The political economy of skills

by Henry Farrell on February 16, 2012 · 4 comments

in Political Economy

Matthew Yglesias proposes that employers should tackle problems of skill shortages themselves.

On a firm level obviously one solution here is to just pay higher wages and hire away someone else’s machinist. But there are still only so many machinists to go around. At some point the reasonable thing to do is to find a less-skilled worker who has less bargaining power and lower wages, hire him, and teach him to do the damn job. I was neither the first nor the last entry-level worker at the American Prospect who had some fundamental gaps in my skill set but who was still a worthwhile hire since I was working for cheap. On the job, I gained a lot of valuable skills and training. It worked out great.

However, it may not work out so great for the employer, who is unlikely to be able to capture all of the rents from this training, as Matt’s own career (from Prospect to Atlantic to Center for American Progress to Slate) demonstrates. The American Prospect did all of Matt’s future employers a considerable service, by helping him address the fundamental gaps in his skill set, but they haven’t received any direct compensation for it. Probably, they don’t care about this that much (my understanding is that the fellowship that Matt was on is designed in the hope and expectation that many of its recipients will go on to do wonderful things elsewhere), but other employers, such as employers of machinists, may not be quite so public spirited. They will perceive the risk that they’ll train someone up, and he’ll promptly defect to another employer, and hence be disinclined to do much training unless they absolutely have to.

The standard story in the political economy of skills literature is that this is a collective good problem – if some of the benefits of training are not captured by any individual employer, then there will be underinvestment in training. There are solutions to this problem of course. German employers in e.g. the mechanical engineering cluster in Baden-Wuerttemberg train machinists, but they do so through collective schemes, which spread the costs and the benefits among most of the relevant potential employers. Hence, they are able to support a nicely functioning high skills economy. In the US, there are few such collective institutions, and rather less emphasis on skill training, leading to a lower-skills equilibrium, and more focus on general training, acquired by the worker rather than provided by the employer.

Specialized high skills economies differ from general-skills economies in a number of different ways. The person most associated with the study of these differences in political science is Torben Iversen (who kindly provides most of his articles online for public reading). For example, this piece argues that differences in skill formation help explain attitudes to the welfare state. Roughly speaking, people with specialized skills will be more likely than people with general skills to support a strong welfare state. Their asset, being more specialized, is riskier – hence they will have incentive to push for a safety net that can provide them with a buffer in bad economic times.


Mark Nance February 16, 2012 at 2:56 pm

There’s actually a lot of good, and contested, work on this question in the form of the Varieties of Capitalism literature. Adopting the firm and its strategy to deal with the various coordination problems of production (including ensuring the availability of appropriately skilled labor) as its focus, it suggests that we can identify different models of coordination across capitalist economies. Hall and Soskice edited one of the seminal pieces on it. What Yglesias is missing, and it seems to me what much of contemporary conservative thought in the US is missing these days, is that the US model has always relied on a pool of workers with generalized skills that would allow them to learn quickly on the job. That’s reflected rather clearly, it seems to me, in an educational model that traditionally has stressed general education over specialized training, as is more often the case in Germany, for example. Increasingly, however, business and the conservative political forces behind them rail against general education and act as though everyone should be trained for a specific and lifelong job. But they rail, too, against the state enforcing more generous benefits to provide workers with the incentive to specialize. It’s a powerful framework, albeit an imperfect one, that points out a lot of inconsistencies in political rhetoric and highlights why that rhetoric usually doesn’t lead to fundamental change.

RobC February 16, 2012 at 3:13 pm

A couple of reasons suggest themselves as to why there may be fewer such collective institutions in the United States. One is the free rider problem, since so many trades (e.g., machinists) are employed not just by a few large companies as may be the case in some other countries but by a host of employers, large, medium and small. Another is that collective action in the U.S. always raises antitrust concerns. That doesn’t mean an antitrust lawsuit would always succeed, but the possible exposure to one, including the huge costs of defending it, tends to deter such collective action.

J February 16, 2012 at 6:07 pm

Henry, any readings in particular besides the Soskice/Iverson piece?

Jerry Schwarz February 16, 2012 at 6:22 pm

I don’t have any expertise in this area, but I have some experience. I joined Bell Labs in the early 80′s. At that time it was standard practice for Bell Labs to hire technical staff directly out of college with 4 year degrees and send them off to prestigious schools (like Stanford) for a year to get a masters. People had no contractual obligation to continue work at Bell Labs when they completed the degree. I don’t think AT&T (or anyone else) does that anymore. I think the difference between then and now is that at the time people expected to have a career at one employer and now they don’t.

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