Chapter 1 Recreating the Prosperity of the Past in the Economy of the Future
Chapter 2 The Service Economy and the Service Worker
Chapter 3 Work Systems
Chapter 4 The Dynamics of Change in Work Systems
Chapter 5 Reorganizing Work: Using Knowledge and Skill to Improve Economic Performance
Chapter 6 Business Organization
Chapter 7 Creating Multiemployer Institutions: Career Paths and Performance Improvement
Chapter 8 A New Deal for a New Economy
New Rules for a New Economy
By Stephen A. Herzenberg, John A. Alic, and Howard Wial
Employment and Opportunity in Postindustrial America
A Twentieth Century Fund Book. Published by ILR Press, an imprint of
Cornell University Press
(C) 1998 The Twentieth Century Fund
All rights reserved.
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Recreating the Prosperity of the Past
in the Economy of the Future
The U.S. economy has grown steadily in the 1990s. By
1998, inflation and the federal budget deficit had
melted away. Despite occasional jitters, the stock market continued to
reach historic peaks. But regardless of what the business page says about
consumer confidence at the time you read this book, Americans' anxiety
about the future remains below the surface. Wages for all but a fortunate
few have stagnated or fallen. Health care costs are up and insurance
coverage down. Unemployment is low, but many people still fear
the next round of layoffs. With factories moving offshore, big companies
downsizing, and the public sector shrinking, workers are asking
where the good new jobs will come from.
There is good reason to worry. Automation and international competition
continue to eat away at the manufacturing jobs that were once
plentiful. Service industries now employ about three-quarters of the
workforce, with many workers trapped in low-wage, dead-end jobs. This
book is about the reasons and the remedies for stagnation and decline
in American living standards, for growing wage inequality and employment
instability. Both causes and cures are to be found in the service
economy; that is where the bulk of the jobs are and where the jobs of
the future will be created.
Our starting point is the breakdown of the national economic
system that generated prosperity for three decades after World War II, a
period we call the Wonder Years. For a decade or more after the breakdown
began, people clung to a past that could not be recovered. Now
most Americans recognize that the past has gone for good. Yet no vision
of the future has crystallized to take the place of people's past understandings
of the economic world and their place in it: the old ideas of a
job and career; how individuals and families achieve economic security;
how employers, communities, and the nation prosper.
In this book we outline a reconstruction of the contemporary
economy that could generate a new sense of confidence and a new era
of widely shared prosperity. We argue that many elements of a reconstructed
U.S. economic system have already begun to appear. We try to
put the pieces together, showing how they might yield better performance
as well as greater economic security.
The system we believe attainable would not be economic and social
nirvana. Drudgery and hard physical labor would remain. Some Americans
would still perform much more of this work, and earn much less,
than others. Even if consumer price indices adequately accounted for
new products and improved quality, we would not expect another period
of quantitative growth--of more and more "stuff" every year--like the
1950s and 1960s. Still, the potential for qualitative improvements in services,
for making work itself more rewarding, and for enjoying the fruits
of growth in the form of shorter work time suggests an attainable future
that Americans could look toward with optimism rather than unease.
Ever since Adam Smith wrote The Wealth of Nations in 1776, economic
development has been virtually synonymous with manufacturing. Many
people continue to regard production of services as subsidiary to production
of goods, even a parasitic drag on economic performance. Although
services have accounted for more than half of U.S. employment
for more than fifty years (Figure 1), policymakers, economists, and business
writers continue to focus on manufacturing. After all, for a quarter-century
after World War II, productivity increases in manufacturing
stimulated a virtuous circle of rising wages and growing consumer demand,
corporate profits, more investment, job creation, and higher
living standards. That era has ended.
When public attention belatedly turned to service industries, powerful
rhetorical images portrayed the service worker as a hamburger
flipper or window washer, producing nothing lasting or solid. Pundits
and politicians asked how Americans could expect to get along, much
less prosper, taking in each other's laundry.
Goods-producing industries still matter, of course. But the simple fact
is that services now account for most of U.S. employment, while manufacturing
has fallen to around 15 percent and continues drifting downward.
More Americans now work in physicians' offices than in auto
plants, in laundries and dry cleaners than in steel mills. Services, as a
result, matter more than manufacturing when it comes to job quality. They
also increasingly account for the rate at which living standards rise. But
dependence on service jobs leaves many uneasy; say "dead-end job," and
the image that comes to mind is McDonald's, not McDonnell Douglas.
