Media Briefings

RETAINING HIGH-SKILLED PERSONNEL IN PUBLIC SERVICE: Evidence from the Royal and US Navies

  • Published Date: April 2017

UK and US records show that abandoning specialisation gave naval officers fewer outside options and kept them in the service

Rapidly modernising organisations often need to sacrifice task specialisation among workers to retain skilled personnel. That is the central message of research by Ahmed Rahman and Darrell Glaser, to be presented at the Royal Economic Society’s annual conference at the University of Bristol in April 2017. Their study of naval officers in the UK and the United States in the early 20th century reveals how they were successfully prevented from specialising to deter them from leaving the service for better pay.

The study highlights a recurring dilemma facing organisations with rigid pay structures, such as government organisations: when they encourage their employees to specialise, the skills they acquire are often better rewarded elsewhere. What the employer may gain from specialisation is therefore lost from lower staff retention.

By studying employment records of navy officers, who began to acquire specific skills during the 19th century, the authors show that there was a 3-10% annual return on these skills by the turn of the 20th century, when navies had become technological and engineering powerhouses – and officers began to leave more frequently as a result.

Both naval organisations responded to this exodus by forcing all officers to have equal exposure to technological tasks. Task specialisation among the officer corps was eventually obliterated. What was lost in forgone efficiencies was made up for in greater worker cohesion and retention. Naval history thus gives us unique case studies on how organisations can rapidly modernise while still retaining skilled personnel.

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Rapidly modernising organisations often need to sacrifice task specialisation among workers in order to retain skilled personnel. That is the central finding of our paper.

When wages are rigid, as they are in many government organisations, human capital retention gets harder – workers accrue valuable human capital through on-the-job experience, but can’t get compensated within the organisation for their higher productivity. Workers with more ‘saleable’ skills become more prone to leave to get a better match of their earnings with their productivity somewhere else. What can organisations do to retain these workers if they can’t increase or target promotions?

One interesting approach that organisations can take is to limit differences in human capital accumulation among different workers. Firms that make all workers do a little bit of everything sacrifice efficiencies from potential specialisation, but gain from greater retention of personnel.

There is anecdotal evidence of such approaches in manufacturing industries, and even for academic departments (some professors are better at research than others, yet typically all must contribute to teaching and service tasks). But concrete empirical evidence remains elusive.

What is required is detailed evidence of personnel with clearly distinct and varied work experiences, within a system of rigid wages and infrequent promotions. Such systems existed within the modern navies of the late 19th century – officers often specialised in different tasks, many quite technical. And officers faced only a handful of promotion opportunities, often languishing in the same position earning the same wage for many years.

We thus focus on groups of highly skilled workers in an environment of rapid technological change – British and American naval officers during the Second Industrial Revolution.

Both the Royal and American navies used and experimented with many of the new technologies of the day, and their respective officer corps developed high levels of technical human capital necessary to implement these technologies.

All naval officers during this era began their careers at the lowest possible grade. Using our data, entire careers can be followed with measures of initial human capital as well as human capital accumulated over time.

Further, naval pay scales were remarkably rigid and consistent, and officer exits were essentially one-sided decisions during this period. This provides us an exceptionally clean measure to gauge how alternative incentives and individual factors of human capital directly affect worker decisions about career changes. It also allows us to impute rates of return for a subset of measures for technical human capital and technical skill.

We find that when navies were modernising, personnel in more technical or bureaucratic office positions (conceivably involving skills employable in other industries) were more likely to switch careers out of naval service.

For both naval organisations, the imputed rate of return to a year of technical experience rises from essentially zero during the 1870s and 1880s, when navies experienced technological stagnation, to a 3-10% annual return by the turn of the 20th century, when navies had become technological and engineering powerhouses. These external returns spurred highly trained and skilled officers to abandon military careers for more lucrative opportunities in the private sector.

Both naval organisations responded to this exodus by forcing all officers to have equal exposure to technological tasks. Task specialisation among the officer corps was eventually obliterated. What was lost in forgone efficiencies was made up for from greater worker cohesion and retention. Naval history thus gives us unique case studies on how organisations can rapidly modernise while still retaining skilled personnel.

ENDS


‘Human Capital on the High Seas: Job Mobility and Returns to Technical Skill during Industrialisation’

Contact:
Ahmed Rahman
rahman@usna.edu