Social Protection for Employee Skills Development

Introduction

The introduction of social protection can be regarded as one of the most important milestones in the history of humanity. People earned their right to safe working places, proper conditions, relative employment certainty, and so forth (Yeh & Shi, 2013). Countries have different social protection systems that have been influenced by various political, social, economic, and cultural factors. Many researchers and practitioners believe that strict social protection legislation has adverse effects on the development of economies, industries, and human capital (Fromhold-Eisebith, 2015). It has been acknowledged that human capital, just like physical capital or to a greater extent, plays a central role in companies’ performance (Lagoa & Suleman, 2016). Human capital is the scope of skills employees invest in order to complete their tasks and achieve organizational goals. Nevertheless, an extensive bulk of research suggests that social protection often has a positive influence on the development of skills. Some of the central concepts fostering skills formation include employment certainty, employees’ loyalty, and secured financial status. This paper explores different ways social protection facilitates the development of skills in employees and positively affects economies.

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Different Types of Skills

It is necessary to describe major theoretical premises guiding this work prior to analyzing the way social protection affects skills formation. The human capital theory and skill formation theory are the theoretical frameworks used when considering the nature of skills and factors influencing their development. Human capital theory was developed in the 1950s, and it mainly focuses on the link between education and skills (Gambin & Hogarth, 2017). Whereas, skill formation theory was created in the early 2000s, and it places limited value on the educational aspect while concentrating on the role played by governments in the process of skills formation. These two theoretical paradigms have certain limitations. The two theories do not describe particular models or patterns to trace the stages of skills formation or identify factors involved in the process. Both of them shed light on certain aspects of the issue, so they should be used to analyze the way skills are acquired. It has been acknowledged that many factors shape the process of skills development, so it is important to make sure that all of them, or at least, the most potent, are included in the analysis.

The development of skills has been seen as one of the major factors contributing to the personal growth, companies’ competitiveness, the evolvement of industries, as well as the overall success of nations (Bosch, 2017). In order to understand the process of these abilities development, it is necessary to consider some of their primary peculiarities. Three major types of skills have been identified: general, industry-specific, and firm-specific. These skills differ in terms of their acquisition and utilization. They tend to have a different value to employers and employees, as well as a different impact on the performance of organizations and their competitiveness.

For instance, firm-specific skills can usually be applied in the context of a specific company and are mainly useless in other organizations. It is impossible to gain certain knowledge outside the company due to businesses’ peculiarities. Firm-specific skills are mainly acquired during on-the-job training, as well as in the process of working in an organization (Martin, 2017). At the same time, the development of these abilities is highly valued by employers who regard them as “a source of sustained advantage” since other companies can be unable to achieve certain goals within short time frames (Raffiee & Coff, 2016, p. 767). Employees may have an opposing view especially when they are unsure about the future of their organization and its competitiveness. Employees can invest less effort in the formation of these skills, which, in its turn, has an adverse effect on their training efficacy.

Industry-specific skills are usually acquired via vocational education (Bosch, 2017). These skills are necessary for the successful work in all companies associated with a specific industry. General skills are usually developed within the context of the general education and self-development. These skills involve but are not confined to literacy and critical thinking, communication skills, and so forth (Hanushek, Schwerdt, Woessmann, & Zhang, 2016). These skills can be applied irrespective of the industry or peculiarities of the company. Importantly, individuals need a complex of these skills to be competitive in the labor market.

The Development of Skills

Firm-Specific

As has been briefly mentioned above, firm-specific skills are acquired in the course of working for a particular company. Bryson (2017) adds that these competences are developed during apprenticeship as, alongside with some industry-specific skills, apprentices learn about specific cultures, social contexts, policies of the company in question. Raffiee and Coff (2016) state that various organizational routines and the social landscape of the firm can be regarded as the tacit knowledge that occurs over time. These abilities are not a result of investment or particular training, but a “byproduct” of being in a specific context (Raffiee & Coff, 2016, p. 768). On-the-job training (including the one provided at the initial stage of employment) is also associated with the acquisition of skills related to firm-specific guidelines, policies, regulations, and so forth.