It is wrong to assume that the majority of service workers will necessarily
be stuck in low-wage jobs with poor benefits and little security. The
services offer millions of good jobs, as well as millions of bad ones. And
though a large share of service jobs pay little more than the minimum
wage, this is a consequence of particular features of the U.S. economy
and its labor market, especially the spread of wage-based competition.
With deregulation and new competition in sectors ranging from
trucking to retailing to health care, employers have sought to cut labor
costs, treating workers as interchangeable parts and accepting the high
turnover and low commitment to the job that result.
In earlier decades, in service industries such as telecommunications
and banking as well as in manufacturing, workers could start at the
bottom of a firm's job ladder and expect to advance through learning,
experience, and seniority. They could look forward to a career, a progression
rather than a succession of jobs. Those who worked their way
up in the 1970s and 1980s now confront an ongoing wave of mergers
and corporate restructuring. These go by many names, including downsizing
(or "rightsizing") and reengineering. Whatever the label, the consequences
include layoffs, lateral transfers that may foreclose advancement
opportunities, and, for those who keep their jobs this time, fear
that the next wave will catch them too. At the same time, a shrunken social
safety net and the decline of nuclear and extended families mean
that those out of work have fewer resources to fall back on.
In goods-producing industries, a combination of international and
domestic competition drives restructuring. In services, the direct impact
of international competition has been minor compared with
deregulation and other new sources of domestic competition: unlike
goods, only a few service products can be shipped or stored; most must
be produced at the point of sale.
When competitive forces lead to new and better service products,
Americans benefit as consumers. But when competition leads to downward
pressure on wages and benefits, Americans suffer as workers. And
as wages below the top slice of the income distribution fall, workers can
buy fewer goods and services. The loss of the opportunities that made
the Wonder Years so promising for earlier generations also heightens
This book shows how to reverse recent labor market trends and the
poor economic performance that has accompanied wage-based competition
in many service industries. We argue, in our last two chapters, for
a new set of institutions that will support higher wages for middle- and
low-income workers and create more opportunities for those who seek
to advance. These same institutions will also improve economic performance
and service quality. The job for public policy, in short, is to
catch up with the changes in the economy since the 1970s (indeed,
since the last round of major U.S. labor policy innovation in the 1930s).
The Wonder Years were wonderful not only because many workers
could expect steady advances in pay and benefits but because the
economy delivered in ways that people experienced every day--cars,
boats, TVs, bigger homes, basic health care. (In some other respects, of
course, the Wonder Years, a time of cold war and conformity, were anything
but wonderful.) The reforms we propose should also contribute
to tangible improvements in people's lives: child and elder care that enrich
life rather than exacerbate guilt, better education, more responsive
customer service, a revival of family and community life once wage increases
for the many make the struggle to survive less consuming.
This book is rooted in an analysis of work and business in the services.
We use mostly service examples because we are trying to reorient debate
away from the old economy and old concepts--away from manufacturing.
Even so, the concepts we develop to make sense of the huge and diverse
service sector also shed light on goods-producing industries. For this reason,
as well as because the services now make up the bulk of employment, we see
our last two chapters as a prescription for economywide renewal.
The Past: The Origins and Decay of the Wonder Years
The core features of the Wonder Years provide a basis of comparison for
our analysis of the services today, a gauge of how the world has changed
since white bread and bland beer gave way to microbakeries and microbreweries,
and a historical and analytical starting point for asking how
to construct a new period of prosperity.
During the one hundred years beginning in 1870, real gross domestic
product (GDP) per labor-hour in the United States rose more
than tenfold, an astounding increase. On a per capita basis, real GDP
rose almost seven times between 1870 and 1973.
Mechanization and automation in manufacturing powered the
American economic engine. The technological basis was laid after the
Civil War, with the rise of the steel industry--initially to provide railroad
rails--and the development of the "American system" of manufactures.
The American system of assembling standardized interchangeable components
was spawned in armories and factories that made axes,
firearms, and clocks. It led to affordable mass-produced sewing machines
and bicycles, later to automobiles and many other consumer
goods. Railroads, telephone, and telegraph helped manufacturers coordinate
their growing purchasing and distribution networks.
