As we ring in the new year, the labor market and the landscape of worker opportunity in the coming months are big question marks.
Can our “miracle” economy with strong growth and cooling inflation hold? Will state governments and companies make good on their promises to hire more workers without degrees? And how will AI affect just about everything in the world of work and learning?
To dig into some of those questions, we chatted with Joseph Fuller, a professor at Harvard University’s Business School who co-leads its Managing the Future of Work initiative. The project just released its latest iteration of the American Opportunity Index, which ranks Fortune 500 companies on how much they help their workers advance economically and in their careers. The initiative also has done extensive research on career navigation beyond the Fortune 500 and on community college and business partnerships.
Drawing on that research, here’s what Fuller had to say about some of the upcoming year’s most pressing questions—including that he expects many of the answers won’t come for another five to 10 years.
What are some of the key drivers that differentiate companies that create opportunity for workers from those that don’t?
A: A number of the differences can be explained by longstanding values or practices in a company. A company whose founders, or early in its history, were very adamant about promoting from within and not going out and looking for talent constantly, that has imprints on the organization in ways that affects the whole gamut of outcomes. If you are thinking every time you hire someone, you’re hiring a candidate for advancement, you’re probably a little bit more discerning and disciplined in who you hire. If you are dedicated to that, then you’re going to invest in communicating pathways in the company more clearly to workers. You’re going to have more investment in and focus on internal training.
Another variable has to do with how consistently successful a company is. We have a real chicken and the egg problem here. Do companies with the types of practices that I believe support upward mobility for workers and better outcomes—do they have those because they’ve been consistently successful and profitable and therefore they can afford them? Or are they consistently successful and profitable because they do these things?
A third one is companies that approach the development of talent in an integrated way. For a lot of companies, the right hand doesn’t know what the left hand’s doing—they’re not applying principles that would allow them to see what are the attributes of people who are a success. It’s the integration of information. And some companies have either been sufficiently consistently successful that they didn’t have to revisit the legitimacy of these principles they had applied or they had enough margin to be able to afford it.
Is the retention of more workers a primary bottom-line incentive for change among employers?
A: Something that is always confusing or surprising to me is that companies act like the marginal cost of the way they handle human assets today is zero and anything else they’re going to do is extra. And therefore you are held to the standard of “prove it to me on an ROI basis,” usually into the teeth of lots of skepticism. The natural stance of HR organizations is, “what we’re doing now is great and everyone loves it. I know that because my employee attitude survey says everyone loves working here.” Well why do 70% of your frontline workers leave every year? “Oh, that’s just endemic in the industry.”
All the direct costs are pretty well known, but the indirect costs, which companies are basically unwilling to ascribe any value to, are very high as well. For example, you lose what’s called tacit or implicit knowledge. And patching the leaks in your pipe is going to get more and more important given what is going to be a perpetual shortage of people with certain skills. You never want to have to take somebody that you’ve already validated, has skills, is being productive, and have them walk out the door simply because you didn’t communicate to them there was a pathway going forward or you didn’t demonstrate commitment to their success or any interest in their objectives.
What we see very consistently is that most workers, lower-wage workers, would prefer to stay where they are if they see some chance for upward mobility and growth. The combination of the direct cost, the tight labor market, and the indirect cost really makes it smart management. A consistent theme in all my research is just to say to companies that there’s a lot of data that suggests the way you’re doing this isn’t all that productive and in many ways isn’t all that smart. Why don’t you look into it? I’m hoping to provoke you to ask some questions.
The index reveals that companies in retail, banking, and telecom are doing better than other industries in providing opportunities for workers without four-year degrees. What barriers need to be overcome for this to pick up more steam?
A: I worry about incentives and metrics inside companies. If you’re highly incentivized to make your numbers for the quarter and you’re under pressure, what you immediately start doing is cutting anything that doesn’t have an impact in this period or the next period. And that includes things like training. Also relying on on-the-job training is harder when the half-life of a technology is under three years. The historical set of policies that companies rely on to develop people, communicate career paths, incentivize people to gain more skills, are really rooted in a proposition that’s being eroded away. I think of it as the old deal, where I pay you, I provide you benefits, you and I mutually evaluate each other. Sometimes you quit because you don’t want to stay or get a better offer. Sometimes I don’t think you’re very productive or I can’t afford you anymore. And everything else beyond that kind of commercial arms-length transaction, I don’t want to talk about it.
That old deal is beginning to crumble. And COVID really accelerated that. We can see the emergence of caregiving as a topic of conversation where increasingly employees expect their employer to take into account those obligations in some way. People learned, “I like having breakfast with my kids in the morning, and my wellbeing is central to the company’s mission and ambitions. I want either better benefits or concessions or more flexibility.” Companies haven’t adjusted to that, and that’s because companies are conservative, particularly in areas like HR. That’s become a more compliance-oriented organization—very worried about lawsuits, very worried about EEOC and other things. That kind of conservatism is imprinted on companies’ approaches.
Many CEOs, they’ll readily say, “look, the only way we’re going to win is by having really good personnel, really good staff.” If everyone’s using Workday, Salesforce, Oracle, AWS, it’s like all the competitors are given identical equipment. It’s how you use it. But HR is never the area that gets the biggest budget increase. It really requires adopting a new mindset and focusing on the outcomes you want and then transforming the way you run various processes to drive those outcomes, not incrementally improving the current processes.
