• 01 Dec 2006
  • What Do You Think?

How Important Is Quality of Labor? And How Is It Achieved?

A new book by Gregory Clark identifies "labor quality" as the major enticement for capital flows that lead to economic prosperity. By defining labor quality in terms of discipline and attitudes toward work, this argument minimizes the long-term threat of outsourcing to developed economies. By understanding labor quality, can we better confront anxieties about outsourcing and immigration?
by by Jim Heskett

Summing Up

Among responses to this month's column, there was little disagreement with the premise that attitude trumps skills in the selection of new employees. C. J. Cullinane commented: "Attitude is all! … I have worked with a group of Cuban refugees in Newark … who have become very successful…. They came to the United States with nothing but a great work ethic and a great attitude." As Martin Klinzing put it, "Essentially this discussion boils down to the fact that you can teach someone anything except to care."

So much for labor at the individual level. A substantial discussion arose as to just what quality of labor is and how it can be measured and developed on the national level. To Nari Kannan, "Quality of labor is such a broad term. It all depends upon 'labor doing what?' … Also, quality of labor is not a static thing…. The biggest mistake any country can do is to assume that quality of labor is genetic…." Flavius Chircu said, "I would simplify the analysis by substituting 'quality of labor' with 'quality of output,' be that output a product, service, or mix thereof." In Sneh Asnani's words, "Labour quality cannot be defined by just two or three parameters like attitude and sincerity towards work; it should also measure domain knowledge, soft skills like leadership and managerial quality, creativity, and the ability to learn and adapt to the changing environment."

As for the implications that this has for the migration of jobs as well as labor, most agreed with author Gregory Clark's thesis that "labor quality," not just low cost, is a major driver of capital flows that leads to economic prosperity. This raised questions, though, about the impact of outsourcing and migration on labor quality and their implications for public policy. As for jobs and what has come to be known as outsourcing, Gaurav Goel commented, "Low-cost labor is not the deciding factor in the success of outsourcing … (vs.) … people with the right attitude…." Malvin Bernal elaborated, "Whether it's in India, the Philippines, or Brazil, companies should consider knowledge capacities and not price whenever they decide to use such ('cheap') labor…. The only companies that still look at labor through the same eyes as during the industrial age are sweatshops." Geetha Bellu added, "… it is not a question of fearing low-cost labor but rather fearing high-quality labor that comes at low cost." Regarding the migration of labor, Tayyab Rashid said, "High-paying work is knowledge work. That is not going anywhere." Hemant Rachh agreed, saying that "… it does matter who does a job efficiently with quality, not where he or she does it."

These comments raise added questions: Just how do "standards" for quality in labor get set? Is this something suitable for governments? Or should the market be left to set the standards on an ad hoc basis? Is effort better spent at the national level regulating against outsourcing, controlling borders to discourage labor migration, or training for "quality"—including attitude and skills as well as other attributes? What do you think?

Original Article

Over the past thirty years, several of my colleagues and I have tried to figure out why a handful of organizations are able to achieve true excellence. One of several things they all do is hire for attitude and train for skills. By "attitude," they typically mean the ability to identify with and "live" core values of the organization such as respect for others, being customer-driven, etc. Their managements have concluded that it is too difficult and costly to try to change the attitudes of adults. As a result, they release those unable to work and manage according to the organization's values and replace them with those who can.

All of this comes to mind in the face of the debate over immigration and outsourcing, essentially trade in labor. And it is prompted by a new book, A Farewell to Alms: A Brief Economic History of the World, by Gregory Clark that identifies what he calls "labor quality" as the major enticement for capital flows that lead to economic prosperity. He defines labor quality in terms of such things as discipline and attitudes toward work. This requires social beliefs and institutions that produce labor quality.

By implication, this largely rules out low labor cost as an important factor in such flows. Clark maintains that differences in labor efficiency justify large differences in labor costs. By extension, this argument minimizes the long-term threat of outsourcing to developed economies. If this is true, it may help explain why the U.S. is a favorite location of highly-skilled jobs "insourced" by companies headquartered in other countries. For example, one recent study suggests that outsourcing may impact up to 1.47 million U.S. jobs (out of more than 100 million). By comparison, the Organization for International Investment, which may admittedly have a biased point of view, estimates that foreign companies employ 5.4 million in the United States.

Clark is not optimistic about today's societies that have not had a long history of cultural foundations and functioning institutions that support the kind of formal and informal educational efforts that contribute to quality of labor. The kinds of changes he studies have taken place over long periods of time. And they run much deeper than such things as short-term educational reform or job retraining.

Why is it, then, that there is so much fear of outsourcing and immigration at a time when shop windows, at least in the Northeast U.S., are full of help-wanted signs? Is it simply the fear of change and uncertainty in a time of both job and labor migration? Can increased retraining of displaced workers really provide an answer to it, especially if one of the causes of unemployment is an "attitude gap"? Is a willingness to take the initiative to risk one's safety to cross a border to support one's family a positive indicator of the kind of "attitude" sought by high-performing organizations? If so, will private industry as a matter of course undertake the training required to help immigrants acquire necessary skills? And in the meantime, what should government do, if anything, to stem job and worker flows while maintaining the quality of labor of its citizens? What do you think?