Engineers and managers refined the American system in mass production
industries, developing the methods still known as "scientific
management." Organizations capable of administering high-volume
standardized production also emerged. Alfred Chandler has documented
with painstaking detail the creation of new administrative giants
in a long list of industries.
The big corporations that dominated major industries became vehicles
for spreading mass production technologies through the economy.
They had the capital and the control over markets necessary to invest in
expensive, single-purpose equipment. Productive capacity rose at an
No mechanism existed, however, to ensure that wages and purchasing
power would rise in parallel with the economy's newfound capacity
to produce. When the Great Depression brought a prolonged period
of stagnant demand and corporate losses, there was nothing to stop
massive layoffs and real wage cuts from building to a vicious circle in
which falling demand pushed the entire economy into deep decline.
Widely shared perceptions that inadequate consumer demand had
helped trigger the Depression added to support for New Deal labor and
social welfare reforms. Congress passed legislation that helped create
the institutional pillars of the Wonder Years, buttressing the economy
against a future downward spiral fed by declining wages.
(1) The National Labor Relations Act of 1935 (also known as the Wagner
Act) protected workers' rights to organize and bargain collectively. It
contributed to the rise of labor unions in the steel, auto, rubber,
electrical equipment, and other manufacturing industries. After World War II
unions and collective bargaining established industrywide wage and
benefit standards in core manufacturing industries. Postwar union
contracts linked annual increases in real wages to the roughly 3 percent
annual rate of national productivity growth.
(2) The Fair Labor Standards Act of 1938 established national standards for
the minimum wage, overtime pay, and restrictions on child labor. In the
next thirty years periodic increases kept the national minimum wage
above 40 percent of the average manufacturing wage. The federal
minimum wage ensured that workers in many low-wage, nonunion
industries also shared in the benefits of productivity growth.
(3) The Social Security Act of 1935, the foundation of the current social
security system, established national contributory old-age pensions. The
same legislation established a federal unemployment insurance tax and
incentives that induced states to create unemployment insurance
systems. When older or unemployed workers dropped out of the labor
force, their consumption would no longer fall precipitously.
After World War II the United States entered the Wonder Years. The
nation emerged from the war with unmatched industrial power. Not
only were U.S. industries undamaged, but they had in many ways been
strengthened by government investments in technology and production
capacity. Conversion from military production proved less disruptive
than many had feared. As other economies rebuilt, American industry
in 1953 accounted for 45 percent of world manufacturing
output. With foreign competition a minor concern, major firms settled
into generally comfortable domestic accommodations. Union contracts,
minimum wage increases, and unemployment insurance payments
joined Keynesian fiscal and monetary policy to dampen the business
cycle, complementing mass production by sustaining consumer
demand. Jobs were plentiful and so were profits.
This pattern could not last. It was easier for Europe and Japan to
catch up than for the United States to stay ahead. The big American
steelmakers were complaining of "unfair" foreign competition by the
end of the 1950s. Japan improved its manufacturing capabilities fast
enough to become the world's low-cost supplier of goods ranging from
ships to television sets in the 1960s. By the late 1970s imports accounted
for almost 30 percent of U.S. automobile sales. No longer could U.S.
Steel and General Motors function as price leaders, ensuring handsome
margins for themselves and adequate, if usually smaller, profits for their
domestic rivals and suppliers.
During the 1960s productivity rose at an average annual rate of 2.8
percent. The rate of increase fell below 2 percent in the 1970s and has
since been even lower, around 1 percent a year. Low productivity growth
put a damper on wage growth; without rising wages, demand growth
While international competition buffeted and broke the old oligopolies
in manufacturing, deregulation, beginning under President Jimmy
Carter in the late 1970s, contributed to steadily growing competitive pressures
in a wide range of domestically oriented industries, including financial
services, transportation, and telecommunications. At the same time,
new entrants and changing consumer preferences brought new competitive
pressures to industries such as retailing. In the 1990s attempts to contain
rising costs brought competition even to the health care sector.
Manufacturing and service firms alike sought to reduce costs and
improve quality and flexibility by automating and reorganizing their
workplaces, closing off many internal job ladders, and cutting into well-paying
jobs that had earlier been open to less-educated workers. Some
manufacturers moved low-skilled, labor-intensive production to Asia
and Mexico. In the 1980s Fortune 500 firms began to downsize, computers
showed up on desktops, and employers merged, consolidated,
and began to rely more heavily on part-time and temporary workers.
