When Wages Rise for Skilled Labor, Can Your Firm Maximize Worker Value and Minimize Investment?

by Dean Prigelmeier, President of Proactive Technologies, Inc

Ideally, wages rise for most job classifications when conditions are right to match the rising cost of living that an expanding economy brings. As skilled workers find their rightful full-time place, they leave openings behind them that employers need to fill. Competition for the most skilled of the remaining skilled leads employers to adjust wages and benefits accordingly to be competitive.

Rumblings point to the fact that wages for skilled workers have not kept up and a major adjustment is long overdue. When wages rise, will your firm feel the affects of added labor costs or will they adapt to increasing wages and realize offsetting higher returns on worker investment?

The economic reasons for competitive compensation usually include the scarcity of labor, scarcity of relevantly skilled labor, abundance of job choices yielding migration of the skilled workers with choices, increasing technical nature of jobs, and an expanding economy yielding internal promotions that create openings both above and below current job classifications. These all increase the level of competition for highly skilled workers that leave job openings in its wake.

This perpetual labor volatility is more unique to the United States than to other developed economies. European government and business policies facilitate workforce development efforts based on more accurately predicted labor needs. Economic policies have a purposeful affect on the corporations that thrive, and toward workers and the available jobs today and those to come. Students are exposed to career opportunities starting in grade school which leads to focused interest by middle school school, leading to paid vocational training and apprenticeships before leaving high school. For those wanting to continue college in their chosen profession, apprenticeship training is coordinated with academic learning to promote growth in each and time in both to reinforce each effort.

It is much different here. The U.S. does not believe in long-term planning for the greater good. Many like to believe that this driven by a policy of laissez faire  or “let it be” or “let it go.” Other economists claim that this is not a policy as much as it is neglect. Still others see this version of laissez-faire as very selective and that the government does intervene to the betterment of some individuals, companies, and industries to the detriment of others.

In any event, this version of capitalism often yields wild gyrations dotted with cataclysmic events. It creates winners through access and privilege, and losers through barriers and disadvantages. Corporations are created and destroyed; jobs are created, relocated or destroyed; industries ebb and flow and smaller firms and the jobs they provide, and could provide, are caught up in these events and uncertainty. This all makes the targeting of workforce development efforts difficult to futile despite the Herculean efforts and enormous expenditures. The jobs do not tend to stay around long enough to target. The losses to the overall economy and society are tremendous due to the fact that the percentage of those negatively impacted are always measured in tens or hundreds of millions and the fallout affects generations.

If the U.S. economy and society are to survive and thrive, changes have to come to stabilize this. Long-term planning instead of quarterly micro-management by institutional investors will decrease the movement of jobs and industries before a student or worker in training graduates. Employer ambivalence toward investing in worker development and wages that are below what should be expected for high-skilled workers will be a thing of the past. That is when the natural economic order of a truly capitalist economy will shape the supply and demand of labor as well as fair wages set that reflect the skills required. The level and readiness of the labor supply to fill demand and sustained relevance of workers vis-à-vis the technical skills required of jobs will be a driver of economic expansion.

The government is feeling pressure to begin the process of the change. Efforts are underway to lower or limit programs such as the U.S. H1-B visa program (and the Obama Administrations H4EAD visa program for working spouses of H1-B holders) used by technical companies to attract technically skilled workers – often replacing seasoned American workers with lower wage workers as critics claim. If significant changes are made to programs like these, some employers will be starting over by selecting and developing locally available skilled workers.

Employers know higher wages are coming, but may be waiting as they monitor prices and profits for the best time. But economic indicators being reported are becoming more unreliable as a fundamental reordering of the economy has taken place. For example, despite what the misleading low to negligible inflation indicators read, everyone knows prices on everything have been rising faster than wages have kept up for decades – cloaking the real impact of inflation and who are more disproportionately affected. Borrowing has compensated for some of that increasing household debt, but at some point borrowing will decrease and rising prices will be met with reduced consumption.

