Bad Jobs Make Bad Times Worse

America confronts a jobs crisis that has two faces. The first face is obvious and greets us every morning when we read the newspapers or talk with our friends and neighbors. There is simply not enough work to go around. Following the financial crisis and the Great Recession unemployment has remained stubbornly high with devastating consequences.

The second jobs crisis is more subtle but no less serious. Far too many jobs fall below the standard that most Americans would consider decent work. Last year 19.7 percent of working adults held jobs that would put a family of four below the poverty line even if they worked full time and full year. These people work in factories and hotels, in restaurants and hospitals, on construction sites and in day care centers. The problem spans all races and ethnic groups and includes large numbers of native born Americans as well as immigrants.

Why are there so many bad jobs? The key explanation is that working Americans have not shared in benefits of economic growth. In 2000 the median wage of adult workers was (in 2010 dollars) $17.41 and by 2010 it had barely grown to $17.60. During this same period the annual increase of productivity was over 2.5 percent. Who benefited from this growth? Between 1993 and 2008 the top 1 percent captured 52 percent of all new income in the economy. This is not just a story about dividends and stocks: the share of earnings captured by the top 1 percent nearly doubled.

Pressures also come directly from employers. Over the past several decades, firms have developed a tool kit of strategies aimed at lowering compensation and benefits. Outsourcing is just one tactic. Another is keeping employees at less than full-time status to avoid paying benefits. Aggressive union avoidance is yet another. Instead of investing in training frontline employees and creating career paths, many companies rely on a high-turnover employment model. Finally, research finds that employers often fail to comply with a host of labor laws that set standards in the workplace, ignoring rules that guarantee a minimum wage and overtime pay, as well as misclassifying workers and, in the most egregious cases, cheating workers out of pay by forcing them to work off the clock or not paying them at all (a practice known as “wage theft.”)

It is tempting to view employers simply as the enemy of good jobs and to demonize them. Some firms, it must be said, view employment law violations as just another smart business practice. However, most employers frequently feel that they have little choice but to squeeze their employees, even if they hate doing so. In an effort to survive and grow, many companies today are under tremendous competitive stress and pressure from financial markets -- and look for the path of least resistance. Unfortunately, this has often involved pushing labor costs down as far as possible.

Ironically, there is solid evidence that when employees are paid better and given more opportunities within a company, they respond in ways that help offset the additional costs. For example, when employers at the San Francisco Airport were compelled by a living wage ordinance to increase pay, turnover went down and productivity went up. But companies lack incentives to shift their policies and, in today’s volatile economy, are too risk averse to experiment.

This is where public policy could help. Americans have long believed that there should be a floor below which job quality does not fall. People understand that the market for labor is not like the market for commodities, and there is widespread support for upgrading standards. Indeed, since 2006, six states have moved forward ballot initiatives to raise the minimum wage, including supposed conservative states such as Montana and Arizona. All of these were passed. In addition, living wage ordinances have been enacted in a number of municipalities that mandate that government contractors pay wages above the minimum wage. Laws to prevent wage theft have also been passed in several places, most recently New York State.

While new laws can help raise labor standards, more vigorous enforcement of existing laws is equally important. Since 2009, the U.S. Department of Labor has stepped up efforts to enforce rules on how workers are classified, as well as laws governing overtime, the minimum wage, and protections guaranteed by the Family and Medical Leave Act. But DOL still lacks the capacity to fully enforce the nation’s labor laws and new resources are needed in this area.

Employment standards do not just raise the floor; they also provide incentives to firms to upgrade their employment practices in order to reap productivity gains that help offset their additional costs. Of course, standards need to be thoughtful. They should be designed to be transparent and not overly burdensome on firms.

Good public policy should not only focus on standards, but also on helping firms improve their policies. We now have substantial experience with effective programs, often termed “intermediaries,” that help firms increase the training they provide employees and create career paths for them. By upgrading workers’ skills, productivity gains can be attained that justify better wages and benefits.  An example is the work of Jewish Vocational Services in Boston that works with hospitals to build career ladders for low wage employees for example helping kitchen employees move into medical technician positions. In the hospitality industry, intermediaries help room cleaners and kitchen workers move into better paying restaurant and banquet serving jobs.

It is also important to improve skills and the key institution is the community college system. There are nearly 1,200 community colleges in America. These are two year institutions that offer Associate Degrees as well as shorter occupational certificates and non-degree programs. Over 7 million students enroll each year in degree and certificate programs and millions more are in non-degree courses, many of which are vocational in nature. These 7 million students account for about 45 percent of all post-secondary degree enrollment. Forty percent of community college students are over 24 years old and 60 percent are attending part-time while also employed and both statistics underline the vocational training slant of the institutions. Thirty percent of students are African-American or Hispanic and 40 percent are first generation college students. The rates of return to degree or certification completion are very respectable but the main challenge of community colleges, and the issue that has become central in the public policy discussion, is the high drop-out rate. One big reason for high drop-out rates is that too many community college students need to work to put themselves through school. More government assistance is needed to allow these students to work less and study more.

There is a public constituency for raising the floor for decent work and helping Americans  build better skills. The success of minimum wage ballot measures around the country demonstrates this extends into the voting booth. A set of tested policies, from more effective employment standards to training and career ladders, could make a real difference. What is needed next is a level of political leadership to translate more of this public sentiment into concrete action.

****

Paul Osterman, NTU Professor at the MIT Sloan School of Management, is the co-author, with the late Beth Shulman, of the forthcoming book Goods Jobs America: Making Work Better for Everyone (Russell Sage Foundation, September 2011).

This post is part of Demos' "America Can Work Better" Week.