Low-Wage Work in the Wealthy World

CHAPTER 4: The Impact of Institutions on the Supply Side of the Low-Wage Labor Market

CHAPTER 4 The Impact of Institutions on the Supply Side of the Low-Wage Labor Market Jérôme Gautié, Niels Westergaard-Nielsen, and John Schmitt, with Ken Mayhew The previous chapter focused on the impact of institutions on wage setting across firms and sectors, with an eye toward the impact of these factors on the industry- and economy-wide share of low-wage work. That chapter identified the degree of inclusiveness or exclusiveness of the national pay-setting institutions and the possibility for firms to opt out of these institutions as the key factors driving cross-national differences in the share of low-wage work. In this chapter, we turn our attention to the supply side of the lowwage labor market. In crude terms, if the bargaining and regulatory structures analyzed in the preceding chapter are the primary determinants of the quantity of low-wage work, we find that the various institutions affecting labor supply play a large role in shaping the composition of low-wage work, which in most of our countries is disproportionately made up of women, young people, older workers, less-educated workers, and immigrants.1 If firms are to pay low wages to a portion of workers, they must have access to a pool of workers who are willing to work for low wages. In our six countries, the pool of low-wage workers consistently has three separate (frequently overlapping) features. The first is low levels of skills relative to the typical national worker. In most of our countries, low-wage work is heavily concentrated among lesseducated (and less-trained) workers, younger workers with the least amount of on-the-job experience, and less-skilled immigrants.2 The second feature of the pool of low-wage workers is that these workers can count on little or no financial support when they are not in work. Sometimes this lack of nonwork income reflects national policy— such as in the United States, which offers little or no support to out147 of-work workers and their families. Sometimes the low level of nonwork income is related to income support policies originally designed to support full-time male workers with long job histories; these policies tend to work against younger workers and women, who typically have less labor market experience and who tend to move in and out of the labor market too frequently to qualify for important forms of income support. Finally, the pool of low-wage workers also includes many workers—overwhelmingly women—who have substantial responsibility for child care and elder care. Women workers, whose responsibilities reduce their bargaining power relative to employers, frequently trade fewer hours or more flexible schedules for lower pay as part of a strategy to balance their market and nonmarket work responsibilities . The chapter begins by showing that the difference in the incidence of low-wage work across countries cannot be explained by a simple market-driven supply-side story. Across our countries, for example, no simple correlation holds between the national share of low-wage work and either the share of less-educated workers or the size of the national immigrant population. The next section presents the wide range of institutions that affect the labor supply decisions of vulnerable and potentially low-wage workers (women, younger workers, older workers, and immigrants); the income tax system, child care benefits, systems of student grants, and early retirement schemes are only a few examples. Differences across our six countries in these institutions explain part of the difference in both the overall incidence and the national composition of low-wage work. The following section analyzes the incentives and pressures on the unemployed to take low-wage jobs, taking into account both active and passive labor market policies as well as other forms of in- or out-of-work benefits. THE SHARE OF LOW-SKILLED AND IMMIGRANTS AND THE INCIDENCE OF LOW PAY EDUCATION, TRAINING, AND THE SUPPLY OF LOW-SKILLED WORK In the individual-level logistic regression analyses for all six countries in our study reported in chapter 2, we found that less-skilled 148 Low-Wage Work in the Wealthy World workers have a higher probability of being in low-wage employment than do skilled or highly educated workers. Using national-level data, however, we found no evidence of a correlation between the size of the less-skilled labor force and the share of workers on low...