Old Assumptions, New Realities: Ensuring Economic Security for Working Families in the 21st Century

4. Creating Opportunity at the Bottom: The Role of Skill Development and Firm-Level Policies in Improving Outcomes for Low-Wage Employees

CHAPTER CREATING OPPORTUNITY AT THE BOTTOM: THE ROLE OF SKILL DEVELOPMENT AND FIRM-LEVEL POLICIES IN IMPROVING OUTCOMES FOR LOW-WAGE EMPLOYEES PAUL OSTERMAN In the past several decades the American labor market has gone through a remarkable number of changes. The nature of the employment relationship has evolved as firms have reduced the types of commitments they are willing to make to their employees and, as part of this reconsideration, introduced new employment arrangements such as contingent employment systems and contract employment. New threats have arisen as employers outsource jobs throughout the globe. The channels for employee voice have narrowed as unions have lost strength. The characteristics of the workforce have changed as immigration surged. At the same time, much work has been transformed in positive directions as jobs have become broader and more complex and as the demand for skill has grown. At the same time that these long-run shifts have taken place, the job market also experienced the shock of the Great Recession. The painfully high unemployment and underemployment focused American’s attention on the labor market. Data from recent downturns show that the consequences of job loss are severe. Among workers with a high school diploma, 103 4 104 Old Assumptions, New Realities only 54 percent reported themselves reemployed, and for workers with a college degree the rate was still only 71 percent. Reemployment itself does not make employees whole. Thirteen percent of those losing full-time jobs were reemployed in part-time work, and among those who did manage to find new full-time work the average wage loss was 11 percent for high school workers and 13 percent for those with college (Farber 2005). The evidence is that these earning losses persist (Kletzer 1998). At the same time, the shock and pain associated with the Great Recession may have diverted attention away from the ongoing and important issue of job quality, the topic of this chapter. While the labor market has shifted in important ways, the fraction of employees who find themselves trapped in low-wage work or in insecure employment has remained high. This chapter emphasizes policies aimed at the low-wage labor market but will make the case that executing them will require efforts to connect the traditional second-chance system both to employers and to efforts to aid workers in higher reaches of the job market. The broad argument made here is that there is a mismatch between the labor-market institutions that were created after World War II and that persist today and the new realities of the job market. I begin by describing the contours of these precarious labor markets, and I will then show that our policy regime has not caught up to the shifts in the job market. In the second half of the chapter I will offer some suggestions for moving forward. THE CHALLENGES WE FACE We face two broad challenges in the job market. The first is that despite decades of effort the low-wage labor market is large, and many adults are trapped in it. Second, in recent years the job market has become riskier and more volatile even for those higher up the ladder (see Hacker, this volume, chapter 2). In 2007, 24 percent of adults earned less than two thirds of the median wage, or about $11 an hour. The figure was 30 percent less for women and 19 percent less for men. These percentages of workers that are making what is essentially a poverty wage are strikingly high.1 Furthermore, adults in low-wage employment are often trapped. Among low earners in six years starting in the early 1990s, only 27 percent raised their incomes enough to rise consistently above the poverty line for a family of four (Holzer 2004). A more recent study using the Panel Survey on Income Dynamics comes to a similar conclusion (Theodos and Bednarzik 2006). Creating Opportunity at the Bottom 105 Who are the people whose earnings fall below our $11-per-hour standard, and where do they work? Answering these questions will help us think about policy and how to meet the challenges. Table 4.1 provides some initial clues. It is not surprising to learn that women and nonwhites face a greater likelihood than white men of holding a below-standard job, since these are the groups that have long faced discrimination in the job market and difficulty in penetrating into...