New ways of working - the building blocks 1

Looking back over my posts and the comments they attracted, I decided to make this a purely professional post. This is not a criticism of the comments. I enjoyed most of them. It reflects other things.

On this blog I tend to ramble a bit and why not? It's a purely personal blog. However, this can make it hard to see the line of argument. Further, I have been writing on aspects of this topic for years, so I am in fact taking my previous writing largely as a given. Yet most readers won't have knowledge of that previous writing.

Thinking about this, I thought that I would fill in some of the building blocks underlying my position.

To begin with a reminder of my focus in this series. When I speak of new ways of working I am especially concerned with the world of work. Of course, you cannot separate this from other economic and social changes, but the focus is on work. I am also focusing on four things in particular:

1. Changes to the structure of work
2. The impact this has on the relationships between people and those that employ them
3. The way that these changing relationships affect attitudes and behaviours that then feed back into the world of work
4. What should be done in a practical sense by organisations and especially individuals to manage the changes.

The material I write is affected by my training and my own experiences. This affects both the questions I ask and the form my analysis takes. However, the analysis itself should be judged not on my motives or perceptions in writing, but on the way it all stacks up as analysis.

A lot of it will seem self-evident. What is, I think, less self evident is the way that the bits interact with each other. 

Externalities and Free Riders

Economists use the term externalities to describe positive or negative effects of actions not received or paid by the actor. Say I make something and then dump the pollutants in a nearby stream. In this case I make the profit, but there are costs bourne by others. That's a negative externality.

Education and training is often cited as an example of a sector where externalities are important. The evidence suggests that improvements in education have played a major role in increased living standards over the twentieth century. The evidence also shows that education contributes to longer term income, Those with better education earn more money. The state extracts part of that extra income through higher taxation of higher income earners. Increasingly, too, the state is looking to extract part of the education income premium by making students benefit. You benefit, you pay.

In all this, there is a problem. There appears to be a a general benefit from education that cannot be calculated by simply adding up all the income premiums attached to varying education, That gap is the external benefit flowing to all, one not captured in individual income returns. If you charge people too much for education and therefore reduce demand, you may end up by under investing in education.

I now want to introduce the related free rider problem.

Take training. A firm invests in training because it expects to benefit from improved productivity. However, that improved productivity will flow to the firm only so long as the worker is there. Once the worker leaves, the benefit will flow to the new employer and to the economy beyond. In a perfect world, all firms would invest to the optimum level because the loss of one worker would be offset by the acquisition of another trained to the same level whose training costs had been paid by someone else.

But why should a firm invest in training if it can acquire workers trained by others? Surely it's best just to free ride, to do no training at all other than that absolutely necessary to meet immediate needs? That's true for one firm, but if all firms try to free ride there will not be enough training to meet needs and all will suffer.

Both externalities and free riders are central to my arguments on new ways of working.

Incremental Changes in the World of Work

In a day to day sense, the world of work seems stable enough to most of us. We expect today to be much like yesterday. The particular activities we do day to day may vary, but ignoring major events, the structures and patterns of work seem stable.

In fact, the world of work is in a constant state of flux: people change, structures change, systems change. Many of these changes are small, incremental, but they have considerable impact over time .

Recently, work took me back to a particular organisation after a two year gap. Two years is not a long time. However, over that two year period there had been two major structural changes, while two thirds of the previous staff had left the organisation. Even where formal structures and processes remained the same, there had been a variety of often subtle shifts in the way that things were done.

Knowledge Domains in the World of Work

We can think of the world of work in terms of three knowledge domains:

• There are generic knowledge and skills that are broadly applicable. I am an economist, you are a bricklayer or an accountant or a small business person. Even what is called unskilled labour contains generic knowledge and skills.
• There is what we might think of as sector or industry specific knowledge. A sales person or marketer who works in the aged care sector does not sell in the same way as one selling telecommunications systems or management consulting services. There may be some common generic skills, but the language and approach is different.
• Finally, there is organisation specific knowledge, essentially the way we do things around here.

Of these three knowledge domains, my experience has been that that the second, sector or industry specific knowledge, is the most important.

The labour market is made up of a number of often very small slices that have quite distinct features. With the rise of professionalisation and credentialism, the domain of generic knowledge and skills has become increasingly fragmented. Broad based skills have become less important, tickets more important. Increasingly, employers have focused on the second domain because sector or industry knowledge provides a measure of comfort that the person can do.

The Half Life

The half life concept is well known. Essentially, it takes a starting value that declines with time and asks how long it will take to reach half that value.

In my first post in this series, I suggested that our personal knowledge, skills and networks actually have a half life of about eighteen months. To illustrate my point, I took the case of a person who left his or her job and decided to go consulting. Initial income would be determined by what he or she had at the start point. Cut off from the previous replenishment, his or her capacity to make money two years out would be determined what he or she had done since.

Consulting is an interesting case because in selling professional management services you obviously have to go with what the client wants, and this is affected not just be economic conditions but also by changing fads and fashions. In independent consulting in particular, the big shops are different, having saleable knowledge and skills now does not guarantee that they will be saleable in two years time. You have to constantly reinvent yourself.

While consulting is a special case, the half life concept is very important those who drop out of the workforce to greater or lesser extent for other reasons such as job loss or having or looking after children. The value of your previous experience declines quite rapidly.

Learning on the Job

This is a linked point. Well over 85% of our skills, knowledge and supporting networks are acquired on the job, by working. That is why, in my professional writing, I have so emphasised the need to structure work to maximise gains in skills and knowledge through work.

There are some hard lessons here. It explains why retraining nearly always involves a drop in income and work status. It explains why the long term un-employed face such a problem. It amplifies the challenge faced by those who, for whatever reason, drop out of work. And it explains why part time work is not as good as full time work in career terms.

I am out of time today. I will continue the building blocks tomorrow, starting with the economics of work.