Meanwhile, the institutional framework of U.S. labor relations had
been fraying. Male-dominated industrial unions adapted poorly to the
rising percentage of women in the labor force and an expanding service
sector. Advising corporations on how to remain "union-free" became a
thriving cottage industry. Union coverage declined steadily to today's
pre-Wagner Act levels--11 percent of the private nonagricultural labor force.
With the decline of unions came the erosion of the social policies
supported by labor. The minimum wage roughly tracked productivity
for the two decades after 1947, then lost half its value relative to
productivity over the next three decades (see Figure 5, Chapter 8). The
share of unemployed workers receiving unemployment insurance benefits
fell. By the end of President Bush's term most people understood
that the old days were gone, even if they weren't quite sure why.
Making Sense of the New (and Old) Economy
The narrative above is familiar. This book goes beyond it to develop an
analytical framework that describes the economy of the Wonder Years
and of today. We then use that framework to define policies designed to
point the nation toward a new era of prosperity.
We describe the economy using three concepts: work systems, business
organization, and career paths. Each type of work system relies on a
different basic approach to organize production and motivate or control
how hard and well people work. Examples range from assembly
lines, to janitorial labor with mop and broom, to the bureaucratic incentives
of promotion and pay found in banks and insurance companies,
to professions such as medicine and the law. Work systems emerge
from a complex interaction among firms, employees, and technological
and other contextual influences.
By business organization we mean the ways that firms structure their
operations. To a majority of Americans, the most familiar forms of business
organization are still the giant corporations--GM, Sears, AT&T
(and newer firms such as Microsoft on which the media shower equal
attention)--and the small establishments that consumers pass by and deal
with daily. Within these organizations, managers decide which goods or
services to offer and how to produce or distribute them. Relationships
between firms, in turn, are coordinated through the market, that is,
through "arm's-length" buying and selling between firms that have no
enduring ties and will buy from someone else if they can get a better
deal. Patterns of business organization in the services have always differed
from those in manufacturing because of the smaller average size
of service establishments and the prevalence of franchise agreements.
In both services and manufacturing, recent trends in business organization
include the creation of more enduring and cooperative links between
separate firms (as, for example, in health care alliances).
Career paths structure the movement over time of workers through
the labor market. These paths are shaped by the decisions of individual
workers, groups of workers (informal communities, professional associations,
labor unions), and owners and managers. The job ladders within
large firms illustrate one kind of career path (e.g., from file clerk to
secretary to office administrator). Another example is the movement of
skilled craft workers in the construction trades from one worksite to another.
As we define them, career paths do not necessarily imply that
workers have "good" jobs. Nor does movement always lead to advancement
in pay, skill, or responsibility.
Public policy affects economic outcomes not only directly but indirectly
through its influence on work systems, business organization, and
career paths (Figure 2). An obvious direct effect comes from the legally
mandated minimum wage. Examples of indirect impacts include antitrust
laws that affect business organization and antidiscrimination laws
that affect work systems and career paths.
The Wonder Years Revisited
Table 1 provides a brief comparison of the four work systems analyzed,
in detail in Chapters 3 and 4. The core of the middle class in the
Wonder Years enjoyed one-company careers in vertically integrated
firms. One major group consisted of blue-collar workers, many with
"tightly constrained" jobs (including assembly-line jobs, although there
were never as many as in the popular imagination). During the Wonder
Years large numbers of middle-class Americans also found employment
(as secretaries, middle managers, factory quality inspectors, and supervisors)
in a work system we call semiautonomous. In this system, good
wages, seniority-based pensions and promotion opportunities, and
other bureaucratic incentives tied workers to firms and elicited effort
and commitment. Since they generally stayed with one employer a long
time, workers could acquire and apply firm-specific know-how. They
learned the company's products, its "standard operating procedures,"
how to work effectively with others in the organization whose cooperation
they needed. Most of those in tightly constrained blue-collar and
semiautonomous white-collar jobs did not work for GM or AT&T. They
worked for the GM supplier or dealer, the community hospital, the local
bank or supermarket. But rapid economywide growth translated into
promotion opportunities and security even in smaller firms.
The top of the labor market, in the Wonder Years as today, consisted
of employees in the high-skill autonomous work system. This category
includes professionals, upper-level managers, craft workers, and many
technicians. In the high-skill autonomous system, employees, not their
bosses, take primary responsibility for performance. Professional and
craft pride, reinforced by career incentives, motivates effort and performance.
