Ethics @ Work: It pays to invest in workers

A large number of Israeli businesses suffer from the "disposable worker syndrome."

workers building 88.298 (photo credit: )
workers building 88.298
(photo credit: )
The Wertheimer family recently sold most of cutting-tool giant Iscar to the legendary American investor Warren Buffett. One noteworthy principle which distinguishes Iscar from many other Israeli companies that are not being sold for billions of dollars is that it invests in the skills of its workers. This commitment to worker quality is evident in many ways: in the high level of their work force; in the promise Iscar sought (and obtained) not to downsize the work force; and in the programs Stef Wertheimer has sponsored programs, over the years, to improve the skills of less-advantaged Israelis, such as the Arab Jewish Executive Development program. By contrast, I see much evidence that a large number of Israeli businesses suffer from the "disposable worker syndrome." Workers are acquired "off the shelf," the employers take advantage of whatever skills the workers possess, and if things don't work out, the workers can be replaced with others who better fit the firm's needs. The result of this approach is that wages in Israel are rock bottom. About 30% of Israeli workers are making no more than minimum wage, meaning about twenty shekels an hour. Do I blame the employers? To a great extent I do. I don't blame them for "exploiting" workers by paying them less than they are worth. Most industries that employ low-wage workers are highly competitive and I believe that low salaries are generally a fair reflection of low productivity. What I don't believe is that low productivity is a result of low ability; rather, it is a result of the fact that too few employers recognize the benefits of investing in worker skills. In many workplaces the starting worker who is worth 20 shekels an hour could be worth double that amount, given only a few months and a bit of cultivation. One symptom of the neglect of worker training is the large fraction of the Israeli work force employed in a "triangular" relationship by a de facto manpower agency. In this kind of work agreement, the workplace has a contract with the agency, which in turn hires the worker. A recent study found that Israel has the world's highest rate of this kind of employment. It's clear that when there is no direct relationship between the workplace (which has a contract with the agency, not the worker) and the worker, the chances of developing a fruitful long-term relationship are slim. The employer will feel that any efforts made to improve skills will accrue to the worker or the agency, not the workplace - the employee will note that without any possibility of promotion, there will be little return to improved skills. The result is that both employer and worker reconcile themselves to a situation where workers perform a standard service for a fixed price. Of course, the economy should include a certain number of standardized jobs. These jobs are good ways for students to get some job skills and make a little money on the side, and many such jobs provide flexible shift-work which is invaluable for some workers with families. That's why most countries have a few percent of their workers in low-skill, standardized-demand jobs like fast food restaurants. But the fraction of these workers is way out of proportion to the level of our economy and the innate abilities of our work force. A recent article in "Fortune" magazine documents the efforts of major international brands such as Gap and Disney to eradicate sweatshop conditions from their overseas contractors. The acknowledged motive, states author Marc Gunther, was "to protect their brands" and maintain a positive image among consumers. However, Gunther continues: "But the companies have also found that improved working conditions in their supply chain can be good for business. Factories that treat workers fairly are more likely to be productive and ship goods on time." A productivity guru whom I have occasionally cited is McKinsey's William Lewis. Lewis has an impressive research study demonstrating that the best companies succeed even in countries with uneducated work forces. They don't do this by exploiting their workers, but rather by training them themselves to attain near first-world skill levels. For example, he claims that Japanese manufacturer Suzuki was able to get about five times as much productivity out of Indian workers as Indian employers could. Iscar founder Stef Wertheimer always recognized that building a world-class business requires a world-class work force, and he also recognized that no one was going to hand him such a work force on a silver platter. So he determined to build it himself, and committed himself to training and rewarding workers in a way that would cultivate their innate abilities and thus enable them to contribute to his firm. Let's hope that the Wertheimers' well-deserved success will be a wake-up call for other Israeli businesses to get out of the vicious cycle of low skills, low-wages and low-commitment, and make the investments and commitments towards their work forces that will enable them too to create world-class businesses. The writer is research director at the Business Ethic Center of Jerusalem (www.besr. org) an independent institute in The Jerusalem College of Technology. He also is a rabbi.