Disappearing Ladders

What do we do when there is no path to building a career?

It wasn’t so long ago that job training was a core component of almost any career path. When factories hired new grads, there was an expectation that the staff would train the new worker to use the machine tools, to properly evaluate the tolerances of finished goods, and to understand the overall process of how the factory operated. Indeed, unions often put heavy priority on training in their collective bargaining agreements.

The same pattern could be seen before in law, medicine, and other professions, where new graduates were often given years to build their skills and reputations under supervision in apprenticeship-like positions. Corporations built management training programs to ensure that in 10-20 years, they had talent coming up through the ranks that was prepared to handle the complexities of their businesses.

All of that is changing, and it doesn’t bode well for younger workers just entering the workforce. In law, upwards of a quarter of graduates from the top 25 schools are underemployed. That is a staggering waste of talent. The same is true in financial services – Goldman Sachs permanently canceled its entry analyst program just a few years ago, and now only hires among its intern population. Factories are also refusing to train new workers, expecting them to have already received job training at specialized and expensive technical schools.

This is the problem I am calling the “disappearing ladder.” The gateways to many careers have now largely disappeared for younger workers, and it isn’t clear to me that any new system has replaced it. These ladders are disappearing across all industries, in both “middle class” and “upper class” professions.

The underlying causes of this labor shift are numerous and complex. One overarching cause is the increasing transparency of many industries. Take law for instance. A few decades ago, white shoe firms had the ability to command any price they selected, and clients were willing to pay for their services without question. There has always been grumbling, but the 2008 financial crisis fundamentally changed the dynamic between firms and corporations. Now, the billable hour is increasingly disappearing in exchange for negotiated comprehensive fees – and the cuts are often being borne on the youngest members of the team.

Associates at Big Law firms command salaries around $160,000 per year these days. Their replacements are charging $9 to $20 per hour through flexible legal staffing firms. The greater transparency for clients means that they are putting pressure on cutting such costs, as the value of these new grads is far less than their price.

This increasing transparency in billing is even hitting the consulting business. Clayton Christensen, of Innovator’s Dilemma fame, wrote this week a long review in HBR describing the coming disruption in the strategic consulting industry. He argues, in my view correctly, that clients are becoming more sophisticated in how they engage with professional services. They increasingly want modular bills, and they only want to pay for the services that they think are valuable.

The increased sunshine on what have traditionally been opaque industries leads us back to the “superstar” labor economy that has come into clarity over the past two decades. There has not just been transparency related to billing and pricing, but also to quality and performance of every knowledge worker. Companies, clients and individuals do not just hire firms and other institutions anymore; rather, they prefer to hire individual practitioners and pay heavily for their expertise.

This benefits the 20-year veteran of an industry with an independent practice, who is able to command billable hours approaching the four digits. Top partners at professional firms are similarly getting paid in the millions of dollars per year. For those at the top of their profession, they accrue a disproportionate amount of the spoils, and the proportion is only increasing with further innovation.

Unfortunately, no one at 22 years old has the ability to command that kind of attention. Younger workers need training, mentorship, and experience to be able to do more and more sophisticated work over time.

Another component of this labor shift is the increasing speed of disruptive technology. This is certainly true in law, where start-ups like RocketLawyer, LegalZoom, and e-discovery companies have disintegrated the floor in legal wages. In consulting, renewed pressure by technology start-ups is putting pressure on hiring as well. As Christensen writes: “Consider the disruption that technology has already introduced. The big data company BeyondCore can automatically evaluate vast amounts of data, identify statistically relevant insights, and present them through an animated briefing, rendering the junior analyst role obsolete.”

Perhaps the most insidious cause, though, is the changing corporate culture toward training. Experts suggest “investing in your people” and that “retention is critical.” Yet, few companies are willing to foot the bill when it comes to training their staff, nor are they willing to provide engaging assignments to their employees over the long haul.

There are many other causes that I am electing not to analyze. This breathtaking transformation of how talent is developed is coupled to many changes we are seeing elsewhere in society. Trustees and politicians are placing enormous pressure on universities to build up job training programs and connect seniors with jobs at graduation. The call for major-specific scholarship programs, the declining budgets and enrollments in the humanities, and the increasing number of trade and technical schools all point toward the needs of the modern student for immediately marketable skills.

The changing notion of training is also affecting the length of tenure of employees. The lifetime employment bargain between corporations, who would foot the bill for training, and employees who agreed to stay, has now completely disappeared. There used to be a bit of camaraderie and collective ethos here, in which companies felt responsible for workers and in turn, workers held loyalty to the company. Now, even Google and McKinsey are cutting back on paying for education outside of the company, expecting workers to pay for their own development.

Frankly, I don’t have a normative valence on these changes – I don’t think it is clear yet whether this new labor market culture is better or worse than before. I understand that the cuts in wages increases market efficiency, and that such changes have happened to many industries before. What does worry me, though, is the almost complete lack of solutions and pathways available to our young workers to build their careers.

Some suggest that new grads should take work into their own hands. They should take more unpaid internships, and take on free clients to build portfolios in order to get higher paid work (designers on Dribbble, for instance). But unpaid internships are competitive. Think about that. There isn’t even enough unpaid work to go around. We don’t even have to get into the financial unsustainability of doing work for free for any significant period of time.

Some others suggest that the solution is to build a start-up. Indeed, I think the changes in the labor economy, coupled with the increase in crowdfunding resources, has forced more to consider that approach. With fewer options for development, I think a greater number of people are seeing start-ups as the way to get the broad-based knowledge that used to be taught in a variety of career paths. Why compete aggressively for one of the very few positions in a company or firm when you can start a business and probably learn more in the process?

Unfortunately, start-ups for many are a poor substitute for a cohesive learning agenda. As I discuss repeatedly, it is very hard to discover what we don’t know. The holes in our knowledge are rarely identifiable, for the obvious reason that we can’t search Google, “what don’t I know about term sheets” or “what don’t I know about marketing.” One part of the benefit of apprenticeship models is that experienced practitioners would fill in those gaps for workers.

So today, we live in a world where an enormous number of young workers work at jobs that pay measly wages (if at all), and highly experienced workers command greater and greater salaries, with no path to move from entry-level to senior-level. That is the disappearing ladder.

As someone who works with start-ups, sometimes conceiving business models, I truly believe this is one of the most critical problems facing our society today. It is not enough to create the next flexible staffing start-up. Rather, we need to dig deeper and try to build out the rest of the labor market model we see in the world today. How can we build scalable training programs, coupled with engaging work and a decent salary, so that the young workers of today have a shot of being the superstars of tomorrow? I hope that question gets answered before the last ladder disappears.