In addition, employers often provide training aimed at the development of so-called hard skills (for example, computer competence). This type of abilities is usually most valued or even noticed by employees. It is noteworthy that the training provided by companies equips employees with general and industry-specific skills (Lagoa & Suleman, 2016). The combination of these abilities is what makes them firm-specific since only a set of certain general skills can be necessary to achieve particular goals using available sources and following certain policies. Finally, it is important to mention that employees acquire soft skills that are firm-specific.

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Industry-Specific

Industry-specific skills are most valued by both employers and employees. As has been mentioned previously, these competences are acquired during vocational education, as well as during the work in a specific industry (Hanushek et al., 2016). These skills can be easily transferred across companies, which makes them appreciated by employees. Kim, Mithas, Whitaker, and Roy (2014) remark that technological advances and globalization enable people to benefit from these abilities to a considerable extent. Industry-specific skills are transferred across companies and markets, as well as continents, which also has a positive effect on the development of these industries.

The value employers place on these abilities can be easily traced through the examination of wage patterns. Lagoa and Suleman (2016) draw on the difference in people’s salaries as the wages of industry switchers are often lower as compared to employees changing jobs within their industry. At that, the difference varies across economic sectors. For instance, the wage loss can be less pronounced in the construction industry while it can be significant in the four-digit sector. However, Lagoa and Suleman (2016) emphasize that more research is needed in this area as many factors can affect people’s salaries. For example, it is unclear whether the choice to change an industry or an occupation is more influential. It has also been acknowledged that industry-specific skills comprise general competences and abilities important for a particular sphere (Consoli & Rentocchini, 2015). When choosing among candidates, companies pay attention to the combination of skills these people have.

The importance of industry-specific skills is also evident in the time of recession and serious financial constraints countries experience. According to Liu, Salvanes, and Sørensen (2016), the mismatch of these competence provided by colleges and the ones required by organizations leads to major career losses among graduates, which is specifically persistent in the times of recession. Moreover, industry-specific skills are highly valued at the state-wide level. Hanushek et al. (2016) claim that many countries ensure the provision of vocational training in terms of secondary education. For example, in the majority of European countries, secondary educational facilities equip students with certain industry-specific skills that are relevant in the labor market. Fromhold-Eisebith (2015) argues that these competences are instrumental in the process of industries adaptation to crises and financial issues. It is found that companies and employees try to adjust to the changing environment through the development of innovative strategies or following the examples of innovators.

General Skills

General skills are seen as the most transferable abilities among the three groups. The major source of these skills is formal education whereas higher education is regarded as the most valued level of education in many spheres. It has been acknowledged that general skills facilitate employees mobility (Bosch, 2017). Lagoa and Suleman (2016) present evidence to emphasize that the focus on general skills can be a factor encouraging employees to switch industries, but this link is not apparent when it comes to changing occupations. Formal education has been traditionally associated with the acquisition of general skills. At that, different types and level of knowledge and skills should be taken into account. Bosch (2017) provides examples of different types of knowledge commenting on the value of knowledge in mathematics and expertise in Byzantine history. Clearly, general knowledge in mathematics is highly applicable in many industries while experts in Byzantine history can find employment in significantly narrower contexts. Hanushek et al. (2016) also argue that general skills are highly valued due to their contribution to innovation as these competences are associated with critical thinking, decision making and so forth.

Employment Protection

Prior to analyzing the way social protection affects the development of the three types of skills, it is important to consider the nature of this concept. Different nations have varied social protection systems of employees due to the peculiarities of their cultures, economic orders, political and social aspects, and so forth (Yeh & Shi, 2013). Checchi and Leonardi (2016) note that employment protection has been characterized by deregulation since the 1990s. The degree of deregulation differs across countries.

