SKILLED LABOR APPRENTICESHIPS

 

WITTENSTEIN in Bartlett, Illinois has been recognized as a “Young Adult Employer Champion” by the National Fund for Workforce Solutions. The award was presented to WITTENSTEIN’s President and CEO Peter Riehle during the National Fund’s 2017 Leadership Convening event, held at the Philadelphia Loews Hotel on June 15, 2017. WITTENSTEIN was one of nine manufacturers recognized as “champions” in the Pathways to Apprenticeship category.

According to the National Workforce website: The National Fund Young Adult Employer Champions Program honors employers who provide high-quality jobs and successfully hire and retain 18-25-year-old young adults who are unemployed or underemployed and not enrolled in school. The Employer Champions program is a central component of the Young Adult Sectoral Initiative, which aims to develop a deeper understanding of effective practices for connecting young adults to careers in rapidly growing industries.

WITTENSTEIN embraces this philosophy as well, according to President and CEO Peter Riehle, who noted “We need to offer young people more secondary education alternatives. The four-year college path is saturated, and often leaves students burdened with debt. Manufacturing apprenticeships offer an alternative, and can offer career paths to technology, operations and management positions just like non-industrial careers.”

Apprentices at WITTENSTEIN are part of the Illinois Consortium for Advanced Technical Training (ICATT) program. Founded by the German American Chamber of Commerce, the ICATT program is aligned to the standards of the German apprenticeship system. During the three-year program, apprentices receive on the job training as well as an associate’s degree. There are currently two apprentices in the ICATT program at WITTENSTEIN, and the company intends to hire more in the future.

As the income gap between rich and poor widens, there’s a growing suspicion that the game in our frantic modern economy is tilted against working people. The widely shared prosperity of the 1950s, when the American Dream seemed open to all, is beginning to look like a historical anomaly.

Thomas Piketty caused a sensation in 2014 when he published a book titled Capital in the Twenty-First Century, updating Karl Marx’s claim that rising inequality is inherent to capitalism, because the capitalists — investors who supply financial capital to businesses in exchange for equity — take an ever-larger slice of the economic pie. In other words, those who own the means of production — the factories and offices and machines and so on, which economists call capital inputs — get richer while working stiffs get, well, stiffed.

The common explanation for that trend is that U.S. companies have invested heavily in technology and automation — essentially replacing human workers in the production process with more and more capital. And industries that still require a lot of manual labor have outsourced much of their production to countries with lower wages. But thinking in terms of risk/return tradeoffs, the amount of risk faced by firms had risen over the same period. As you’d expect, workers are more risk-averse than investors, and that fact is contributing to the shift in income shares.

All companies face some economy-wide risk from business cycles and things like energy price shocks. But that’s a tiny fraction of the uncertainty that firms are exposed to. Most of the risk is particular to a company or an industry. It could be anything, like a supply problem or a new entrant or a competing innovation, that cuts into their margins. Firm-specific risk is huge, and there’s much more of it now than there used to be.

So at any given company, no one knows in advance how much money will actually be available to divvy up between investors and employees each year. But the suppliers of capital are much better able to cope with that uncertainty. Equity owners have an advantage in bearing risk. They can diversify by holding a portfolio of stocks. Labor income is usually tied to the performance of a single company.

As a result, you’d expect workers to trade off some of their earning potential for income security — a tacit understanding that their pay will remain constant even if the company’s fortunes decline. Of course, fixed wages and salaries are precisely what we see, and take for granted, in the real world. But there’s no reason it has to be that way.

You can think of it as if companies are providing insurance to their employees, with the insurance premium being implicitly deducted from each paycheck. There’s a ton of evidence that firms really do try to insulate their employees from the ups and downs of business. And it makes sense. What happens, then, when firm-specific risk increases over time? The insurance premiums go up. And that shows up as stagnant wages that fail to keep pace with productivity. Multiply that across the entire economy, and labor’s share of national income shrinks.

But it doesn’t necessarily mean workers are worse off. It looks like they’re being taken to the cleaners. But remember, they benefit by being protected from market forces. In a way, that income insurance is part of an employee’s compensation package, and it rises in value when the company’s prospects become more uncertain. We are sympathetic to a lot of things Piketty says. But he ignores all this idiosyncratic risk, and that’s too simplistic. At a minimum, this tells us we need to be cautious in linking the declining labor share to rising inequality.