Some high-skill autonomous workers during the Wonder
Years spent their entire careers in one or a few organizations. Others,
such as skilled construction workers, had careers that spanned many
employers. Formal institutions (e.g., professional associations and
hiring halls, portable credentials and benefits) supported informal networks
of professional and craft workers, reducing the social and economic
cost to the worker of moving to a new employer.
At the bottom of the labor market were "unskilled" labor-intensive
jobs: janitors and gardeners, waiters and waitresses in all but elite
restaurants, nurses' aides and hospital orderlies. In these jobs, the nature
of the tasks prevents continuous, close supervision. Neither employers
nor employees systematically analyze the work process to improve
efficiency or quality. Low wages and the modest cost of capital
equipment discourage employers from attempting the type of rationalization
typical of capital-intensive production processes. For this reason,
we term this category of work system "unrationalized labor-intensive."
In the Wonder Years some people in unrationalized labor-intensive jobs
moved up by moving out--into other work systems with other employers.
For workers in both unrationalized and tightly constrained
work systems, collective bargaining and the minimum wage kept pay
rising roughly in step with salaries in the other two work systems.
Many Americans see the post-World War II period as wonderful in
hindsight because, unlike today, workers' aspirations and opportunities
were more or less in balance. White men, at least, could take for granted
that they would make it into a well-paid tightly constrained or semiautonomous
job by some time in their twenties. Others were not so fortunate.
African Americans, emboldened by the civil rights movement in
the 1960s, challenged their relegation to the most arduous and mind-numbing
work. The women's movement took issue with female segregation
into unrationalized jobs and bureaucratic, semiautonomous occupations
that paid less than male-dominated job categories. Since the
1960s, aspirations have risen. Since the 1970s, opportunities, especially
for those with modest educational credentials, have narrowed.
Widening gaps between aspirations and opportunities have left many
Americans anxious, uncertain, confused.
The New Economy: The Origins of Economic Anxiety
Table 2 summarizes wage and employment changes by work system between
1979 and 1996. (Changes in occupational definitions make comparisons
for years before 1979 treacherous.) Employment in the unrationalized
labor-intensive work system remains at about a quarter of the
total, as in 1979, while growth in professional and technical jobs has increased
the share of the high-skill autonomous work system. Semiautonomous
jobs have declined relative to other categories. Some
semiautonomous jobs have migrated to the high-skill category. In other
cases, employers competing on the basis of low wages have replaced
semiautonomous jobs with unrationalized labor-intensive work. Retailing
illustrates the substitution. In department stores facing competition
from both discounters and specialty outlets, many nonprofessional
positions that once paid decent wages and benefits and offered advancement
opportunities--classic semiautonomous jobs--have been
transformed into low-paying, high-turnover positions.
The wage picture is even grimmer. Since 1979 pay in the unrationalized
labor-intensive and tightly constrained work systems has fallen relative
to the high-skill system. The decline of unions and the real value of
the minimum wage contributed to the widening gap. Part of the drop in
union coverage reflects the difficulty of organizing service workers,
many of whom work in small establishments spread across large industries
such as retailing.
Within firms where the semiautonomous work system still predominates,
career trajectories have become less predictable, in part because
fewer of these jobs are in large firms with well-marked career paths.
With deregulation, companies such as AT&T have reduced payrolls and
dismantled their internal hierarchies. Wage inequality has grown as
firms have contracted out work once performed by their own employees.
Janitorial, food-service, and security jobs that once paid big-company
wages and benefits are more often isolated in low-cost suppliers
that rely on low-paid contingent workers.
The analysis summarized above and explored in detail in later chapters
points to three underlying roots of economic anxiety. The first is
low pay and lack of upward mobility for those stuck in unrationalized
labor-intensive jobs, as well as in a few expanding, tightly constrained
settings such as telephone call centers. These kinds of jobs rarely lead to
a step up on a big-firm job ladder. A second cause is the insecurity that
troubles those with good jobs. Office workers, managers, and sales employees,
lacking specialized skills in high demand or portable credentials,
fear the loss of income and status that may follow from a forced
change of employer.
