13 Conclusions
To conclude, we provide a brief summary of what has been learned, in terms of each of the questions set out in the introduction.
13.1 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
This is the topic on which the literature provided the most information. It is clear that there is indeed substantial upward wage mobility for people who are in low wage jobs. It is also clear that the probability of low wage workers moving to higher paid jobs varies over time, by country, by age, education, experience, occupation and industry. It also varies according to the definition of low wage: the lower the wage, the greater the mobility. This is because there is downward as well as upward mobility (many people who lose their jobs have to accept lower wages in their next job) and many upward moves are only to a slightly higher wage.
Teenagers employed on or near the minimum wage have high rates of upward wage mobility. In contrast, sole mothers and low education adults have quite low levels of mobility. For this second group, there is considerable cycling between low wage work, unemployment and non-employment. Where there is some wage mobility, it is frequently inadequate to lift workers out of poverty. The combination of low wages and part-time or part-year employment produces very low annual earnings.
Countries with lightly regulated labour markets and relatively low levels of employment protection (eg, the US and UK) might be expected to have higher levels of wage mobility than countries with more regulated labour markets. In fact this is not so. The US does have relatively high levels of job mobility, and low wage workers most commonly have to change jobs in order to obtain a wage rise. But the US nonetheless has lower levels of wage mobility than do the more regulated European countries. One reason for this is that US firms invest less than their European counterparts in skills development of their workers on the job. The US and the UK also have relatively high levels of inequality in pay. The ability of employers to pay low wages is probably one reason why US firms find it profitable to employ workers who have continuing low productivity. A number of the European countries place a strong emphasis on the provision of structured pathways from initial low wage jobs into better paying jobs, for youth. They also have more generous welfare arrangements for people who struggle to find adequately paid employment. For these and other reasons, people are less likely to get stuck in continuing low wage employment than they are in the US and UK.
It should be noted that the relatively low levels of upward wage mobility in the US occur in a country that has the highest average levels of formal education in the world. More education is not necessarily the answer to increasing wage mobility. It matters who gets this education (the US does relatively well for the more able, and relatively badly for the less able). The role of firms in providing skills development is also important, as are institutional structures to encourage pathways to better jobs. The reader should be aware that the evidence of relative wage mobility mostly does not extend beyond the mid-1990s. A strong macro-economy, as experienced in the US and UK in the latter 1990s, is some help to upward wage mobility. Offsetting this, the literature identifies a substantial trend towards declining mobility as inequality in the cross-section wage distribution has risen.
We conclude from this review of the literature that low wage jobs are an important entry point for young people as they first become established in the labour market. For the large majority of these young people, the low wage jobs are temporary, and can indeed be seen as the first foot on the ladder. For a minority of young people, the size of which varies across countries, initial low wage jobs do not lead on to better things, but rather to a cycling between low wage employment, unemployment and non-employment. The social and economic institutions for assisting the transition from school to work are important for this minority.
This generally sanguine view of the role of low wage jobs does not apply to older workers. For older workers who are sole mothers, have lost their previous job, or who have lower levels of education, low wage jobs often do not lead anywhere. Many are inherently low skilled and are not associated with promotional ladders (truck drivers, cashiers, nurse, child care and teachers aides, cleaners etc). Note that, although the pattern varies a little across countries, the typical full-time low wage worker is a woman aged 25-55 who has basic or upper secondary education. Only in Germany were a majority of low wage workers aged under 25 (in the US, 80% are over 24). Thus the high wage mobility observed for low wage youth is of little comfort to the majority of low wage workers. In Australia and New Zealand, a majority of full-time low wage workers are men. And in the US, more than one third have post-school qualifications.
13.2 Which types of low paid jobs provide the best / worst chances of upward mobility?
Low wage jobs are concentrated in particular occupations and industries. They are prevalent in service industry jobs that broadly replicate in the market the sort of activities that were once done by women in the home. These include child care, elder care, non-qualified nursing care, cleaning, food preparation and serving. These types of jobs are not part of any sort of career path and workers in them can expect a pay rise only if they move to some different job/industry. Truck driving and labouring are comparable jobs for men.
The industries in which the low wage jobs are predominantly found are similar across countries. They include retail, hospitality, personal services and business services. Firms in the entertainment, recreation, mining and personal services industries were found to provide virtually no increase in wages based on tenure in the firm, in the US. There is evidence that some firms operate a high turnover, low wage policy, which discourages both firm and worker from investing in skills related to the job. Indeed, high turnover industries/firms are likely to provide poor opportunities for upward wage mobility. First, high turnover discourages investment in skills. Second, workers who lose their jobs systematically are forced to accept lower wages in their replacement job. Indeed, the wage loss from involuntary job change often lasts for many years, if not the rest of the working life.
Small firms in the private sector were found to by systematically linked with low propensities for wage gains for their low wage workers.
The conditions that are conducive to wage growth for a low wage worker, in their current job, are employment in a large, profitable, low turnover firm that operates in industries other than retail, hospitality or personal services. Public sector employment is in most cases a relatively high wage employer of low skill people and provides relatively large amounts of on the job training.
The circumstances facing low skill workers, especially in the main English-speaking countries, has become increasingly challenging in the past three decades. The best evidence to date concludes that technological change, which has probably accelerated, has particularly favoured high skill workers (ie, those with high levels of formal education and workforce experience). It has also favoured particular personal attributes, such as cognitive ability and interpersonal skills, that are not readily acquired. These impacts of technological change on the shape of the demand for skills has been reinforced by increased international integration of the economy and changes in the pattern of demand away from manufactured goods towards services. The protections provided to lower paid workers through unions, regulated conditions of employment and high levels of public sector employment have been diminished by sustained public policy actions, especially in the English-speaking world. The shift towards services (which cannot be stored) and the increased levels of competition in product markets have caused firms to move more towards part-time, casual and contract (just-in-time) labour. Workers employed on such terms systematically receive less on the job training than do full-time permanent workers, for easily understood reasons.
People have responded to the increased premium for skills by acquiring ever-increasing levels of formal education. One likely consequence is that the group who do not follow this path is increasingly perceived to be of low quality. The absence of much education is easily taken to indicate poor employability. Why would a person “choose” not to go on with their education unless there was something seriously wrong with them?
Changes in the structure of industry in the turbulent decades since the early 1970s have led to the obsolescence of skills for workers in the declining industries. One clear example is men working in manufacturing. Strong evidence was cited that showed that job loss in these circumstances results in large losses in wages that endure for many years, if it is possible to find a job at all. The rising withdrawal of adult men from the labour force suggests that many do not find another job. The industries that have been growing in this structural change (retail, hospitality, personal services) are ones that offer relatively little on the job training and career paths.
Overall, the economic dynamics of recent decades have provided exciting opportunities for able, well-educated workers from favourable family backgrounds. But they have made it harder for less able, low-education workers from unfavourable family backgrounds to identify and follow pathways to satisfactory employment. Many face insecure, part-time, low paid employment in small firms that offer little skills development.
