THE NEW WORK FORCE BUILDS ITSELF Innovative schools, adaptable employers, and a few government programs help workers find their way into the world aborning.
By Louis S. Richman REPORTER ASSOCIATE Kathleen C. Smyth

(FORTUNE Magazine) – WHAT will it take to provide workers with the attitudes and technical skills they need for the new economy? Schools that are linked with employers to integrate classroom instruction with practical on-the-job experience. Community colleges that offer the specialized training their local businesses demand. Companies that find new ways to teach and motivate employees. And government programs to steer dislocated people back into productive new careers.

Sounds like a tall order. But surprise: In their powerful, quirky ways, the market's creative-destructive pressures are already bringing forth just such imaginative adjustments. Only Washington is behind the eight ball, with proposals more likely to get in the way of change than to further it. Helping workers make their way breaks down into strategies for three discrete groups of people: students now in school; employees who will increasingly be shifting from company to company over the course of a career; and the low-skilled, largely unemployed left-behinds. The job will be easiest with the young, who will benefit from a combination of demographics and America's ability to generate jobs. Over the coming decade, the number of workers ages 25 to 34 will decrease by 2.9 million men and by nearly a million women -- drops of 15% and 6%, respectively. The Bureau of Labor Statistics, meanwhile, projects that the number of new jobs in every major occupational category, factory workers included, will grow -- in most cases at double-digit rates. Says Alan Reynolds, director of economic research at the Hudson Institute in Indianapolis: ''Young Americans will be in a strong position to enjoy rapid increases in real incomes over the next two decades.'' Youngsters are heeding the market's message that good pay demands good education and are entering the work force far better equipped than today's mature workers. (Better than half of the 33 million working-age Americans who did not finish high school are over 55.) Even as the public schools struggle to stiffen their lax standards, young people are making a vast, though still little appreciated, improvement in their schoolwork. The Department of Education's key indicators of academic performance have risen markedly across all racial groups -- partly because more kids are taking challenging math, science, and foreign language courses. The percentage of young African Americans who fail to earn a high school diploma has fallen by a third since 1980, to some 13% in 1991. And the proportion of high school grads going on to all types of colleges has climbed to about 62%, from 49% in 1980. Community colleges offer the rising generation some of the most exciting new routes into the emerging economy. Once the fallback for youths who could not handle the time or expense of a four-year education, these 1,200 schools are fast becoming the preeminent shapers of tomorrow's frontline workers -- many of whom have to finance their own schooling. Some six million students are enrolled for credit in community colleges today, a 250% increase since the late 1960s, and an estimated five million more are taking noncredit course work. Typical of the new breed, Thomas Nelson Community College has tied itself to 33 middle and high schools and to businesses large and small around its home base of Hampton, Virginia. In 1990, the school began targeting seventh- and eighth-graders of average ability who were not planning on college. With advice from business people, President Robert Templin and his staff developed a rigorous new curriculum that includes applied math, physics, chemistry, and biology. To add real-world relevance, technicians from nearby companies such as Canon and Anheuser-Busch make periodic classroom visits to demonstrate the problem-solving skills they use in their jobs. During summer breaks, some of the students -- mostly 14 years old -- attend what Templin calls ''academic boot camp'' on campus, where they continue their studies and get important training in teamwork and good workplace attitudes. The program, which now enrolls 2,500, is expanding as the kids progress through high school. Thomas Nelson has also joined with local Ford dealers and with NASA in nearby Langley to create mechanic apprenticeship programs. The space agency has hired some 800 graduates over the past decade. The Ford apprentices, who learn computer diagnostics, have an inside track on jobs that start at $19,000 a year and ultimately can rise to $80,000 for lead mechanics. But what future lies in store for inner-city youth? The BLS forecasts that African Americans and Hispanics will represent nearly a third of all new labor market entrants in the coming decade. Too many of them, raised in broken families and attending third-rate schools, aren't getting the attitudes and skills they need to make it in this job market. Most government efforts aimed at helping them have been both expensive and too scattershot to make much headway. One program that does help rescue young lives is the Job Corps, a rare, successful legacy of the 1960s Great Society initiatives. The nation's 109 Job Corps centers, most run by private contractors, work with young people -- mainly dropouts ages 16 to 24 -- for up to two years. Enrollees split their days between studying academic subjects and learning skills for such occupations as health care, building maintenance, or office administration. As they complete their formal training, they are placed with employers to get experience at wages averaging $5.58 an hour. More significantly, the centers focus on building good work attitudes. Counselors coach their charges on 50 so-called personal growth and development skills, including hygiene and appearance, taking initiative, and working cooperatively in teams. The training is backed up with a system of rewards and penalties. Every candidate is paid a small allowance during the time he or she is enrolled, with cash bonuses awarded to those who excel. But if they are disruptive, cut classes, or use drugs or alcohol, they are dropped. Problem is, the Job Corps program costs an average of $20,000 a year per student, because nearly all the centers are run as 24-hour residential facilities. This Ivy League pricetag limits the yearly number of enrollees to 62,000. Job Corps could leverage its good results by creating more nonresidential programs, like the one run in West Philadelphia. The day program there costs just $9,000 annually for each of its 225 students. Philadelphia Job Corps can serve many young people the residential programs cannot, particularly single mothers. It can also work more closely with employers and tap the resources of nearby Philadelphia Community College. Last year the program ranked near the top in the U.S. in academic performance, low turnover, and job placement. THE PEOPLE most likely to feel threatened by the epochal changes of the new economy are the millions of Americans already employed. Staring at the confusion of perpetual corporate reorganizations, they see only wave after wave of layoffs, not the opportunities presented.

