by Megan E. Hansen, Research Director
Posted August 8, 2019 In Scholar Commentary

This article was originally posted on the Medium publication The Benchmark

Amazon recently announced that it will invest $700 million to help 100,000 of its employees improve their technical skills to stay competitive. The company has dubbed these training efforts “upskilling,” noting that in today’s changing workplace, “there’s a greater need for technical skills in the workplace than ever before, and a huge opportunity for people with the right skills to move into better paying jobs.”

This announcement by one of America’s largest employers adds to mounting evidence that the workforce is indeed changing, and that workers may need to acquire new skills to stay competitive. It also suggests that corporations are taking matters into their own hands to make sure their employees are prepared for the future.

A survey by the McKinsey Global Institute asked 300 executives from large companies about their priorities in terms of retraining and reskilling the workers of the future. In the US, 66 percent of respondents said that the potential skills gap for their workforce was a top 10 priority for them. When asked whether governments, individual workers, corporations, or educational institutions should take the lead in addressing that skills gap, 64 percent of US respondents said that it was the responsibility of corporations to lead the way.

Corporations are investing heavily in artificial intelligence, and much has been written about the potential for AI to disrupt and even replace workers in certain fields. But at the same time, many CEOs have committed to retain current workers and to invest in retraining and upskilling. For example, JP Morgan and AT&T have both made large financial commitments to re-train their current employees to help them stay competitive.

Corporate training programs will likely play a large role in shaping the future of work, and in helping ensure today’s workers are prepared to take on tomorrow’s work. One of the many reasons for this is that employee turnover can be very costly. Employers may prefer to invest in their current workforce rather hiring new employees from elsewhere. Doing so also gives them the opportunity to train their employees on the specific skills that they believe will be most crucial to their business going forward.

This is not to say that corporations will be able to singlehandedly solve the skills gap problem, nor should they be expected to. Traditional educational institutions, as well as apprenticeship programs and hands-on training schools, will all likely play a role. But the growth in corporate reskilling programs does suggest that solutions to the problems of tomorrow’s workforce are already beginning to emerge. And they’re being created not by top-down policies, but from the bottom-up by those with the most to gain — and the most to lose. Employers are investing in retraining programs because they recognize their future competitiveness depends on their ability to retain (and retrain) a workforce prepared for the future.

Learning by Doing: The History of On-the-Job Training
The concept of employers investing in on-the-job training is not a new one. Workers have had to adapt to new technologies throughout history, and much of this learning occurred in the workplace in real-time as workers figured out how to effectively use new technologies from power looms to typewriters.

Researchers have long studied how workers are impacted by new and potentially disruptive technologies. James Bessen is an economist who leads the Technology & Policy Research Initiative at Boston University’s School of Law and an expert on the relationship between information technology and job growth. His 2015 book, Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth, explores what happens when new ideas and technologies are created and how those new ideas impact workers.

Bessen contrasts the “Great Inventor” theory, in which a new technology is suddenly invented and has transformative effects on society as a whole, with the importance of implementation, which can take much longer. As Bessen describes it:

“In the Great Inventor account, the Great Invention has an immediate and revolutionary impact on society. A technology, as opposed to a mere invention, can also have a revolutionary impact, but often only after a long period of development — revolutions that are decades in the making.”

To illustrate the importance of the implementation process for new technologies, Bessen uses the example of the power loom in 1800s New England. In history books, the invention of the power loom itself is often characterized as a defining event that changed New England’s economy forever and led to exponential economic growth across the region and eventually across the world. But even decades after the initial design of an effective power loom, textile mills struggled to find skilled workers who could efficiently run the looms as well as trained mechanics to help fix the machines when they inevitably broke down.

To take advantage of the full productive power of the new power loom, specific, technical knowledge had to be developed and spread throughout society. And that process took time. Bessen describes the process of implementation:

“First, large numbers of people in various occupations had to acquire new, specialized knowledge, skills, and know-how in order to use the technology effectively. Second, the technology itself often needed to be adapted and improved for different applications. These improvements included many secondary inventions, many of these invented by mechanics who learned of new needs and possibilities from practical experience. Third, businesses had to figure out how to best use the new technology, whom to hire, what division of labor to employ, how to organize the workplace, and how to market. Finally, because so many different people in diverse occupations needed to learn new skills and knowledge, implementation required new training institutions and new labor markets that provided incentives to learn these new, specialized capabilities.”

New inventions and ideas are undoubtedly important to improving people’s lives, but before that can happen, knowledge must be allowed to disperse through society effectively. Only then can the productive power of new technologies really be unleashed. And although periods of history with lots of new ideas are often characterized as “revolutions,” in reality this process can take many decades to occur. In the case of the power loom, Bessen describes the increases in productivity that took place after the initial invention, but which took eight decades to fully unfold:

“Weavers on the first power looms could produce 2.5 times as much coarse cloth per hour as a weaver on a handloom. But over the next eighty years, improvements in the looms and in the knowledge and skills of workers generated a further twenty-fold increase in output per hour.”

And just like for workers in today’s growing tech industry, New England weavers in the mid-1800s did most of their learning on the job, what Bessen calls “learning by doing.” It takes time and hands-on experience to learn how to effectively use a new technology. And workers do a lot more than just learning the mechanics of a new invention. They also come up with new ideas for better ways to employ that technology, secondary inventions that could make it even more productive, and improved ways to divide up tasks in more efficient ways. This kind of learning takes place in a dynamic environment and requires the ability to experiment, and even to fail from time to time, for true learning to occur.

Learning by doing in today’s tech world
Throughout history, new ideas and inventions have helped make all of our lives better. But history also suggests that effective implementation of those ideas is really what translates into better jobs and higher standards of living.

The story of New England power loom weavers suggests that the benefits of new technologies can take many decades to pay off for workers. But is there anything that can be done to speed up this process? How can we ensure that knowledge flows quickly so that average people benefit from new ideas and technologies sooner rather than later?

A central lesson from the world of economics is the idea that incentives matter. If we want workers to learn new skills and adapt to a changing workplace, we need to examine the incentives at play. If workers invest the time and resources needed to learn a new skill, can they expect that that investment will pay off in terms of higher wages and more opportunity?

Again, Bessen offers us some lessons from history. He notes that different nations have historically provided workers different levels of incentives to acquire new technical knowledge:

“These variations allowed some nations to benefit from new technology and grow rich while others benefited much less. The current economic stagnation calls for policies that will develop broad-based technical skills. The prosperity of nations depends on the institutions and policies that allow ordinary citizens to acquire technical knowledge, much of it learned on the job.”

If Bessen is right, and history suggests that is likely, then on-the-job training will continue to play a large role in preparing today’s workers for the future. Luckily, incentives do seem to be well-aligned, at least in the growing tech field, as corporations invest in reskilling programs for their workers. These investments today will likely pay off in the future, as companies like Amazon and others will be better prepared to face the future with a skilled-up workforce.

As reskilling programs expand alongside growth in vocational schools and apprenticeship programs, the potential of these emergent solutions to help prepare workers for the future should not be discounted. Discussions about the future of work often end in suggestions for top-down policy proposals that would guarantee workers a minimum level of income or require employers to classify workers in a specific way. But instead of one-size-fits-all solutions, policymakers should allow creative bottom-up solutions like hands-on training to flourish. If they do, workers and employers will have better incentives to find solutions that prepare them both for the future of work.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.