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Inside the Firm Review: Part II

Skill Formation and Development

Approaches to skill formation among workers within the auto industry appear to be strongly influenced by national traditions. In Germany, a leading nation in skills development, for example, vocational training has long been a significant feature of the educational system and has provided a steady supply of skilled workers. Germany has a more regulated system than many other countries and greater union involvement in decision making about skills development. Works councils play an important role in training issues at the enterprise and plant levels. However, there has been criticism of the ability of the system to meet the changing needs of the industry. Hence, in 1987, training regulations in the German metal industry were reformed in order to foster a broader and more flexible system. Skill formation has played an important role in facilitating the introduction of automation and productivity and quality enhancing techniques.

The German vocational training, universally admired, underpins the competitive advantages of the German manufacturing business, in general: “Young workers undergo apprenticeships which involve a combination of formal general education, training specific to the proposed career, and personal supervision and advice on the job from an experienced worker. Apprenticeships are available not only to craft trainees such as engineers and plumbers but also for hotel workers and shop assistants. There is no legal obligation on individuals to take such training or on firms to provide it, but the credentials obtained are valued, able students wish to have them, and as a result, employers wish to hire both apprentices and qualified workers.

The largest German firms, such as Siemens and Daimler Chrysler, organize training nationally, but training is mostly administered locally. Chambers of Commerce co-ordinate the efforts of business and the contribution of provincial governments. Large firms, responsible for a high proportion of industry-specific training, probably make a disproportionate contribution, to the benefit of smaller businesses and the economy as a whole. If we ask 'Why do firms do this?' the answer is 'They just do': participation is a norm of the German business community and local business organizations reinforce social pressures.”

Why the German training works and attempts to replicate it elsewhere like in Britain were a fiasco needs to be understood in terms of the absence elsewhere of the presence in Germany of markets embedded in social institutions and policy resulting from the interaction of “norms and values” which is part of a subtle relationship between private and social institutions, and the powers and resources of the state. In Japan, which is also a leading nation in skills development, there is less regulation by government and a lower level of union involvement than in Germany and some other European countries.

However, employers in the auto industry have emphasized the importance of continuous on the job training as a key element in developing and maintaining Japan's competitive edge. Although state-run vocational education has not been developed as much in Japan as in Germany, companies have consistently increased the amount and levels of training within the enterprise. Many maintenances and other technical skills, which are the province of skilled tradespersons in other countries have been 'built into' the jobs of production workers in the Japanese automakers. In Italy, there has been a long-term decline in vocational training and fewer apprenticeships, compared with some other European countries.

However, a national agreement was signed between unions and employers in 1989 on vocational training, involving the establishment of joint committees. In recent years, there has been an expansion of formal systems for the accreditation of skills attainment. In countries such as USA and Canada, however, which have more highly decentralized systems of industrial relations, training investment is very uneven and lower overall. Yet there is a discussion of how to develop stronger joint public-private initiatives to overcome inherent market failure problems that inhibit individual firms from investing more in skills development. In the Australian automobile industry, since the introduction of what is called the Vehicle Industry Certificate (VIC), all new employees have been required to undertake formal training on the job to acquire necessary competencies.

Wage increases are increasingly based on skills acquired and demonstrated levels of competencies. The VIC was introduced with the support of both employers and unions to formalize the training process and to recognize skills acquired. Progression by individuals within the industry will ultimately depend on having passed all stages of the VIC course. Although financial support is also provided by the government for the development of training within the auto industry, the new emphasis on competency-based wage systems was the result of negotiations between employers and unions over the restructuring of awards. While the new system is generally regarded as successful, there are considerable variations between firms in terms of the speed and extent with which they have introduced the VIC. In terms of the number of training hours provided—an index of training--for assembly workers, there is a wide variation between countries.

The aggregate number of training hours provided for newly hired production workers (during their first six months of employment) was highest for Australia, followed by Japan. As noted above, the high figure for Australia may be explained in terms of the introduction of the VIC which has required all new employees to be provided with comprehensive training. However, the number of training hours provided for experienced workers was greatest in the Japanese transplants in North America. This may be due to the fact that when the Japanese firms either took over existing plants or built new ones in North America, they found that there was a considerable skills deficit among the workforce which needed to be rectified. In terms of training hours provided for all employees (production workers, supervisors, and engineers), the Japanese transplants in North America provided the most skills development, followed by the European countries (France, Italy, Spain) and then Australia. The laggards in terms of training hours for both new and experienced employees were the non-Japanese owned assembly plants in Canada and USA.

With employment becoming more contingent and with turnover rates higher than that in Europe and Japan, the American employers are reluctant to provide “enough” skill-enhancing training. Despite all the hype, and given the dearth of data on training practices, much training appears to be informal and is provided by co-workers. Employers also avoid training costs by selecting people with preexisting skills so that further training is not needed. The use of new technologies, in particular information-based technologies, and the use of new organizational practices for higher productivity, quality and flexibility, calls for more, better and newer kinds of skills. Some of the features of new organizational practices are as follows. The first is the work teams. This involves greater group responsibility, broader skills on the part of the workers and frequent job rotation. The second is involvement in off-line activities, such as problem-solving, quality improvement, health and safety. The third is a flattening of organizational hierarchies, with greater responsibility by shopfloor workers and more intense information exchange. Work organization can only be successful if training and remuneration systems are changed to prepare and reward employees for the new responsibilities.

Moreover, “Because the new forms of work organization require greater responsibility and greater skills from the workforce, low literacy rates in developing countries impede its introduction. However, in many cases, firms in developing countries have managed to become significantly more competitive through changes in work organization despite relatively low levels of education. This has required much time and resources being devoted to group meetings and training…Though considerable progress can be made with a poorly educated labour force, particularly in early stages of restructuring, in the long run, firms which have educated labour are likely to make more progress in their training schemes. This is because the requirements of a multi-skilled workforce and worker participation in continuous improvement call for an understanding of the underlying technical processes”. In the developing country context, it is found that many firms do not train their employees and that market failures are an important constraint on training, and that informal on the job training, by co-workers and supervisors, is more common. In the context of the automotive industry, little is known about the enterprise context, especially in India, in which training takes place and how decisions regarding training are linked to employer strategies on technological and organizational innovations.

That JIT-TQM production or flexible automation requires skilled workers seems to be a myth which needs to be investigated. If history is a good guide, then throughout the history of capitalism, employers have relentlessly pursued the supreme principle of division of labour and specialization and mechanized their production as well. This has reduced the skill requirements of jobs. Skills have been increasingly incorporated into the new machinery. Or else, how do we understand this: “Today, unskilled workers in Mexico can make complex automobile engines for a fraction of the wages received by workers in the United States precisely because the detailed division of labour and machinery have removed the skill content of the job”. Neoclassical economists cannot explain this because they believe that machinery tends to raise the skill requirements of jobs.

If they are prejudiced against the Marxist Harry Braverman’s deskilling thesis, how they have overlooked the great work of the non-Marxist James Bright —the more the technological sophistication, the more the deskilling--at Harvard Business School is a mystery or a case of selective self-selection to sleep with one's ideology. What can the Neoclassicals say about the introduction of CNC tools shifting the balance of power upward by putting production under the control of engineers and deskilling master machinists on the shop floor? They have no unprejudiced answer. Click here to read Part III.

By Annavajhula J.C. Bose, PhD
Department of Economics, SRCC

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