A big bravo to Fredrik Andersson, Harry Holzer, and Julia Lane, for their book Moving Up or Moving On: Who Advances in the Low-Wage Labor Market, published by the Russell Sage Foundation. This book is among the few data-driven and market-oriented approaches to understanding the dynamics of the low-wage labor market, how workers most frequently transition out of low wages, and what sorts of policies would best encourage this same trajectory for low-wage workers overall. The findings support a “work-first” approach (which they note is facilitated by temp agencies) and explicitly highlight the need for more efficient means of matching low-wage workers to better firms and jobs.
Three Ingredients to Improving the Returns to Low-Wage Labor: Early Work Accumulation, Job Switching, and Identifying ‘Good Jobs’
Early Work Accumulation: Despite the criticism of temp agencies as a dead- end for welfare-to-work participants following 1996 welfare reform, the authors found that low-wage earners working through temp agencies did experience increased earnings in subsequent positions, even if wages earned through the temp agencies were low. Specifically, initially working for a temp agency was found to increase subsequent earnings by 6 to 10 percent (1). The authors note the importance of labor market intermediaries – temp agencies, non-profit placement organizations, etc. – in improving the quality of ‘matches’ between employers and employees by overcoming informational, geographic and attitudinal barriers(2). Further, they argue that this improved matching does not merely place some workers in good jobs while displacing others (assuming a world with a finite number of ‘good jobs’), but actually helps increase the overall supply of ‘good jobs’ by reducing employers’ costs associated with hiring and managing employees.
Job Switching: As discussed in a prior blog, the authors reveal the importance of job switching for low-wage earners looking to improve wages, noting that low-wage workers have a much better chance of increasing wages by changing companies than they do by staying with the same company and waiting for wage growth via tenure. A first job, according to this theory, provides a signal to other employers that the employee is work-ready and has the basic skills required by a particular position. What then becomes critical is this employee’s ability to market herself to another employer who is willing to pay more for her services.
Identifying ‘Good Jobs’: The authors find that economic benefits to job-switching are possible because wages and compensation policies differ significantly among firms, even firms within the same industry. What is illogical on the macro level (why would a firm pay more for the same labor?) has played out on the firm level (think Wal-Mart versus Whole Foods) as employers take a more self-enlightened approach to the costs of turnover, training, sick days, poor morale, etc. For a low-wage worker, this means that she may be compensated significantly higher by a different employer for doing exactly the same job she is already doing, if only she could easily locate that employer. The authors find that obtaining one of these ‘good jobs’ (jobs that pay higher wages and frequently offer more on-the-job training and paths for advancement) is the single most important factor in a worker’s ability to transition out of low-wages (3).
The positive effects of providing improved market data as to how firms compensate their low-wage workers are many. If firms that pay wage premia relative to competitors were systematically recognized and rewarded with the best employees (and consequently with lower turnover and HR costs), it is reasonable to assume that more firms would pay higher wages. Additionally, those workers in low-wage positions would have a transparent and much-widened path for advancement as they move across firms, not just within a firm. Finally, workforce development practitioners could begin to distill which employee attributes make low-wage workers most successful in obtaining and retaining ‘good jobs’, thereby dramatically improving the costly (and frequently ineffective) education and training programs currently provided to the hard-to-employ.
(1) Andersson, Fredrik and Harry Holzer and Julia Lane, Moving Up or Moving On: Who Advances in the Low-Wage Labor Market? (New York: Russell Sage Foundation, 2005), p. 100.
(2) Ibid, p. 145.
(3) Ibid, p. 105.
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