Invest in people, not robots

The job prospects for blue-collar workers is one of the hottest topics in U.S. politics. The current fascination with the potential of robotics has helped reveal the important truth that productivity increases have reduced the number of manufacturing jobs, and that's increasingly true in service sectors as well. Most observers expect to continue.

So far, the options for what to do about the loss of good jobs are pretty bad. Changes in trade policy have lots of drawbacks, but even if they could be enacted, they won't address the massive productivity-driven job losses in industries like manufacturing.

Retraining workers who lose jobs sounds like a good idea if there were lots of good jobs available for which they could be retrained. But that has not been the case, and it is unlikely to be so in the foreseeable future.

Why aren't we seeing more of a focus on upgrading management and employee skills rather than replacing workers with machines? For-profit businesses, especially public companies that have

extensive reporting requirements for investors, hate fixed costs or those that can't be adjusted down if business falls.

Robots and technology are massively bigger fixed costs than workers. You might think that would scare investors and businesses away from that approach. What we can do with robots is amortize investments and depreciate them over time, spreading the costs out. There are also a range of special tax breaks for investments in capital that aren't there for management and employee spending. Tax laws and accounting principles do not recognize training and management interventions as investments even though they surely are by any other definition.

Another way in which accounting stacks the deck against investments in human capital and management systems has to do with how those investments are reported, or not reported. An investor looking at any company can tell pretty quickly how much it has invested in capital improvements because the figure is right there on the balance sheet along with related investments like leased capital and even fuzzy assets like "good will." Those investments are seen as a good thing.But you can't find investments in training and in management.

They are lumped in with "general and administrative expenses," typically described as "overhead" costs. These are liabilities on balance sheets, and investors like to see them as low as possible. Businesses that spend a lot on training and management improvements can look to investors like they are blowing money on office furniture.

So we have the irony that business is rewarded for investments in capital that raise productivity by eliminating jobs but punished for investments in people and management that raise productivity and save jobs.

The federal government has also spent billions directly and through agencies like the Department of Defense to develop robots and other manufacturing technology that displaces workers. The Centers for Advanced Manufacturing spread the knowledge of how to use them to businesses. There is little attention given to how workers might fit into these new systems.

Given all this, it's not surprising that businesses favor spending to replace workers with capital equipment.

But the management challenges of investing in people and systems are also its saving grace.

Any competitor can call up a vendor and get the latest robot, so it can't be a source of competitive advantage for long, if at all. Interventions that are challenging to pull off like better management of the workforce can be. That makes them work in the long term for business and their employees.

Peter Cappelli is a management professor at the University of Pennsylvania's Wharton School.