2 The context of low wage work
2.1 The economic environment
There have been major social and economic changes over recent decades, a number of which have had adverse effects on the economic prospects of low wage workers and of youth. These changes include technological innovation, that evidence now strongly suggests has enhanced the productivity of high skill workers substantially more than the productivity of low skill workers. They include also greater integration of world financial and product markets. This has favoured internationally mobile factors of production, including highly skilled workers and capital, at the expense of immobile factors of production, including low skill workers. It has also, in effect, increased the supply of low skilled labour for the production of traded goods and services, thus depressing the relative price of such labour in the developed countries. Government policies to deregulate labour markets, to reduce the role of government in the economy and to increase the role of market-based competition in the delivery of services have amplified the effects of technological change and globalisation on the changes in the labour market. Acemoglu (2002) provides a comprehensive examination of the relative contributions of technological change, international trade and institutional change in causing the rise in wage inequality in the US. He (and many others) gives the greatest weight to skill-biased technological change.
In a parallel movement, both demand and supply forces have combined to reduce the size of the manufacturing sector and expand the size of the services sector in the developed economies. Different skills and attributes are in general required to produce services compared with manufactured goods, and this has changed the composition of demand for skills. The demand for technical and manual skills has fallen while the demand for interactive, cognitive and customer skills has risen.
Each of the developments described above has made it harder for low skill people to find and keep decent jobs. The combined impact of these developments has amplified the effects of each one taken on its own. Two of the hardest hit groups are low skill people generally (especially men) and workers who are outside the “prime age” band—both young and older.
