Low-Skilled Workers Are An Untapped Asset If You Invest In Them

Organizations around the world continue to struggle to attract the talent they need, with the shortage leading to intense competition between companies. This is prompting organizations to look wherever they can for the skills they need.

A recent paper from Harvard Business School highlights how low-skilled workers are often an untapped resource, and that improving the skills of workers already on the payroll is often a more effective solution than looking externally.

The report reveals, however, that low-paid workers are often criminally underinvested in by their employers, with many succumbing to the belief that there is a naturally high turnover of such staff, so there is no point in investing in them.

"Most employers show little engagement in workers’ lives, provide minimal support for skill-building, give infrequent or unclear feedback, and offer almost no guidance on career pathways," the authors explain. "In doing so, employers have ignored the high price their organizations pay: unfilled positions that reduce output and increase overtime, direct and indirect costs caused by constant churn, and the “soft” costs of eroding morale."

Barriers to progression

The potential for people in low-skilled roles to progress was explored in recent research from the Auckland University of Technology. The study examines how easily low-paid workers find it to climb up the career ladder. The study suggests that we may previously have significantly overestimated the ease with which we can move on to better things.

The researchers cite previous research suggesting that the chances of someone transitioning to higher pay can be as high as 90%. These figures tended to rely on survey data that was based on an annual set of questions. In other words, it only gave the researchers a snapshot of the labor market at a given point in the year.

The researchers attempt to overcome this information gap by utilizing the integrated data infrastructure (IDI), which is a large research database published and maintained by Stats NZ. The database provides monthly administrative tax records for the entire population that help the researchers understand labor market states at a high frequency.

When they replicated past studies by looking at just one month in the year, they too found the chances of moving onto higher paid work was around 74%. When they looked at more detailed monthly records, however, this was far from the case.

Muted boost

Indeed, this approach found that the chances of moving on to higher-paid work were much lower than previously thought. When looking across an entire year, the researchers found that the chances of this progression slumped to around 28%.

So, the more detailed analysis reveals that the stepping-stone effect does exist and it is easier to move on to better pay from within a low-paid job than from being unemployed, but the size of this boost is not as big as previously thought.

The researchers suggest that the chance of someone unemployed for the last year moving on to higher-paid work in the next month is just 1%, so even though 28% is lower than we thought, it is nonetheless a significant gain on trying to climb up after a period of unemployment.

"We have a 3.8 year tenure on average, and most people get promoted vertically or horizontally within the first 12 months," Tom Moore, co-founder of WithYouWithMe, which helps military veterans into the civilian workforce, told me. "Veterans are generally more motivated and the challenge is helping the recruitment teams understand that skills based hiring is the only way you'll get out of the skills crisis rather than relying on experience as is so often the case today."

A robust pathway

The Harvard researchers believe a good first step towards rectifying this situation is to ensure that low-wage employees know that they're valuable to the organization and they're not seen as wholly dispensible. Managers should then work to provide clear developmental pathways so that there are opportunities for both improving one's skills and then putting those skills to good use.

For instance, research from the London School of Economics suggests that providing lower-skilled workers with soft skills can be hugely valuable, both for the individuals themselves and their employer. For instance, they found that strong soft skills enabled seemingly low-skilled workers to get jobs at more innovative firms, which secured them a significant wage premium. What's more, this income boost tends to endure throughout their career.

When occupation level data was analyzed, it revealed that the most innovative firms placed more emphasis on tasks that required greater interaction between high and low skilled labor. So even among low-skilled workers, there was still a requirement for the kind of soft skills that make these interactions possible.

A report published a few years ago from Capita revealed that low-skilled workers desperately want to upskill, but are seldom given the opportunity to do so. Now is the time to move on from the view of these people as a homogenous and largely replaceable blob and view them instead as an asset that can be cultivated.

“Investing in upskilling incumbent workers who already possess knowledge, credibility, and a history of service would seem to offer a far better return on investment than making frequent, speculative bets on an influx of candidates based on their job applications,” the Harvard researchers conclude.