For efforts to increase mobility for the nondegree worker, how important is it to show real progress in the next year or two? Could the window of opportunity shut soon?
A: I don’t think we’re going to see a lot of progress in the next year or two. Let’s be honest about that. But I think we’re going to begin to see some interesting developments because of the Supreme Court decision on university admissions. Justice Neil Gorsuch, in his concurring opinion, basically says the obligations of employers are functionally indistinguishable from those of universities. And we’re beginning to see the early lawsuits.
That’s going to oblige companies who have committed—understandably and rightfully so—to fostering more diversity in the workforce to revisit how they gain that diversity. We know that companies that have visibly diverse leadership attract diverse talent. And so we’ll see some separation over time between companies that have been better at this historically than not. And we’re going to see innovations in how people source diverse talent, like through compensated work-based learning. If you are providing substantive internships, obviously paid, integrated with learning in a traditional learning setting, whether it’s CareerWise or Year Up or Merit America. Or, because of the economic pressure on four-year institutions, you’re going to see a whole lot more schools trying to create their version of co-op. It’s not going to be as sophisticated as Northeastern’s, not for a while.
If you’d said in five to 10 years, I might be more optimistic because I think that AI will create the data that will allow us to do a whole lot more skills-based hiring by eliminating the taxonomy problem we have in the U.S. We don’t have the 8K employer committees in Switzerland. There are literally 8K committees that define what are the skills associated with each major job. And we don’t have federally controlled K-12 education, which provides some countries with a leg up. But when you’ve got AI looking out there, and a program director at company X and a project manager at company Y and a director at company Z—the people who occupy those jobs per LinkedIn all look pretty similar. And the job descriptions of those jobs have the same keywords. They’re really the same job.
Let’s say I’m running a multi-hundred thousand employee company, UPS let’s say. Now I can say what are the attributes of people who got promoted rapidly. And it isn’t, they went to Harvard or they went to Caltech or something. You’ll find, by the way, often they had highly rated supervisors. That’s going to allow us to match skills and experiences more accurately and to not rely on proxies like degrees or grade point averages or even the proxy of what someone currently makes or how fast they’ve gotten promoted on their résumé, but more legitimately based in an examination of what backgrounds seem to correlate with success and help with the upward mobility questions.
Where do community college students fall in this? Where do you see the two-year graduate, the one-year certificate holder, in both the research that you’re producing and this debate over nondegree hiring?
A: That’s a complicated question. First of all, we think about degree attainment and I know it’s an awkward phrase, but we really ought to think about postsecondary certifications, including the degree as one of them. The division between degree and nondegree programs within the community college system is one that I wish had never been introduced. But administrators and state funding for those programs have got to be less hung up about that distinction. We know what the future looks like. It looks like Texas. I said this to an audience and got a few sharp intakes of breath the other day. But in terms of evaluation of programs, in terms of expecting dynamism in the program, until we get a reauthorization of the Higher Education Act with significant reform of Title IV, it’s going to be on the shoulders of states to try to create more successful programs.
This also gets to our recently published career navigation paper. What you see very consistently is that the learners often are misinformed or uninformed about everything from how much you make in a job to what programs match to certain outcomes. They certainly don’t have access to data. How many people from this program of the school I’m planning to attend are actually employed in that field of study? What do they make and how many have defaulted on their loans? And one of the objectives for the American Opportunity Index is to put more data out there saying that an offer from Coke is not the same as an offer from another consumer goods company that’s lower in the rankings—not Pepsi, which is 16th.
Similarly, employers have got to be clearer about what they want. And this gets to the partnership imperative paper about businesses and community colleges. Educators have lost track of the massive increase in competition for providing skilled talent. When I was graduating from graduate school, I typed letters and entrusted them to the United States Postal Service and hoped to get a letter back. Now I’ve got the Indeeds and ZipRecruiters, and I’ve got community college, and I’ve got LinkedIn, and I can post my own job. So if the role of the community college has been diluted, and the consequence is that, when combined with their funding requirements and declining enrollment, you end up with a situation where many of them literally can’t afford to make the innovations that they would need to make to stay up to date.
And their tendency is to add inexpensive programs, which is understandable, but it’s not solving their problem. With the lack of financial liquidity in the system, the only way you overcome that is to be a Wake Tech, a San Jacinto College, where you are really aligned with the employers. San Jacinto has a chemicals control room, which the employers all pitched in to create because they need more process control operators and they want them to be closer to full productivity when they show up. And the employers in Houston are smart enough to say, which by the way is very uncommon, “we are better hanging together because we’re going to hang separately. If we all invest in this, we all chip in half a million, then this will happen. Even though I’m subsidizing my competitors by contributing to this, I’m willing to do that because the economics I think are smart for me. And if we all have a shortage, then what do we do? We bid up the wages of the available talent.”
We just have to acknowledge that it’s not just an American phenomenon that in a lot of economies now we’ve got this barbell distribution of workers in terms of income and associated lifestyle. And it’s showing up in politics, it’s showing up in—it’s melodramatic—but the whole deaths of despair literature. And when AI hits heavily, which will be 18 to 36 months from now, it’s going to hit people who haven’t been hit by prior waves of technology. Certainly our research indicates, consistent with everyone else’s, that it’s going to be many more white collar people who are affected.
When people in bedroom suburbs are losing their six-figure jobs, that changes politics. That changes the way people are viewing things like equity and where that leads. It’s certainly going to put a lot of pressure on the way the system has worked.