The US employment protection legislation ensures that the rights of American employees are secured to a significant extent. However, the latest changes reveal the shift in the public insurance programs (Van Voorhis, 2017). The Great Depression became one of the major reasons for the creation of the US unemployment social protection. The major financial collapse and economic constraints the country faced during the 1930s made the government impose quite strict regulations that were effective in stabilizing the situation. At that, Van Voorhis (2017) emphasizes that only a limited number of people received benefits due to the demographic peculiarities and life expectancy of that period. In the second half of the 20th century, it became clear that the laws that existed were outdated. The unemployment rate in the USA was the lowest in its history while the demographics started changing. These factors led to the shifts in unemployment social protection.

Since the 1990s, unemployment protection legislation has been characterized by increasing deregulation. This trend is associated with a number of economic and demographical factors. First, the problem of aging population unveiled the vulnerability of the regulations that had existed in the first part of the 20th century (Van Voorhis, 2017). The number of people receiving funds from the budget is growing at quite a considerable pace as baby boomers retire. The burden is becoming rather unbearable for the American economy. Furthermore, the financial crises of the 1980s and especially the global crisis of 2008 led to significant losses and economic recession. Businesses have tried to minimize the involvement of the government and negotiate for lower taxes. With the political gains of the Republican party, these benefits have been achieved. Therefore, the present-day unemployment legislation is less employee-driven so-to-speak, but it is also regarded as beneficial for reviving the US economy.

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The Impact of Social Protection on Skills Development

Educational Domain

The link between countries’ regulations and the development has been briefly touched upon in previous sections. Since the central peculiarities of the skills and social protection from unemployment have been outlined, it is possible to consider this link in detail. First, it is necessary to focus on the domain of education as countries’ policies associated with this sphere have a considerable effect on the formation of all three types of skills (Hanushek et al., 2016). Although different cross-national trends will be explored, the US context will also be highlighted in this paper.

It is necessary to note that “highly regulated” countries such as Germany or Austria reveal significantly better results compared to such market-driven countries as the USA (Andersen & Jensen, 2017, p. 74). These European countries manage to ensure proper social protection from unemployment for their youth. Young people manage to be employed after their graduation, but their further career development is often characterized by switches to other industries or occupations. The rate of unemployment among the American youth suggests the need for proper governmental policies aimed at this population’s protection from unemployment.

As far as general trends associated with the rate of unemployment and education levels are concerned, Andersen and Jensen (2017) assert that the higher the education level is, the lower unemployment rate is. To illustrate this point, the researchers compare different European countries and the USA in terms of the unemployment rate among people aged between 25 and 64. Portugal, Italy, and Spain had the lowest ratios between unemployment rates across populations with different educational backgrounds. In Germany, over 16% of people with less than upper secondary education were unemployed while the unemployment rate among people with upper secondary and tertiary education level were almost 11% and 5.6% respectively (Andersen & Jensen, 2017). To compare, in the USA, the unemployment rate of people having less than upper secondary, upper secondary, and tertiary education educational backgrounds was 8.5%, 4.4%, and 2.1% respectively.

As has been mentioned above, formal education is instrumental in developing the three types of skills since even firm-specific skills often involve certain general and industry-specific competences. Therefore, policies related to the provision of training as a form of social protection have a visible impact on skills development. The vast majority of countries can be characterized by the compulsory free primary and secondary education, which is regarded as an important premise for economic stability as all people have a basic set of skills and knowledge to enter the labor market (Bosch, 2017). Many countries allocate substantial funds to ensure higher levels of education among their citizens.

For instance, Macau is one of the leading Asian counties when it comes to funding public education (Hudson & Künher, 2013). The government provides financial assistance to residents who want to gain higher education. Hudson and Künher (2013) assert that these policies have proved to be effective as they were consistent with the overall social and economic situation in the mid-2000s. The country needed highly skilled professionals to address the challenges of the new business environment. The increased number of people with higher education played an important role in the economic growth of the region. This approach can be regarded as a part of social protection against unemployment. In this case, the focus is on the acquisition of general skills and some industry-specific competences. Young people are equipped with knowledge and skills valued by employers. At that, the transferability of these skills ensures the participants’ commitment to the program’s goals.