Employers have been pressured to keep wages down as long as they can under these conditions, but high employee turnover rates and increased job hopping point to the fact that skilled workers can, and will, switch jobs as many times as necessary to find a sustaining wage. The most skilled of workers are able to “shop themselves around.” In this era it is not surprising to find employers struggling with 80% turnover rates for critical job classifications.

Employers know there are significant costs to replacing and retraining workers, yet are often hesitant to consider ways to keep skilled workers because they are afraid shareholders will retreat if an investment is required. But what if a strong case can be made to shareholders that by concentrating training to accelerate worker development that increases the level of each worker’s capacity – followed by a matched proportional increase in wages – will result in a sustainable boost in profits and earnings by stabilizing the workforce, which yields higher consistent output, quality and compliance? Will anyone listen?

In reality, Proactive Technologies finds a company’s average incumbent worker capacity for a job classification stalled out at 40-50% – even less. We have found instances of it lower than even 20%, and those employees being paid at the high end of the pay range simply for having deliberately or unintentionally slipped through the cracks to gain “tenure” by senority.

What if each worker’s capacity could be raised from the average of 40-50% to 90-100%? Could a strong justification be made to raise wages incrementally by even 20-30% as progress toward full job mastery is achieved – paying only for the increased value derived at each progression? Could investors be persuaded by the simple logic of this argument?

Proactive Technologies’ “pay-for-value”  worker development program is fair to the worker and employer. The employer sets a base wage that is fair enough to attract candidates with the relevant core skills, and as each task required of the job classification’s duty area is mastered, compensation is incrementally raised to match the increase in value the employer can derive. Along with incumbent workers that are base-lined to what they have mastered so far, both are provided the structure, materials, direction and support to expedite their personal drive to full job mastery. The employer is no longer paying for undeveloped or unknown capacity. This approach is fair to the worker and fair to the employer.

What if this more focused and deliberate worker training was added simply by structuring the often unstructured, haphazard and undocumented training components already in place? What is the value of structured on-the-job training that doesn’t lower or disrupt current production and worker obligations and can increase work quality and quantity, decrease scrap and rework, decrease the instance and cost of employee turnover, and increase compliance with quality, engineering, OSHA and EPA specifications while lowering the internal costs of training? What if a case could be made that the cost of one instance of non-compliance or fine for non-compliance could cover the entire investment  needed to setup and implement a structured on-the-job training system for everyone in the job classification for a year, maybe more? Would investor’s listen?

We as a people too often wait until a tragedy or calamity occurs before acting. In this case, so much can be gained by not waiting, and lost by procrastinating. More employers have already started to adjust compensation to make it fairer, if nothing else, even without this capacity-improving system in place. Many have not seen the urgency. Harvesting undeveloped or underdeveloped worker capacity of just existing workers can go a long way to offsetting the investment in raising wages. Accelerating the development of new workers to full job mastery along with incumbents, cutting turnover costs plus improving the company’s worker performance makes it a no-brainer.

Each employer should take a critical look of how it trains it workers; how it really trains its workers. Classes and STEM programs may boost core skills, but only task-based structured on-the-job training can affect the quality of work performance. If you find the best you have for worker training is pairing 2 people and hoping for the best, you can probably imagine how just a little structure would improve that experience for everyone. Then imagine if you improved training systemically. What kind of returns does your instinct imagine? If you feel it would be well worth your while to spend 45 minutes and evaluate the PROTECH© system of managed human resource development™ and the accelerated transfer of expertise™.

To learn more about Proactive Technologies’ structured on-the-job training system approach might work at your firm, or your region, contact a Proactive Technologies representative today to schedule a GoToMeeting videoconference briefing to your computer. This can followed up with an onsite presentation for you and your colleagues. A 13-minute promo briefing is available at the Proactive Technologies website and provides an overview to get you started and to help you explain it to your staff.