For many low-wage workers in India, basic skills training can be the difference between economic empowerment and persistent poverty. It may seem that the employers of such low-wage workers — who focus mainly on keeping costs down in order to survive in a relentlessly competitive industry — would have no incentive to provide such training or resources for personal development. But our research suggests that a better way to manage low-wage workers in developing economies is to invest in them, which is good for both worker welfare and the company’s bottom line.
An Experiment in India Shows How Much Companies Have to Gain by Investing in Their Employees
For many low-wage garment workers in India, even basic education and training can make the difference between a life of dignity or a life of extreme poverty and degradation. Common sense would suggest that managers of such low-wage workers — who focus relentlessly on keeping costs down — would have no incentive to provide such training or personal and career development. But our research suggests a better way to manage low-wage workers in developing economies: investing in these workers is good for society and the bottom line. In July 2013, we implemented a randomized controlled trial in five factory units in Bangalore operated by Shahi Exports, Pvt. Ltd., India’s biggest garment export firm. The trial covered 2,703 workers who initially expressed interest in the program and involved the application of the Personal Advancement and Career Enhancement (P.A.CE) training program — a life skills course for female garment workers designed by Gap, Inc. P.A.C.E teaches communication, time management, decision making, problem solving, and financial literacy are taught through weekly group sessions in the workplace. But that’s not all. On the business side, trained workers were more productive by 7 percentage points post-training, and the average complexity of the sewing operations to which they were assigned rose considerably. Moreover, more workers were retained during the program (3 percentage points higher retention during the program), as P.A.C.E. training was akin to an in-kind transfer from the firm to the workers. After 9 months, we calculated the net rate of return to the company’s investment in P.A.C.E. training for workers at nearly 250%. The high return to the program can be explained by the fact that the low cumulative costs flat-lined after program completion, while the benefits (mostly accruing due to productivity increases) continued to rise.