Vocational education is regarded as central to the formation of industry-specific skills that are crucial for the economic development, and many countries invest heavily in this sphere. The countries that follow the German dual system include vocational training in secondary education, which, in policymakers’ opinion, can help in creating the necessary background for their citizens’ further integration in the labor force (Hanushek et al., 2016). It is noteworthy that the USA does not follow this framework as it is deemed in this country that vocational education is too complex and evolves at a considerable pace making it inappropriate to within the scope of secondary education. At that, the US government provides some subsidies and financial assistance to individuals rather than ensures free access to vocational education.

Hanushek et al. (2016) explored the way vocational education affected people’s employment. The researchers emphasize that people having vocational education are more likely to be employed in their early adulthood, but financial gains of these people reduce over time. Put another way, governments’ initiatives involving the provision of vocational education are instrumental in the acquisition of industry-specific and general skills that result in their employment. However, without further training, these people lose their competitive advantage as new skills are necessary due to the rapid development of industries. Hanushek et al. (2016) note that policymakers should pay more attention to the formation of general skills to foster employees’ mobility across industries, which is regarded as a beneficial trend. The researchers argue that the government should introduce initiatives involving the provision of certain training. Hanushek et al. (2016) add that people receiving government financial aid should be encouraged to switch to other industries.

Firm-Specific

Apart from the provision of training and educational opportunities, governments use various tools to ensure employees’ social protection. Mok and Huang (2013) mention that so-called lifetime employment is one of the most common and potent instruments to facilitate the development of firm-specific skills. This approach involves the introduction of governmental restrictions as to employees’ mobility and companies’ employment choices. In simple terms, employees starting their work in an organization continue their careers in the company until their retirement. Under such circumstances, people are certain about their future prospects and are willing to acquire firm-specific skills. This model was widely used in the Asian region. Japan and China have been regarded as conventional examples of countries following this pattern. It was a part of their cultures to remain employed in the same context and, ideally, in the same organization.

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It is worth mentioning that this model was characterized by highly gendered patterns. This employment paradigm was associated with the prevalence of male workforce as females were mainly excluded from lifetime employment (Mok & Huang, 2013). However, the changes that had taken place after the 1990s made Asian countries minimize this kind of involvement in companies’ lifecycles. The new economic models and globalized markets made flexibility one of the major priorities across countries.

At the same time, some traces of the lifetime employment approach are still apparent. For instance, human resources professionals tend to encourage employees’ mobility within their companies (Mok & Huang, 2013). This approach achieves twofold goals. On the one hand, the necessary flexibility is maintained since people move across different settings within a single company. On the other hand, employees feel secure and are more willing to develop firm-specific skills that are seen as valuable assets. This attitude, in its turn, facilitates the creation of competitive advantage that can help businesses reach their organizational goals.

Another governmental incentive that is rather common in many countries is mainly related to female employees. The provision of secured maternity leave and childcare services are some of these tools (Nergaard, 2016). The term of the maternity leave, as well as the size of financial aid given to mothers during this period, encourages them to work for a single company rather than switch organizations. In the USA, however, such policies are confined to the provision of unpaid maternity leave on the federal level. Clearly, such regulations and the absence of social protection has a negative impact on the development of firm-specific skills due to employees’ lack of confidence in their prospects within a particular company after certain changes in their life.

Industry-Specific

As for industry-specific skills acquisition, it is more secure and facilitated by the vast majority of governments. This trend can be explained by the high-value companies and policymakers (as well as employees) place on these competences. One of the common practices that have a positive impact on industry-specific skills development is the existence of minimum wages (Holmes, 2017). Law forbids paying employees lower wages than the ones developed in accordance with certain measurements. Therefore, employees feel secure since they can receive the same (or higher) wages if they remain in their industry. Importantly, employees do not face salary losses even if the market is saturated or the supply of some skills exceeds the corresponding demand.