Certainly these workers are a major concern of the Clinton Administration, which sees little evidence that corporate America is rising to the challenge of adapting to the new order. The Department of Labor estimates that just 5% of all U.S. companies have adopted ''high performance'' workplace techniques, such as total quality management and self-directed work teams. Investors are too impatient for higher short-term earnings, says Labor Secretary Robert Reich, to allow managers to change their old ways. That perception is based largely on undocumented numbers made prominent in a 1990 report by the Commission on the Skills of the American Workforce. More recent evidence from Paul Osterman, an organization development expert at MIT's Sloan School of Management, paints a different picture. Surveying 694 typical factories and offices, Osterman found that 35% used the new methods. And that's not the whole story. A lot of the adapting does not show up in Reich's narrow measure of ''high performance.'' As Osterman says, ''The market has become far too differentiated and complex for there to be one 'right' way to organize and manage employees.'' Insurance companies Chubb and AIG, for example, are two solid performers that take diametrically opposing approaches to managing people. Their methods were analyzed by Peter Cappelli, a management professor at the University of Pennsylvania's Wharton School. Chubb recruits bright young talent, invests heavily in their training, nurtures them in a wide range of assignments, and gives them broad leeway to demonstrate leadership. AIG, by contrast, hires battle-tested pros from outside and tells them to develop new market niches that senior management has identified. If they flounder, they are fired. Both companies succeed, says Cappelli, because ''each has a strategy uniquely suited to its employment practices.'' Enlightened employers like General Electric, Motorola, and AlliedSignal have discovered that a key ingredient for getting employees to acknowledge and embrace organizational change is compensation. Instead of handing out automatic annual pay increases based on job title and seniority, the common ! practice in the old economy, these companies reward teamwork, measurable quality improvements, and employees' acquisition of new skills. ''Getting the rewards right and steadily raising the goals is how a company communicates its values and direction to its work force,'' says Jay Schuster, a Los Angeles compensation consultant. Even small companies in mature industries, waking to the need for change, are finding ways to bring their employees aboard the process -- albeit ways that can seem harsh at first. Ten years ago, Robert Frey bought Cin-Made Corp., a manufacturer of paper packaging products in Cincinnati. It was losing as much as $30,000 a month on annual revenues of just $1.7 million. When Frey insisted that the 40 unionized hourly employees swallow a 25% pay cut, they went out on strike. The workers stayed on the picket line until Frey threatened to hire permanent replacements -- a tactic the Clinton Administration has vowed it will outlaw. When they capitulated, Frey told them he would never grant another pay raise. Instead, he offered to set aside 30% of all pretax earnings as a bonus pool and delegated to the workers -- most of them high school dropouts -- the authority to schedule production, control inventories, choose their own team leaders, and screen every new hire. Some were sent out to learn such techniques as statistical process control, which they then taught to teammates. Frey also began giving everyone detailed updates on Cin-Made's finances at monthly meetings. Says he: ''Our goal was to learn to become worthy partners instead of being worthy adversaries.'' Since 1989, workers' bonuses have added an average 30% to their annual compensation. THE BURDENS that accompany the evolution of the new economy fall heaviest on the more than four million workers who lose their jobs each year. For many, the result is a steep and permanent drop in earnings. They need help in acquiring up-to-date skills and counseling that can steer them to productive new careers. Today's programs for the unemployed are ineffective, obsolete, or fragmented -- often all three. The federal employment service, the principal exchange for matching people with jobs, offers little employment and even less service. The unemployment insurance system was designed for people laid off temporarily, not permanently. And the 151 government-financed worker-retraining programs are balkanized among scores of federal agencies, each having its own idiosyncratic eligibility standards. But new programs that work are sprouting up across the country. Example: Job Link in Louisville, a one-stop career center established by the nonprofit Louisville Private Industry Council in 1989. Job Link's holistic approach to putting people back to work begins with a half-day orientation program at one of its three cheerful, efficient offices. The job seeker then schedules a two- hour interview -- no waiting in line -- with a case manager. She conducts a full profile of the candidate's education, work history, and financial resources, and helps devise a strategy. People with good skills are referred directly to employment leads that Job Link keeps current by staying in constant contact with local businesses, which the agency refers to as its ''clients.'' Most of these job seekers find work in less than six weeks. Those needing more help take workshops in resume writing and job search skills, and get peer support to keep up morale. To learn more about occupations that interest them, job seekers are sent on ''shadowing'' visits to local factories or offices, where