Taking the High Road

Each day’s news reinforces what we already know: The old social contract surrounding employment is dead in the United States. Loyalty and good performance are no longer likely to be rewarded with long-term employment and retirement security. The signals are clear and seem never ending: large-scale permanent layoffs of white-collar as well as blue-collar workers, wage cuts, corporate bankruptcies that lead to terminations of pension plans; shifts from defined-benefit pensions to riskier and less generous defined-contribution pension and 401(k) savings plans; cuts in promised retiree health benefits; and the outsourcing or offshoring of jobs previously believed to be secure.

The impact of these actions will be felt in the United States for generations to come. Nearly 30 years of stagnant real wages for many employees mean that most young people entering the work-force will start at lower real wage levels than they would have a generation ago. Moreover, today’s young adults can expect their earnings to grow at a slower pace than their parents’ did. The United States is sitting on a ticking time bomb, which, if not defused, will explode when the new generation of employees realizes that the only way for them to achieve the American Dream is to work longer and longer hours, a cost that an increasing number of young people, including newly minted MBAs and other professionals, are beginning to question.

Too often, American business leaders ignore these societal issues or accept them as inevitable consequences of market forces. However, the reality is more complex. Many business executives today face an important but often little-discussed choice: whether they should build organizations that create higher-quality jobs through improved productivity and an engaged labor force or to create lower-paying jobs in companies that emphasize the control of labor costs. There is a quiet but critical debate over whether to compete by becoming a knowledge-based, high-trust organization — which requires training and empowering employees and harnessing their full motivation and talents to generate innovative solutions that drive productivity and service quality — or, on the other hand, to compete by focusing primarily on driving down and controlling costs.