Different countries have different minimum wages depending on their economic welfare, living standards, unemployment rates, the political power of trade unions, and so forth. The United States had different levels of minimum wage throughout the country’s history (Holmes, 2017). At present, Americans are dissatisfied with the minimum they are paid as it is less than 10 US dollars in some industries and some states. Clearly, the level of minimum wages has an impact on the average wage in the industry, which makes this type of social protection effective. It is necessary to mention that the higher minimum wage is, the more committed to their industries employees are (Bosch, 2017). Moreover, employees are encouraged to acquire more industry-specific skills or even new competences that can enable them to switch the sectors where they are employed. Therefore, the existence of minimum wages has a positive effect on the development of industry-specific skills.

Unemployment protection is one of the most potent instruments to facilitate the formation of industry-specific competences. People who lose their jobs receive financial aid from the government for a certain period of time. Again, the size of this compensation and the term of secured unemployment differ across countries. European countries have more favorable environments as people can receive benefits for up to a year (Bosch, 2017). The compensation and period of benefits provision vary across the states in the USA. However, this period is no longer than 26 weeks while the compensation depends on the employees’ earnings. Irrespective of these short terms, American employees still have time to choose the most attractive job offer.

Moreover, employees are encouraged to develop their industry-specific skills when employed and after losing their jobs as they are aware of possible benefits and their secured position. As in the case of minimum wages, the higher salaries in the industry are, the more committed to their industries employees are likely to remain. They are not restricted to a set of companies but can choose among the array of organization involved in the industry. It is necessary to point out that switching industry is also an option as some industry-specific skills can be applied in other sectors of the economy. All in all, this type of social protection is instrumental in fostering the acquisition of industry-specific skills.

At a larger scale, there is no agreement among researchers concerning the influence of social protection on the development of industries and associated commitment to industry-specific skills formation. Fromhold-Eisebith (2015) note that many types of protection negatively affect the construction of industry-specific skills. For instance, employees know that they will receive minimum wages irrespective of their performance and will still receive a secured period of financial support. At the same time, Bosch (2017) argues that social protection incentives have a positive impact on the development of industries and, as a result, the overall economy. The elimination of employment status uncertainty encourages people to invest more time and effort in their self-development and acquisition of industry-specific skills that can improve their performance. People are sure that they will remain within a specific industry and will be reluctant to leave this secured position due to the uncertainty associated with their prospects in other industries.

General Skills

The acquisition of general skills has looser links to social protection initiatives due to the nature of these competences (Checchi & Leonardi, 2016). General skills are mainly associated with secondary and tertiary education that require people’s commitment to achieving academic goals. These skills are often valued across companies and industries, but they are rarely central abilities employees are expected to have. Moreover, general skills enable employees to switch companies and industries making industry-specific skills irrelevant. Under such circumstances, social protection can have an adverse effect on the development of general skills, as well as people’s performance. For example, if employees understand that their minimum wages and employment status are secured, they can be reluctant to self-develop and gain new knowledge and skills. They will also be willing to switch companies, occupations, and industries due to the focus on general skills that are often acquired early in lives. At the same time, general skills are also closely tied to innovation, which fosters the overall development of industries and economies. Therefore, flexibility is one of the important premises for the acquisition of these competences.

When it comes to this type of skills, countries benefit from the absence of social protection as this market-driven environment facilitates the formation of new skills and employees’ commitment to gain knowledge. Checchi and Leonardi (2016) assert that the American labor law can be an appropriate environment for the development of general skills as the existing labor relationships are characterized by a high degree of freedom. The labor market follows the general trends and laws of the global market where companies try to achieve their competitive advantage.

