Industry Investment : Workers Go to Classroom ‘Off the Job’

It’s happening here, where Consolidated Edison, New York’s gas and electric utility, has a building full of equipment used by its maintenance men to learn about new tools and technologies for repairing gas mains and high-voltage cables.

It’s happening in Tyngsboro, Mass., where the Wang Institute awards advanced degrees in computer software engineering. And it’s happening at Motorola, the Chicago-based industrial and electronic equipment maker, which requires each employee to receive at least 40 hours of instruction in computers, assembly-line robotics and other technical subjects.

All across the country, American industry is embarked on a new mission: training and educating the nation’s labor force to cope with rapid technological change and intensifying global competition. By some estimates, business is now spending $90 billion annually on its own training and education programs, as much as the total spent in the country each year on traditional higher education.

Challenges Old View

The massive scale of this effort constitutes a direct challenge to the view, evidenced by billions of dollars spent annually on vocational education and government job training programs, that training of persons without jobs is a promising way to prepare people for work and to chip into the unemployment rate.

“Training doesn’t create jobs,” said economist Anthony P. Carnevale, reflecting the new view. “Jobs create training.”

Unlike traditional on-the-job training, in which supervisors set the standards and older employees coach the younger ones, the new effort is characterized by a rapidly expanding emphasis on formal classroom training. In high-tech industries and most service companies, such instruction has completely superseded the assumption that employees will simply pick up what they need to know on the job.

Jobs More Complex

“Back in the ‘70s and earlier, we could depend on foremen or skilled senior craftsmen to impart their skills to newer workers, and the jobs were less complex then,” said John S. Jenness, the man in charge of all training programs at Con Ed. “Since then, we have converted about 95% of the training from the old-style, on-the-job buddy system to formal, off-the-job classroom training programs.”

Con Ed’s classroom here, a recycled bakery across the East River from midtown Manhattan, is complete with such expensive items as lengths of cast-iron natural gas pipe filled nearly to bursting with compressed air, heavy-duty 345,000-volt cables spliced with lead sleeves, computerized junction boxes and 60-year-old coal furnaces encased in concrete and converted to burn gas.

“There’s all kinds of stuff out there under the streets,” said Phil Papola, the head of Con Ed’s blue-collar training. “But I don’t know anything they’d run into in the field that they don’t run into here.”

In Papola’s classrooms are small groups of men, no more than six per instructor. There are new employees learning such basics of their trade as how to plug high-pressure gas mains and old hands learning such new techniques as how to encase high-voltage cable splices in plastic instead of the traditional lead sleeves.

The workers rewire household electric meters that are bugged to malfunction from a control console manned by instructors. They disconnect, repair and reconnect an astonishing variety of appliances. Outside, in the riverside parking lot, they climb utility poles bearing high-voltage lines and transformers or crawl through above-ground manholes into simulated electrical service boxes.

Con Ed spent at least $12 million last year on 50,000 employee-hours of training in a program that has expanded in recent years to include office staffers and management as well as the gas-main and home-utility repairmen.

What Con Ed and many other like-minded companies have concluded is that “human resources” and “human capital” are no longer just catchwords from a personnel manager’s handbook. A trained, productive work force, they are now convinced, is more important than plant and equipment, the traditional but more easily replaceable components of capital stock.

Ignorance Too Expensive

“When it comes to training employees, there is no other option,” said Donald Sherwood, director of corporate training at Wang Laboratories. “If you think education is expensive, try ignorance.”

Badi G. Foster, president of Aetna Life & Casualty Co.’s Institute of Corporate Education, explains it this way: “In a field like financial services, the one thing that differentiates one company from another is the quality of the people working for it. Most companies have roughly equal access to money and to the same machinery. What differentiates among them is the use made of the information available, and for that you need a disciplined, trained and flexible work force.

“If you want to be out front 10 or 20 years down the road, you have to invest in human capital as much as in any other capital,” he said.

Added Motorola Vice President William Wiggenhorn: “You should give people the same respect you give equipment.”

$30 Billion a Year

The American Society for Training and Development, a Washington-based industry cooperative, estimates that private industry spends $30 billion a year on formal classroom training of employees--twice that if expenses and lost wages are included.

