1 Introduction
This paper reviews the current state knowledge on the role played by low wage jobs in providing access to and progression in employment for low skill workers. In particular, it addresses a number of questions:
- the extent to which low pay jobs provide the first step on the ladder to reasonably paid and reasonably secure jobs for low skill workers;
- conversely, the extent to which low skill workers become stuck in low paid and insecure work;
- what are the characteristics of people who are employed in low wage jobs;
- which types of low paid jobs provide the best/worst chances of upward mobility;
- whether a low paid, insecure job is better than no job;
- whether low skill/low pay jobs can coexist with high skill/high pay jobs for similar work;
- the extent to which the costs of geographical mobility and broken employment histories inhibit wage mobility and why;
- whether the supply of low skilled/high skilled workers affects the demand for low skilled/high skilled workers;
- Whether different causes of low skill (low education, poor schooling or parenting, history on welfare, crime, drug dependence etc) affect future labour market outcomes.
Most attention has been paid to research based on the US, the UK and other parts of the English-speaking world. However, conclusions from the experience of continental Europe are also referred to, particularly because they differ in some respects from the Anglo experience.
1.1 Are low wage jobs a problem?
In the English-speaking world, the general growth in prosperity that has occurred over the last two decades has benefited some groups much more than others. Indeed for some, the decades did not look prosperous at all. Two groups that have not done well are youth and low wage workers.
At the beginning of the 21st Century, it is a daunting task for many young people to negotiate the essential step for the transition to adult independence, namely to find adequately paid and adequately secure employment. Recent decades have seen a collapse in the number of full-time jobs available for teenagers and even those in their early 20s. Unemployment remains particularly high for this age group. Young people are expected to have levels of formal education that are much higher than the historical norm, and it is clear that for some the formal education system does not work very well. For those not in full-time education or employment, the norm is bits and pieces of part-time work, paid at low wages, unemployment or non-employment. It is an important social issue to know whether young people who start their adult work lives in this way have good prospects of subsequently moving on to full-time and reasonably paid and secure employment. Or are they likely to be trapped in a future marred by low earnings, unemployment and periodic reliance on the welfare system?
The role played by low wage jobs in the pathway to work for low education youth has particular social significance. But low wage jobs are also taken by other people in the labour force. The two main such groups are women re-entering paid employment after an absence to care for children, and higher wage workers who lose their jobs. There is much more written about the first of these than about the second two, but we will report what we can find on the latter groups.
English-speaking countries more broadly have seen a substantial growth in the proportion of jobs that are some combination of low paid, casual and part-time. There is understandable interest in whether this growth should be a cause of concern for policy-makers and the community. The growth of such jobs will be of most concern if they are dead-end, such that the people who occupy them stay in the same sorts of jobs for lengthy periods of time, and leave them largely because they leave the workforce rather than because they find substantially better jobs. If this is the norm, then there is a real risk that the growth of such jobs will generate an underclass of people and families who have to deal for long periods, possibly a lifetime, with poverty and insecurity.
The growth of low paid, and in other ways unrewarding, jobs is of less concern if they provide the first foot on the employment ladder for people who come to the labour force with few employable skills. In this scenario, low skill new entrants work for some period in low paid jobs and in doing so learn specific job skills and the general attributes of productive workers. The low pay is in effect compensated for by on-the-job learning, and after a period the workers move on to better paid and more secure employment. In another version of this story, people who take low paid and insecure jobs are doing so to earn an income while they study full-time. At the end of their study, they go on to satisfactory employment in better jobs. In either case, we can view the employment as providing a combination of current wage and skills development that will lead to enhanced future wages.
There is clearly immense social and policy interest in which of these two scenarios is closest to the truth. In reality, both experiences occur and the main empirical task is to identify the relative size of each and who is in each group. A second important task is to understand the scope for policy to improve the outcomes for low wage workers. The outcomes at issue could be the current level of wages and security, or it could be the amount and type of employment skills learned, or some combination.
If all low wage jobs were simply an episode in people’s lives, from which they moved to better jobs, would such jobs still be a public policy concern? There are two reasons for thinking that the answer to this question is yes.
The first is that even in the short run, people need an income that is sufficient to meet basic needs. Just what constitutes basic needs is controversial, but this does not mean that the concept is empty. As articulated in Rerum Novarum, the papal encyclical of 1891:
... there is a dictate of Nature more imperious and ancient than any bargain between man and man, that the remuneration must be enough to support the wage-earner in reasonable and frugal comfort. If through necessity or fear of a worse evil, the workman accepts harder conditions because an employer or contractor will give him no better, he is the victim of force and injustice.
The concept (and language) of “frugal comfort” was adopted as the foundation of the first basic wage in Australia, in 1907. In adopting “frugal comfort” as its test of a just wage, Rerum Novarum most probably had in mind that it was earned by an adult male, with little prospect of significant upward mobility. But even in the short term people must be paid enough to enable them to meet the essential bills. Just what are the essential bills will depend on their circumstances, and it is here that information on who are the low wage workers is relevant. The necessary minimum will be lower for young people living at home than for an adult who is supporting dependent children, for example.
The second basis for worrying about the level of low wages is also made clear in Rerum Novarum, and is equally relevant today. If a worker is paid less than is necessary to provide for a level of frugal comfort, then she or he is the victim of force and injustice. Modern nations have a notion of what is a fair wage and this notion is related to the levels of living of the time and place in which the worker lives.