Major Approaches to Skills Development and the Corresponding Investment

As has been mentioned above, countries tend to have different approaches to skills acquisition, which affects the introduction of social protection initiatives. Some states (such as Japan) put an emphasis on on-the-job training (Bosch, 2017). The training costs and risks are diminished through the use of seniority payment patterns. In Japan, people who work longer tend to have higher wages and more benefits, which contributes to employees’ loyalty and their willingness to perform better and acquire firm-specific skills. In this country, little attention is paid to the acquisition of industry-specific skills and the provision of vocational education opportunities as these competences are built during on-the-job training. These countries have strong protection against dismissal, which positively affects the formation of firm-specific skills and facilitates the creation of companies’ competitive advantage.

On the contrary, such countries as Germany can be characterized by significant investment in apprenticeship and on-the-job training. The country has various associations that set certain standards and focus on the development of employees (Bosch, 2017). As has been mentioned above, vocational training is integrated into the secondary and upper secondary education curriculum. The costs and risks of employee training are, therefore, distributed mainly among employers. Another approach to human capital development is associated with training risks evenly distributed between employers and employees. An example of such model is Denmark where employees receive vocational training and often get a certain amount of payment (which is often small). Although employees acquire industry-specific skills through formal education, they are committed to investing their time and effort due to the high chance of placing a job in a particular company. Denmark and the countries using a similar paradigm have quite strong employment and unemployment protection, which has a positive impact on the formation of industry-specific skills. These competences are central to the development of industries and the overall economy.

The USA is characterized by market-driven labor relations. Vocational training is provided through colleges while costs and risks are mainly placed on employees (Bosch, 2017). Companies provide on-the-job training, but employees are expected to come with a certain set of skills and level of knowledge to get the job. The country’s social protection incentives related to employment and unemployment protection are not strict, which has adverse effects on the acquisition of firm- and industry-specific skills. Nevertheless, this environment is beneficial for the development of general skills. It is necessary to add that labor market in the USA is favorable for employers who are free to choose the most skillful candidates among the pool of potential employees having different educational backgrounds. At the same time, employees’ position tends to be insecure, and employment uncertainty is rather high. These peculiarities of the labor market can have a negative influence on the evolvement of industries and the overall economy.

Conclusion

This paper has explored the ways social protection initiatives have an impact on the development of firm-specific, industry-specific, and general skills. Evidence from the previous research shows that different social protection incentives’ influence varies across skills. It is also clear that countries tend to have different approaches to the matter. However, there are certain trends that can be traced globally. For instance, the focus on firm-specific skills formation is weakening even in the countries where it was a part of their cultural background. Lifetime employment and protection from dismissal are not popular practices in the modern world. Although firm-specific skills are instrumental in the creation of businesses’ competitive advantage, flexibility is becoming more valuable in the era of rapid technological advancement. General skills are central to the process of innovation that, in its turn, is crucial for the evolvement of markets, industries, and economies. These competences need flexibility while strict labor laws can have a negative impact on their formation. Employees and employers should have the right to choose freely and enter partnerships that would be fruitful for both parties.

The formation of industry-specific skills has proved to be a primary concern in many countries that impose regulations to create employment certainty, employees’ financial security, and appropriate working conditions. Vocational education is of paramount importance for the development of these abilities, and many countries invest significant funds to ensure wider access to this educational option. At the same time, some countries including the USA have market-driven labor relations where the government imposes only a basic set of regulations to secure employees’ status and benefits. This approach can be harmful to the formation of industry- and firm-specific skills while favorable for general skills development. However, it has been acknowledged that the combination of these skills can contribute to the country’s economic welfare. Therefore, it is possible to conclude that governments should try to find the balance between market-driven and employee-focused approaches. It is evident that labor markets should be regulated to avoid excessive tension and people’s dissatisfaction and low performance. Freedom and flexibility should also be incremental in the existing labor law to foster innovation that is essential for the modern world.

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