And the Carnegie Foundation for the Advancement of Teaching estimates that industry spends as much as another $60 billion a year on newly founded formal educational institutions such as the Wang Institute, some of which grant postgraduate degrees and are becoming increasingly credible alternatives to the nation’s traditional higher-education Establishment.

Carnevale, an economist with the American Society for Training and Development, says that employer-provided training is more important for many workers than whether they were graduated from Harvard or the local state college. Differences in education before employment, he estimates, account for only about 15% of the differences among workers’ incomes.

“And 70% learn what they need for the job on the job, not in formal training before they took the job,” he added.

Large-Scale Commitment

Learning on the job touches virtually every sector of American industry. At many companies, the commitment to corporate education is on a much larger scale than a regulation-bound utility such as Con Ed can manage. For example:

--Aetna, an insurance giant that has expanded into a full-scale financial services company, has opened a posh $47-million Institute for Corporate Education on the outskirts of Hartford, Conn. The institute offers advanced degrees in conjunction with nearby colleges and is pioneering new technologies in video and computer training to deliver “courseware” by satellite to employees in branch offices across the country. The current annual cost of Aetna’s training program is about $35 million.

--Xerox Corp., the office copier pioneer, opened an even larger $70-million training facility 10 years ago on a 2,200-acre campus in Leesburg, Va. With a staff of 500, Xerox develops and teaches training courses for its technicians, service people and managers--and even its customers.

--Wang Laboratories, the Massachusetts-based computer company, runs two in-house training programs, one for management and the other, at the cost of $30 million a year, for its worldwide sales and service personnel.

High-Tech College

A separate entity, the Wang Institute, established five years ago when Wang found a national shortage of software engineers, has become a sort of community college for the high-tech zone north of Boston. Its rural Massachusetts campus offers formal graduate training for technicians from such competing computer manufacturers as Digital Equipment and Prime Computer as well as from Wang.

The training offered by the acknowledged leaders in this movement, American Telephone & Telegraph Co. and International Business Machines Corp., is on an even vaster scale. Before its breakup, AT&T; tried to quantify its massive annual investment in training; the best guess was between $1 billion and $1.2 billion a year. The Carnegie Foundation estimates that IBM now spends $700 million a year on formal employee training and education.

Yet even on the scale it has attained, industry’s commitment to training may still fall short of the nation’s economic needs through the end of the century. Michael Birch, an economist at Massachusetts Institute of Technology, says most new jobs are created in small firms, not the huge ones that can afford to teach the skills workers need.

And, notes Pat Choate, an economist with TRW Inc., federal and state tax laws discriminate in favor of capital investment--and against investment in training. For example, he says, companies receive a 10% investment tax credit when they build a new plant, but not when they retrain an employee.

10 to 1 Ratio

In an internal paper circulated among industry leaders late last year, the Commerce Department’s office of productivity, technology and innovation noted that U.S. industry invested $471 billion in physical capital in 1983. “Thus, the ratio is (as little as) $1 expended on training for each $10 expended for physical goods,” the paper noted.

The paper, issued under the name of Assistant Commerce Secretary D. Bruce Merrifield, takes a few tentative steps toward a government position that investment in training deserves encouragement at least to the same degree as investment in equipment.

It notes, for example, that with the aging of the Baby Boom generation that poured young workers into the labor force during the 1970s, industry no longer can rely on a flood of new workers to perform jobs for which older workers are not trained. “The current U.S. supply of labor must provide much of the competitive muscle in the coming decade,” it says.

Investment Incentives

Inescapably, this means that U.S. industry needs to invest still more to upgrade the skills of its work force. “Government policy-makers,” the Commerce Department paper suggests, “should seriously address incentives for investment in human capital with the same intensity as they have incentives for physical capital investment.”

Carnevale says that idea is difficult to sell inside the Beltway, the highway that encircles Washington, because public policy-makers traditionally think in terms of hands-on government programs.

“Outside the Beltway,” he said, “they understand. The corporations know what they are doing, and they know what is going on in the labor markets.”