Vorsprung durch Technik

by Henry on August 18, 2004

Daniel Drezner posts an extract from a Wall Street Journal article (subscription only, and I don’t have a subscription), suggesting both that there is a serious shortage of skilled machinists in the US, and that “U.S. apprenticeship programs have dwindled as the large American companies that once provided the bulk of such training have cut back to save money and now outsource some of the work.” As I’ve noted before, there’s a serious case to be made that both these problems reflect underlying weaknesses in the US model of capitalism.

Margarita Estevez-Abe, Torben Iversen and David Soskice have an important piece arguing that countries like the US, which have a minimal welfare state, tend to discourage people from investing in risky specific skills. If the market changes, so that these skills are no longer rewarded on the job market, people who have these skills may find it very difficult to find new jobs, or to retool themselves for a changing economy. In contrast, countries with a well-developed welfare state can provide a buffer, allowing people more time to find new jobs that match their skills, or to learn new skills if necessary. Estevez-Abe, Iversen and Soskice argue that countries like the US tend to produce skill generalists, who can shift easily as market conditions change, whereas countries like Germany, with substantial welfare states, more easily support specialist skills.

Machining skills are highly specific – those who invest in the lengthy process of learning how to be “Swiss machinists” will find it extremely difficult to find new jobs if the demand for Swiss machinists falls. Therefore, one may reasonably expect that in countries such as the US (where there isn’t a safety net), many people will be reluctant to become Swiss machinists, instead preferring more generalized skills, that can more easily be transported from job to job. In contrast, in countries like Germany, one may reasonably expect that there will be no systematic problems of undersupply of machining skills (although there may of course be conjunctural ones).

Furthermore, as sociologist Wolfgang Streeck has noted, German-style capitalism is better in specific aspects of training. It produces “beneficial constraints” that help ensure that certain collective goods are produced. Apprenticeship training is a key example – in a free economy, every firm has an incentive to underinvest in training, because it does not realize the full benefits (the individual may leave and bring the benefits of her expensive training to a new firm). In Germany, firms are obliged to participate in collective schemes organized by local Chambers of Commerce, thus mitigating the collective problem of underprovision.

German capitalism is, of course, going through some rather serious problems at the moment. Still, in certain sectors of the economy, it does seem to do a better job than the US. This gives Germany a real comparative advantage in specialized machinery production – it exports more machinery than any other country. In the 1980’s, the popular wisdom was that US firms were being ground into in the dust by the Germans and Japanese; now it’s that the US economic system is inherently superior to its peers. It will be interesting to see whether this wisdom changes any over the next ten years.[1]

fn1. The Economist produces special supplements every once in a while covering a major capitalist economy (Germany, Italy, Japan etc). Peter Katzenstein has done an informal study of these over the last couple of decades, and claims to have detected wild variation (Germany may be the model for the world in one survey, and a basket-case a few years later), mapping conjunctural change.

{ 11 comments }

1

Dirk Jenter 08.18.04 at 5:01 pm

Henry,
I agree with your basic argument but would like to point out two problems with the German system, a systematic one and one of implementation. The first and systematic problem is that by providing more help with learning and retooling after a shift in demand has made a worker’s old skills obsolete, the German system weakens peoples incentives to predict where the demand will be strongest in the future. In the late 80s, it drove me nuts seeing people in Germany doing apprenticeships as coal miners, an industry which was already heavily dependent on subsidies and clearly in decline in West Germany (basically due to the lack of easily accessible coal). The second problem, less systematic and more one of implementation, is that once you have a group of people with a good set of specialized skills, you also have a pretty powerful lobbying group who will forcefully demand all kinds of goodies once their skills are no longer in demand, first and foremost usually to keep their industry alive through subsidies. Which brings us back to the West German coal miners.

2

Maureen 08.18.04 at 6:05 pm

Yeah, the German apprenticeship program looks good in some respects, but the expectation that a person will be using the same skill set for the rest of their lives is rather impractical in the current economy. Is there the skilled-labor equivalent of a liberal-arts education, wherein once you have the equivalent of a BA, if you need to switch to a related field you only need a couple months of training?

A bit OT, but I can’t help myself: the fact that insurance is tied into industry in Germany also decreases job flexibility–I’d advocate the Swedish model of social welfare insurance, either on a opt-in model (wherein you pay a slightly higher tax rate or serve the state in some capacity for a few years) or a universal model.