they tag along with a worker to learn what's involved. Once candidates are placed, Job Link stays in touch with the new employee and her employer to learn how the match is working out. Only as a last resort does Job Link enroll workers in formal training programs, which can last up to two years. Job Link tries to get the job seekers to pay what they can for their training. Says director Rick Tabb: ''When people buy into the program, their commitment to success is greater.'' Washington wants to help one-stop career centers like Job Link multiply, and hopes to begin rolling the concept out nationwide by 1995. Would that all of the Administration's ideas were so sensible and restrained. The Labor Department plans the most ambitious overhaul of America's labor market institutions since the Great Depression. But the effort can perhaps best be characterized as a ''field of dreams'' approach: Train the workers, and the good jobs will come. Inspired by Europe and Japan, the Clintonites are backing a vast expansion of government programs, and an easing of eligibility requirements for participation. Ignoring study after study showing that most federal retraining schemes don't work, they are proposing to double federal outlays for such efforts to some $13 billion over the next five years. Reich also wants business to underwrite more training for frontline production workers. Says he: ''Most of what employers now spend benefits managers with college degrees who need it least.'' Requiring employers to spend at least 1.5% of their payrolls on training, he says, is ''very much a goal'' of the Administration. Reich's aim is to help close the widening wage gap between unskilled workers and those who have college training. But James J. Heckman, an economist at the University of Chicago, calculates the U.S. would have to spend nearly $1.7 trillion to narrow the difference to the gap that obtained in 1979. That's assuming a 10% annual rate of return on the money spent. In fact, the return on public training schemes has been close to zero. MARVIN KOSTERS, a labor economist at the American Enterprise Institute in Washington, argues that a universal mandate to train is exactly what employers don't need. Sending managers and skilled technicians to school, he says, makes sense because the payoff is higher. The more than $30 billion U.S. companies shelled out on formal training programs last year represents only a fraction of the huge but unmeasured investment they make in less structured -- but no less valuable -- on-the-job training that goes on when retrained skilled workers bring their new knowledge back into the workplace. Case in point: Cin- Made. Many companies that set out to redesign their work methods discover that they must increase the investment they make in managers and skilled technical workers. Nynex, the regional phone company, is retraining service representatives to handle all customer requests, from billing problems to new installations, using sophisticated information systems. Since the software will guide them, the frontline agents need only modest formal instruction and updating. Not so for the managers whose roles are being broadened. Nynex is rotating them through a new corporate training center to master such skills as competitive analysis, profit-and-loss accounting -- remember, this was a utility -- and leadership. If the goal is to encourage American workers to build their skills throughout their careers, why not further the trend already under way and let them decide what training they need? One means to do that, endorsed by experts such as Kosters and Heckman: Allow workers to put a portion of their pretax pay into an individual training account (ITA). As funds build up in an ITA, a worker could tap them to keep abreast of his changing occupation or to prepare % for a new one. Should he lose his job, he could use the ITA to offset lost income and pay for acquiring new skills. As the system currently operates, says Heckman, ''unemployed people are least able to afford training when they most need it.'' Perhaps Washington's most overreaching plan is its push to establish national skill-certification standards. Together with the Department of Education, Labor is financing projects run by national trade associations to develop ''voluntary'' certifiable skills for workers in 22 U.S. industries -- from cooks and industrial launderers to bioengineers and electronics specialists. With such a road map, the theory goes, both students and workers already in the labor force would know where to concentrate their education and retraining efforts. Each step of training would yield a certificate of mastery that the government hopes all employers will accept as a credential. The Administration will soon appoint a federal board to promote the standards -- and it has the support of many business groups. On its surface, the idea sounds reasonable enough. ''Workers with portable skills will enjoy greater security, and companies will find it easier to recruit work-ready employees,'' says Anthony P. Carnevale, vice president of the Committee for Economic Development, a business-financed research group in Washington, D.C. But so far the execution is underwhelming. After spending a year and $1.8 million, the American Electronics Association identified the 21st-century skills makers of electronic and computer equipment say they want in terms such as this: A ''manufacturing specialist'' must be able to ''establish customer needs,'' ''initiate and sustain communication processes and procedures,'' and ''make products that meet customer specifications.'' Similar institutionalese describes the essential ''competencies'' office administrators and sales people should have.