A third root of economic anxiety is the apparently stagnant economic
performance of the services, which limits the fruits available to
distribute. We trace low measured productivity growth in part to the nature
of service sector work processes. In unrationalized labor-intensive
jobs, exemplified by nursing homes and other low-wage social services,
employers don't care about improving performance because workers
are so cheap. Workers do not have the training, knowledge, or power to
improve performance on their own. Even in some tightly constrained
and semiautonomous service work, low or stagnant wages and the high
turnover they generate discourage firms from investing in workers or
more energetically seeking performance improvement. Indeed, managerial
approaches to performance improvement in the services to a surprising
extent reflect preoccupation with the "deskilled" jobs of the
mass manufacturing era, even though the tightly constrained work
system has never been very prominent in the service sector.
Imagining Some Solutions: A Policy Preview
The policies proposed at the end of this book directly attack the low
wages, rising job insecurity, and lackluster economic performance that
we see as the roots of economic anxiety.
Since wages are too low in the poorest-paying work systems, they
should be raised. This will not happen by relying on the market as it
now operates. Public policy can support wage levels in two basic ways: by
raising the hourly minimum and by encouraging collective bargaining.
The federal minimum wage (now $5.15) remains about 25 percent
below its real value in 1968 (which would be about $7 today) and less
than half what it was in 1968 relative to labor productivity. The minimum
wage should be raised substantially. This would also push up
wages for workers paid somewhat above the minimum.
The one-employer career may not have disappeared, but even the
largest firms make it plain today that there are no guarantees. With declining
employment attachments, firms are less likely to support the
skill development needed both for improved economic performance
and for career advancement. (In Chapter 5 we explain why workers'
skills and experience are the key to achieving large improvements in
performance in many services.)
There is no point in wishing for an end to downsizing and reengineering
(which in some cases make their own contributions to performance
improvement). The only practical way to address the mismatch between
worker aspirations and actual prospects for security and mobility is
to construct career paths that cut across firms. That way workers can look
forward to "staircase" careers in which they can move up by moving to another
employer. Public policies to encourage staircase careers include
support for developing skill standards, training institutions, and job referral
systems coordinated by multifirm labor and management groups.
The third leg of our policy stool is an expansion of "reinvented,"
more craftlike unions. These are critical for raising wages, building new
career ladders, and improving workers' performance in many service
occupations. Current policies, however, effectively deny representation
to many workers who move among small firms. Framed in the 1930s,
U.S. laws were designed to encourage unionization at big factories.
These laws are poorly suited to an era of small service establishments
and transient employment attachments. Labor law reform should support
union formation and bargaining across multiple employers (e.g.,
in retailing or office work). Employers would benefit through access to
better prepared, more capable workers.
Taken together, these and other policies discussed in Chapters 7 and
8 would create conditions that foster better economic performance
within firms, clusters of firms, and occupational groups. Our policies
would limit "destructive" competition, based on working harder and for
less, in favor of "constructive" competition. They would allow public
policy and institutions to catch up with the changes that have accumulated
in work systems, business organization, and career padis since the
We anticipate three sets of responses to the policy proposals summarized
above. Some oppose wage-setting policies, maintaining that they
raise unemployment and undermine economic efficiency. But as we
argue in Chapter 8, allowing the minimum wage to fall erodes efficiency
gains over time because firms need not improve performance to stay in '
business. There is, in addition, little evidence that recent hikes in the
minimum wage have cut into job creation. And even with a big increase
in the minimum wage, we suggest in Chapter 8 that the reinvention of
social policy could keep unemployment low.
Second, some may object that low-wage foreign competition in a
global economy must eventually prove overwhelming. Regardless of
one's view of the consequences of wage-based foreign competition for
U.S. manufacturing, only about 10 percent of the service workforce
holds jobs directly exposed to international competition. Adding manufacturing
and agricultural jobs would roughly triple the number of jobs
potentially exposed to foreign competition, but even this total represents
less than 30 percent of the labor force.
The great bulk of service products are nontradable and will remain
so. It is true that information technologies, low-cost transportation, and
reductions in trade barriers may increase cross-border services trade
(e.g., back offices moved to Ireland or the Caribbean, software upgrades
produced in India). But it is domestic competition, in which
American workers compete only with one another, that holds down
wages and benefits for those without highly specialized skills and knowledge.
In the less mobile parts of the services, states and localities, as well
as the national government, can set rules for competition without worrying
that they will be undercut by others outside U.S. borders.
