14 Policies for wage mobility
The following picture of wage mobility for low wage workers has emerged from this review of the literature.
Low wage workers are a heterogeneous group, though they are likely to have relatively low levels of formal education. Their best chance of getting a higher wage is to move from a low paid job to a better job. Better jobs are most frequently found in expanding industries, in the public sector and with large employers. They may do this directly by moving to a job that is a better match with their abilities and interests. Or they could, if their current job/employer makes this possible, learn new skills in their current job. If their current job does not provide an opportunity for skills development (and many low wage jobs do not), then their only prospect for improvement is through taking formal courses off the job.
There are several policies that could improve the prospects for wage mobility of low wage workers.
First, young, reasonably educated workers are very likely to be able to manage their own path upward, using a combination of formal job search, personal networks and on and off the job skills development. The more educated they are, the more employers are likely to invest in their further skills development. Therefore, scarce policy and revenue resources should probably be focussed on other groups within the low wage workforce. The two main ones are youth with low levels of formal education, and older workers, especially sole mothers and displaced workers.
There is a dilemma, or perhaps an opportunity, for policy, that arises from the link between job mobility and firm-provided training. On the one hand, the empirical evidence is that low wage workers are most likely to obtain a wage increase by moving voluntarily to another job - indeed, to another industry. On the other hand, high levels of quits inhibit firms from providing on-the-job training.
Policy to facilitate high levels of job mobility will benefit those low wage workers able to move to higher paying jobs. However, it will reduce the opportunities for low wage workers to acquire higher skills from their current employer. In brief, a high mobility policy will encourage wage mobility through more efficient job matching. But it will discourage wage mobility through increased skills learned on the job. This suggests that if a high mobility policy strategy is pursued, careful attention should be paid to the provision of financial or other incentives to firms to provide training for their lower skilled workers. Alternatively, if firm-provided training is encouraged by policies that diminish worker turnover, then ways to obtain the benefits of effective job matching must be devised.
Firms left to themselves are unlikely to provide satisfactory levels of training for low education youth (recall (a) Freeman’s conclusion that “considerable institutional structure is needed to induce firms to provide training to workers.” (1995: 7)) and (b) that 70% of people in the US with less than high school education experienced a fall in their real wage if they stayed in the same job (Gottschalk (2001)). Further, such youth are not very likely to benefit from off-the-job classroom instruction, since they have already signaled that formal classroom education is not a good environment for them. Unemployment and non-employment for this group is clearly damaging to their future prospects. This suggests that low education young people need to be provided with jobs that contain real skills development. This could be achieved through inducements to firms to provide employment in jobs that have scope for learning, and supervision and encouragement to learn. Larger firms are probably better in this regard than smaller ones, especially if they are in growing industries. Policy must confront the fact that most low wage jobs are with small employers, and small employers systematically provide less on the job training than do large employers. Learning could usefully be complemented with related off-the-job instruction. One advantage of some instruction off the job is that it will be less firm-specific and hence will contribute to wage mobility through facilitating movement to another job. There is an argument for some apprentice type arrangement, whereby both the firm and the employee have obligations and contribute to the cost of the skills development—the employee via accepting a lower wage. The main drawback of relying on firms for skills development is that both the employment side and the learning side of the arrangement must be satisfactory to both parties in order to obtain the desired outcome. It is likely to be beneficial to have mediators who assist in keeping both sides of the relationship running smoothly. In the US there are signs of the emergence of private “career managers” who take on the role of mediator and put together job and training packages for individuals (for a fee): (see Zemsky, 1998). Off-the-job components of the training package could be privately supplied, but this may make them beyond the reach of low wage workers who are already accepting a training wage. There is a strong case for public subsidy, and perhaps provision, of such training. There could be scope for an income-contingent fee, if the costs of the training are large enough to justify the administrative costs. It may also be necessary to work through many channels to develop a culture within firms of training and support for low education youth.
The strategy for young people may be suitable also for older low wage workers. With the older workers, however, the disenchantment with the formal education system may be more muted. This would make the conventional route to higher wages, via formal education qualifications, a complementary strategy. The policy issue is how to finance the time out necessary for study. Adult time is more expensive than youth time, in part because adults are likely to have obligations to children and perhaps to a mortgage. Flexible delivery of courses provides an opportunity for adults to learn at times of the week where their time has least alternative value.
In the end, training and learning is beneficial only if there are jobs available that will use the newly acquired skills. The decisions that firms make about the skill mix and turnover properties they look for in their workforces has immense social significance. It is clear from theory and from the US and UK experiences, that left to themselves many firms will adopt the low wage, low training, high turnover strategy. Recall that about 15% of high education workers in the Netherlands, Germany, France and the UK had low wages: further evidence that supply does not necessarily generate its own demand. The outcome is high levels of wage inequality and of poverty, and low prospects for upward wage mobility among many, especially older, low wage workers. A skills development strategy on the supply side needs to be matched with policies to induce firms to recognise the social interest in the quality and character of jobs on offer. This may need to be complemented by some form of job creation subsidies and job destruction taxes.
The evidence from the psychologists that identifiable groups of people are most at risk of being stuck in a pattern of low wage/no wage jobs provides an opportunity for positive public policy. Clearly, governments cannot ensure that all people reach adulthood confident, motivated, intelligent, highly educated and with good peer relationships. But it can recognise that the prospects of being able to carve out an adequate adult work life for oneself vary a great deal and that some at least of that variation is not reasonably seen as self-inflicted. One response could be to offer intensive assistance to people who come from the most unpropitious backgrounds. This is in contrast to a welfare system that treats everyone equally. The Jobs Network in Australia provides an example of how such a mechanism for intensive assistance might work. There, private employment agencies are paid a capitation fee by the Government for each unemployed person for whom they find a job. The capitation fee is varied, depending on the assessed difficulty of finding a job for such a person. People who are assessed to be particularly difficult to employ (such as the long-term unemployed) carry the greatest capitation fee, and a requirement that they be given intensive assistance before the fee will be paid.
A second response could be to provide particular support for the transition from school to work for young people who face unpromising prospects. The transition from school to work is reasonably smooth for the majority of young people. But in an increasingly complex world, it is a difficult and sometimes unsuccessful project for some. Tailored assistance in finding and keeping work, and finding and completing relevant training, could be targeted to those whom the research shows are likely to have the greatest difficulty in managing the transition on their own.