3

Ian Dew-Becker 08.18.04 at 6:21 pm

If you look at these two systems, the American and the German, I think in the end you run into the same basic problem: it takes a long time to train people to do certain things. In Germany, if Swiss machinists are making a lot of money a lot of people will go into training, even if there is a risk of failure they can rely on the state. And as you pointed out, fewer people in America will go into the field because of the greater risks. But what is the net effect on the economy after accounting for the fact that the German state now has to provide for an out of work citizen? And what about the resources wasted on investing in what is now unneeded human capital?

4

Russell Arben Fox 08.18.04 at 6:44 pm

Whatever its economic downsides (and no doubt there are many), the preservation of some sort of apprenticeship system also has the important social and cultural consequence of creating (or at least potentially creating) a sense of seriousness about one’s work: the ability to understand it as a “vocation,” as it were. On a fairly superficial level, one result of this understanding is the likely degree of craftmanship and quality exhibited by those who feel this way about their work. One might argue, of course, that in highly mobile societies it is a drag to have people so invested in particular ways of life…but then again, if more people were so invested, with attendant preferences for durable and well-crafted as opposed to disposable and easily replicated goods, perhaps mobility (and the many costs associated with it) wouldn’t be accepted so readily.

5

Arthur Wouk 08.18.04 at 7:50 pm

“Machining skills are highly specific – those who invest in the lengthy process of learning how to be “Swiss machinists” will find it extremely difficult to find new jobs if the demand for Swiss machinists falls.”

YES. And this isn’t true just for machinists. I often tell college kids not to major in engineering for the same reason. Doing so pigeonholes you in the eyes of future employers. While the accountant and the engineer at the company make roughly comparable incomes, when the industry you’re in takes a downturn, the accountant can get a job in any industry. The engineer is stuck by virtue of his experience in one area.

It’s shame that employers think that way but they do. We keep hearing the “experts” advise individuals to specialize in the new economy – there’s no place for generalists, they say. But that seems to be the opposite of what I see happening.

6

digamma 08.18.04 at 8:51 pm

countries like the US, which have a minimal welfare state, tend to discourage people from investing in risky specific skills. If the market changes, so that these skills are no longer rewarded on the job market, people who have these skills may find it very difficult to find new jobs, or to retool themselves for a changing economy. In contrast, countries with a well-developed welfare state can provide a buffer, allowing people more time to find new jobs that match their skills, or to learn new skills if necessary.

So that’s the disincentive to take risks in the US. The disincentive to take risks under a larger welfare state is that a lot of your reward will be taxed. This seems obvious. Where people might differ is on which incentive is greater, but that’s not really addressed here.

(I’m only talking about that point. The parts about training are really interesting.)

7

Kimmitt 08.18.04 at 10:20 pm

Okay, dumb question — we know why it isn’t necessarily in a company’s best interest to run apprenticeship programs (after you train somebody, they could go work for someone else), but there are a lot of reasons why it can be in a union’s best interest to run apprenticeship programs (especially if the union is the best way to acquire lower-paid apprentice labor, making it useful to remain part of the organization after trained). Why haven’t US unions stepped up to provide this service? It seems like a major win-win — the unions get new members, they serve the working class interests which underlie their reasons for existence, and the companies which hire union labor lose all the risk associated with training someone.

8

Keith 08.19.04 at 3:22 am

In a few generations, Americans won’t know how to make anything anymore. We’ll have become a service-oriented economy. This should coincide nicely with the depletion of the world’s oil reserves, meaning that about the time no one here in the US has any skills to make anything practical, we’ll be loosing the means to aquire all the things we need to live at our current lifestyle. Or just live at all. Yippee.

9

heading out 08.19.04 at 3:41 am

Having at one time been an Indentured Apprentice I found that it gave a number of benefits when I later transferred to a University. This country does not have enough engineers (but maybe too many accountants – grin) and believe me in the near future it will need more – particularly at the higher technical levels – than it currently has. There are too many technical problems which the reducing size of our technical base is stopping up from pro-actively addressing

10

John Quiggin 08.19.04 at 7:14 am

All this is relevant to a more general observation. Despite massive improvements in measured productivity, US manufacturers are cutting employment. This isn’t due to inadequate demand because imports are rising rapidly. I infer that the supposed improvements in productivity are spurious (that is, don’t represent an outward shift in the production frontier).

Cutting apprenticeships fits this pattern neatly. Measured productivity is improved, but capacity is reduced.

11

Kimmitt 08.20.04 at 9:16 pm

Despite massive improvements in measured productivity, US manufacturers are cutting employment.

I hate to say this, but this is precisely what you’d expect; if you can do more with less, the first thing you do is hire less. Then, eventually, the cheaper goods start to tell and people start to consume more stuff in a general sense, so the folks you just fired get rehired.

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