Finally, some might suggest that the best solutions to wage dispersion
and dead-end jobs are found in education and training. Education
is a good in itself. But education, standing alone, cannot make low-wage
jobs disappear. As we argue in Chapter 4, low-wage jobs exist because
some work systems are not organized to raise performance in ways that
might lead to higher wages. Unless those work systems are reorganized,
jobs for those in the lower part of the wage distribution will not pay
better or offer greater career opportunities. More education will not
automatically prompt reorganization, because low-wage work systems have
little place for higher skills. Indeed, more education and training absent
other policies could simply make worker frustration more widespread.
Rising numbers of Americans would face opportunities that fall
short of their aspirations.
Building a Postindustrial System
In the next chapter we compare jobs and productivity performance (to
the extent it can be measured) in the services with those in manufacturing.
The organization of the rest of the book follows our three main
analytical constructs. Chapters 3 through 5 deal with work systems.
Chapter 6 turns to business organization. Chapter 7 examines career
paths. Chapter 8 considers how work systems, business organization,
and career paths might be reshaped by public policy to generate more
good jobs and better economic performance.
Our book is also organized to help readers envision a "system-building"
process parallel to the one that created the manufacturing-centered
prosperity of the Wonder Years. As we saw, three distinct but
intertwined developments combined to create that prosperity. In stage
1, technological and organizational innovations--new products, rationalization,
mechanization, and scientific management--led to dramatic
rises in productivity. Stage 2 saw the creation of institutions that helped
spread mass production methods and related innovations through the
economy. The key institutions were corporations with enough market
power to be confident that, after making large-scale investments, they
would be able to profit from a correspondingly large volume of sales.
Stage 3, completed in the 1930s and 1940s, ensured the purchasing
power necessary to keep the national economy expanding. It involved
the creation of demand-sustaining labor market institutions (industrial
unions, pattern bargaining, the minimum wage) and social policies (unemployment
insurance and social security).
Over the next generation or so the United States can choose to emulate
the three-stage evolution that led to the Wonder Years.
Stage 1: Recent innovations in service sector work processes have
begun to suggest new ways of improving performance. In Chapter 5 we
argue that learning by workers, individually and collectively, can generate
performance gains sufficient to support better jobs and better pay.
Stage 2: As the technological and organizational basis for
performance improvement in services develops, the nation will need mechanisms
that can propagate the new approaches, much as big corporations
and labor market policy spread mass production methods. In
Chapter 6 we suggest that recent changes in corporate strategy and
structure are not enough to diffuse more productive approaches
throughout the service economy. Although fluid and fragmented forms
of business organization make corporations more nimble, they undercut
the capacity of individual firms to support the training, learning,
and employment security essential to high-quality, high-productivity
strategies. In Chapter 7, therefore, we examine multifirm structures
that could foster adoption of the new approaches to performance improvement
and simultaneously give workers a wider range of employment
and learning opportunities.
Stage 3: In the creation of the old industrial system, the final step
was the resolution of the problem of aggregate demand and unemployment.
We discuss the manifestation of this issue in the new
economy briefly in Chapter 8. Today, there must be enough paid jobs
and social support that vulnerable workers are not forced to take subsistence
jobs in the low-wage unrationalized labor-intensive work
system. We speculate that creative social policy could make it easier to
move among paid work, education, family responsibilities, and community
service. Harking back to the preindustrial era, people would always
have useful activity to perform in one of these realms. And the
ability to move among them could keep the need for paid work in balance
with the available jobs.
The analysis of particular firms, industries, and work systems in the
chapters that follow shows that competition can operate in constructive
or destructive ways. That argument would likely be taken for granted if
we were talking about the world of sports, where the game is a more obviously
artificial construct. Basketball's competition committee, for example,
modifies the rules periodically to maintain audience appeal.
Why? Because coaches and players keep trying to beat the old rules. Several
years ago the committee instituted severe penalties for flagrant
fouls and prohibited hand checking. The new rules help ensure that
fluidity and athletic skill, rather than brute force and barely contained
violence, remain the keys to success on the court. The competition committee,
in other words, acted to discourage destructive competition.
The economic world is also a human construct, not a state of nature.
It is based on competition guided by rules. The issue is the type of economic
competition and organization that the rules, from property
rights to labor laws, encourage. Today they encourage widespread low-wage,
low-skill competition and fail to encourage widespread improvement
of service sector economic performance. Better economic and social
outcomes require better rules.
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