turnover in the position or quietly searching for a better or cheaper qualified applicant than the one selected– inflating the measure of “available job openings going unfilled.”

Sometimes important decisions are made that have no chance for success because both sides think economic theory is on their side based on the published metrics they select. What is needed are accurate economic metrics and an open and unbiased mind.

Even if the right skilled worker is found, holding on to them might be slippery if all factors are not considered. Turnover can be more costly than raising the wages. Being a “competitive employer” often runs at odds with being a “competitive company.” But rarely is that math to galvanize the difference ever performed or reported.

Hiring, developing and retaining a skilled workforce are three legs of a stool – all relying on credible economic analysis. Just because an annual survey of wage levels publishes what appears to be the current trend, it doesn’t necessarily follow that those numbers are accurate for your firm, in your region and within your labor market. Knowing that keeping wages down in a labor market where the available skilled labor already left the state is important to decision making.

Understanding clearly the investment required to develop a worker for the expected return on investment (and measuring the progress to maximize it) must be a consideration or you might be filling seats with no added value. Knowing the high historical cost of turnover should cause the employer to provide incentives at the hiring and development stages to be more competitive, but knowing what those incentive levels should be require accurate economic data.

For these three stages, important considerations are:

Hiring – Wages, opportunity for advancement in wages and career, benefits and culture. If too low, no takers. Too high, it hurts the bottom line. Fair and reasonable the way to go.

Developing – A training strategy and infrastructure, a clearly defined development path with incentives for achievement, avenues for recognition, continuous improvement and cross-training. If providing no structured, deliberate training, expect and realize very little return (worker under-capacity, low work quality, work quantity and compliance). Provide wrong training for the needed task-based skills and training costs might be high and results low. Define exactly what outcomes you expect, train for those outcomes, measure and improve results, and pay for value accordingly.

Retaining – Wages, benefits, training opportunities, recognition, belonging. If any of these are lower than the skilled employee perceives their value, the skilled workers leave because they can, and the lesser skilled workers stay because they assume it is the best they can do. The cost of turnover – low skilled or highly skilled – can be substantial.

From a worker’s perspective, Abraham Maslow’s Hierarchy of Needs, published in a paper to the Psychological Review in 1943 entitled, “A Theory of Human Motivation,” laid out stages an individual passes on its way toward total satisfaction:

Physiological Needs (bottom) – feeding oneself and having access to the basic necessities of life;
Safety Needs – sheltering and protecting oneself from harm;
Social Belonging – having and sustaining relationships (friends, family);
Esteem – earning the respect of others;
Self-Actualization (top) – reaching one’s goals;
Self-Transcendence – aspiring beyond one’s known limits.

Maslow chose to study what he called “exemplary people” such as Albert Einstein, Jane Addams, Eleanor Roosevelt, and Frederick Douglass rather than mentally ill or neurotic people as his peers were doing. His theory continues to become more respected in efforts to explain human behavior in today’s world, than those by his peers when he went against the herd of social scientists and psychologists of his day.

An individual has to feel each level is satisfied and perceived sustained before the next can be attempted. Once a new level is reached, protecting that level and lower levels achieved is a priority. Trying to skip steps is irrational and may be met with a harsh dose of reality.

Individuals do not progress in a straight line from the bottom to the top. Most rise, are knocked down (because of insurmountable obstacles or unforeseen challenges) and rise again. Some plateau after trying but failing, some just have no aspiration to move higher, some find comfort in limiting their odds of falling backward for attempting the slight gains that they see possible for moving ahead. Every person’s hierarchy is different because of how lofty one sets goals, but in general everyone considers these stages throughout their life. The Crash of 2008 knocked millions of Americans backward – some from the highest to the lowest level -and they did not see it coming. It left a sense of cynicism and skepticism that manifests itself in every facet of life.

This understanding is helpful when understanding individual applicants and employees. Strategies for the group of employees can only successful if each member of the group is near the same sustained level of Maslow’s Hierarchy. It might be difficult to see how skilled and talented someone might be through the cloud of desperation, fear, and challenges they face at home that they bring to the job. Everyone is different and is at a different stage of their Maslow’s Hierarchy.

For example, a skilled job applicant may have come though a rough patch of protracted unemployment, and is willing to take what is established as an unreasonably low wage. But that might not be enough to sustain them through the “Safety level” of Maslow’s Hierarchy. Understandably, they will be looking for another job from the moment they take yours if no clear opportunities for wage advancement and paths for career development exist. The skilled workers are the first to voluntarily leave, because they can.

Knowing that you are constructing a workforce made up of those who are skilled enough to leave at the first opportunity and those barely skilled and unable/unwilling to leave a sure-thing job for fear of disrupting their life balance – as it might have become – are important considerations requiring an understanding of the effects of wages, training policies, incentives, and benefits on the psychology of the worker.

Another example where this theory is helpful to consider is when a highly skilled employee, with a long record of excellent performance, “screwed up.” They have demonstrated they can perform the task repeatedly to high levels of quality and compliance. But this one time they messed up. Were they negligent, as an easy conclusion would suggest? Were they distracted by others? Was the equipment faulty? Were they preoccupied with a crisis, such as debt they cannot overcome, a hospital expense that was not budgeted, rumors of layoff or the death of a loved one?

There will always be challenges that disrupt even the most stable life. These cannot be avoided, but assistance and intervention, if possible, may quickly rectify. Having a workforce that can adapt to, and take advantage of, business opportunities doesn’t happen by chance; it is through the efforts to create and maintain it.

Proactive Technologies, Inc., with its PROTECH© system of managed human resource development, creates for its employer clients the infrastructure to hire the most suited, develop them to their fullest, manage each worker for job changes and growth. It keeps the focus on developing the worker for the employer’s precise need, and “pay-for-value” incentives can be added to reward the worker for self-initiating their personal development to master more required tasks. The employee has a path to become of higher value to the company and justified higher wages for themselves. The employer pays only for the value that they can derive from the employee as they are developing. There is no better example of win-win.

The approach provides for the accelerated transfer of expertise™, develops pay for value metrics, and pathways and metrics for organizational growth. Check out Proactive Technologies’ website  and contact a representative for more information.