Despite an improving economy and record corporate profits, business leaders are skeptical about their ability to compete abroad and downright pessimistic about the prospect of increasing pay or improving living conditions for American workers, according to a new report from Harvard Business School.
Co-authored by high-profile Harvard professor Michael Porter, the report also identified a “troubling divergence” in the economy, in which most businesses are thriving, as are highly skilled workers, yet middle-class and working-class employees are struggling.
Porter and his team urged business leaders to become more involved in efforts to improve living standards for more workers, such as additional training and education, out of self-interest: a stronger workforce will make their companies more competitive in the global economy.
“What we’re trying to do is highlight the fact that true competitive success in any economy and true prosperity means that both businesses and the average worker benefit and gain,” Porter said in an interview.
“I think business doesn’t want to be seen as the enemy. They don’t want to be seen as the greedy guy that profits at the expense of everyone else,” Porter added. “This is a nuanced issue and we have to talk about it in a nuanced way.”
The report, titled “An Economy Doing Half Its Job,” was issued by Porter and co-author Jan Rivkin, also a professor at Harvard Business School, as part of the school’s US Competitiveness Project. Their findings were based on a survey in which nearly 2,000 HBS alumni were asked about conditions at their own businesses and their outlook for US companies to compete in a global economy.
Porter’s and Rivkin’s observations are hardly ground-breaking; many economists and policy makers have been raising concerns about stagnant incomes among workers and calling on federal and state governments to improve public education and job training as a way to raise living standards.
But the Harvard professors have a unique and powerful constituency for their message: graduates of one of the world’s most prestigious business schools, many of whom hold powerful positions in industry. Indeed, some 40 percent of respondents to the HBS survey were bosses at their companies — chief executives, managing directors, founders.
Their answers to the business school survey were not comforting: Only 27 percent of all HBS respondents thought American workers would be earning higher wages three years from now; forty-one percent thought workers would be making less.
The Harvard alumni were somewhat more bullish on how companies would fare in the near future: 31 percent were optimistic that US companies would be more competitive, while only 26 percent thought businesses would have more trouble competing with those based in other countries.
“Our alumni are optimistic about the prospects of firms and not nearly so optimistic about the prospect of higher wages and benefits. That’s not sustainable,” said Rivkin. “Unless workers are doing well, businesses won’t prosper.”
But working conditions for many Americans have not been improving for some time. Since the 1970s, government data show productivity among workers has risen while wages have only kept pace with inflation.
Last week, the Federal Reserve’s Survey on Consumer Finances revealed that on average income of US families has risen four percent in the past three years. But most of that increase has been concentrated among the highest earners. Meantime, the income of a typical family has dropped 5 percent, to $46,700, from $49,000 in that period.
While workers with college educations and technical skills have seen their incomes rise because their talents have been in high demand, low-skill jobs in fields such as nursing home care have proliferated since the end of the recession. Because workers in those low-skill jobs tend to earn small paychecks, companies that want to do business in the United States are deterred by the prospect of a weaker consumer base.
But Porter said the solution should not simply be to raise workers’ wages, because it is still cheaper to make products in other countries. The productivity of American workers has increased over the past several decades, but other countries have made even more progress, Porter said.
“Our problem is not that historically we’re awful” in terms of productivity, Porter said. “It’s that we’re not improving while other nations are improving.”
Investing in job training and education would help US workers reassert their productivity advantage, which he believes could lead to higher wages.
Porter and Rivkin also identified an “unusual” condition in which the outcomes for businesses and workers have not moved in lockstep with the economy. Typically, in previous economic periods, companies and workers either thrived together or suffered together.
The Harvard findings show a divergence not only among workers with different skill levels, but also between companies — larger businesses, for example, are typically doing better than small ones.
The survey found that executives at large businesses were generally happier with the economy than those at small businesses. Respondents from companies with fewer than 10 employees said the United States performed poorly on 17 of 18 measures, ranging from primary and secondary education to its ability to hire and fire employees.
As a whole, respondents said, government gridlock was the biggest stumbling block to international competitiveness. Most respondents said the US tax code and political system were bad and getting worse compared to those in other advanced economies.
The United States’ future competitiveness could be improved by upgrading education and the developing workplace skills, the report said, as well as refurbishing the transportation infrastructure.
Deborah Wince-Smith, the president of a pro-competitiveness coalition of academic and industry figures founded by Porter, said the report’s recommendations had widespread support in corporate America, and lawmakers have long been urged to take them up.
She said that several companies have had success partnering with community colleges and public universities to train students and pound a path to employment, but added that businesses lacked a common template for such partnerships.
“We’re not replicating these things on a state or national basis,” she said. “They’re very splintered.”