One can’t help wondering why firm-specific risk has gone up. The rise of investment managers, ironically, has played a role. Fifty years ago, it wasn’t that simple for an individual to diversify their stock portfolio — you had to go out and buy 30 stocks. Transaction costs were substantial. So to attract capital, firms often tried to lower their own risk exposure by diversifying into unrelated businesses. It was the age of conglomerates.

The emergence of mutual funds made it easy for investors to diversify. As a result, companies may now be more inclined to pursue high-risk/high-reward strategies. They know their shareholders can hedge that risk at virtually no cost.

Whatever the cause, greater risk means greater disparity in outcomes. In this volatile environment, some firms are spectacularly successful and grow rapidly. Many others lose money and remain small — and many of those hang on for years, hoping to break through. Under high uncertainty, the turnaround really might be just around the corner!

As a result, when we look at the size distribution of all public companies, we find that it grew at both the upper and lower ends. In a sense, inequality had increased among corporations. And because wages are relatively constant, you’d expect that variance to be reflected in the return on equity. Struggling firms would still try to make payroll, with little left over in profit for investors, the contributors of capital. At the small number of immense, highly profitable firms — the Apples and Alphabets of the world — the bonanza would go almost entirely to investors.

The bigger the company, the larger the capital share — and the lower the labor share. What’s more, this is a new phenomenon. In 1970 there was almost no relation between income shares and size. Forty years later there’s a strong relation, and the slope of that line is very steep.

What this means is that the declining labor share at the economy level is driven by the growth of large firms. It’s a consequence of rising market concentration, which in turn has been driven by increased risk. Firm-specific risk accounts for a large share of the decline in labor income at the national level, more than half.

And because of their size, these corporate giants dominate the national income figures, even though the typical firm falls closer to the other end of the spectrum. Hence that surprising empirical pattern of a declining aggregate labor share and an increasing average labor share. That divergence between aggregate and average shares is the signature of the risk-insurance effect.

There’s no question that workers are taking home a smaller piece of the economic pie. Considering public companies as a whole, labor’s share of value added has declined from 60% in 1980 to 40% today — a stunning drop — with the difference going to capitalists.

But that’s not simply a result of exploitation by those with greater market power. There’s at least a tacit agreement, manifested in the customary arrangement of fixed wages, that prevents workers from sharing in the bounty from the most prosperous ventures.

The owners of capital are bearing most of the risk in increasingly volatile markets. That arrangement has value for workers that is not reflected in measures of labor income. Likewise, uncounted are the losses by investors in companies that fail, which would lower net capital income. If income inequality is worsening, that’s a serious concern and one we should address in public policy. But the role of risk in all of this has been ignored, so we have an accurate picture of the problem at this point.

Since initiating the apprentice program in 2015, WITTENSTEIN has been steadily gaining local and national attention for its leadership in stimulating skilled labor in the U.S. The company has led numerous tours and information sessions about the program, hosting delegates from industry associations, academic institutions, manufacturing companies and local government. In October of 2016, The Wall Street Journal featured WITTENSTEIN’s apprentice efforts in an article titled “U.S. Companies Turn to German Training Model to Fill Jobs Gap”.

When asked why WITTENSTEIN is so invested in leading the charge to promote skilled labor, Peter Riehle explained, “Addressing the skilled labor gap is a challenge for manufacturers worldwide – but it’s about much more than just business. Yes, producing skilled workers is good for industry, but it’s also good for the economy, it’s good for society and it’s good for our local communities. The U.S. can and should be a leader in the race to generate more skilled labor – and the ICATT program is a powerful proponent.”

Anna-Katharina Wittenstein, Chairwoman of the Board for WITTENSTEIN, was the driving force in adopting the ICATT apprentice program. Attesting to the value of investing in skilled labor initiatives, she stated, “WITTENSTEIN is committed to being a global leader for innovation in our industry. We have always trained our own people, and to a great percentage through structured programs like ICATT. When you train your own employees based on a standard curriculum you have people with excellent skills who know your company.”

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