Left to their own devices, businesses, workers, schools, and students are finding their way into the future without this sort of blank map, thank you. For the past two years the Westin Hotels chain has been refining its own set of employee skill standards -- Westin calls them ''embedded values'' -- that it uses in recruiting, training, placing, and retaining its 35,000 employees. The hoteliers identified 14 key attributes workers from housekeepers to hotel managers must have. Besides technical competence, these include a capacity to demonstrate initiative, an ability to communicate clearly, and a commitment to quality. While most of the traits Westin wants sound soft, Johnna Howell, director of human resources, says these so-called affective skills are the hardest to find. Westin has learned to spot them in job candidates through questions that elicit how people respond to subtle challenges and knotty situations. By staffing its hotels with employees who can manage themselves and deliver high customer satisfaction, Westin has reduced both employee turnover and the need for managerial supervision. Would a nationwide credentialing system for hotel workers (the industry is working on one) make it easier for Westin to find skilled people? Not likely, answers Howell, who says Westin's recruitment methods give the company a unique competitive advantage. WHATEVER Washington does or doesn't do, this revolution will go forward on its own steam, with individuals hunting and pecking for opportunities across the emerging economic landscape. Business needs employees who will be flexible and ready to acquire new skills, and schools are learning to supply such graduates. But companies will have a role too -- and they will be motivated to play it. If flexibility becomes just a euphemism for ''You're fired'' -- rather than ''How can we work together to master change?'' -- the best employees will soon jump ship for employers who do better.

BOX: INSIGHTS

For all the criticism of U.S. education, youngsters enter the work force far better equipped than today's mature workers.

Community colleges are designing high-speed routes into the emerging economy.

The right government effort: Customer-focused, one-stop services match the unemployed with jobs.