Paul Osterman is a Nanyang Technological University Professor and a Professor of Human Resources and Management at MIT Sloan Institute for Work and Employment Research. He also serves as the co-director of the MIT Sloan Institute for Work and Employment Research. In the lead-up to “Finding Steady Ground: A Conversation on Work and Wealth,” he spoke with Maureen Conway, vice president for policy programs and executive director of the Economic Opportunities Program at the Aspen Institute.
Maureen Conway: When it comes to the challenges facing working people today, we hear lots of discussion of the decline in manufacturing, stagnant wages, the advance of technology, and a highly debated “skills gap” between the skills workers have and those that firms need. You’ve researched the trends shaping labor markets—what are the greatest challenges facing working people today? And what do we know about ways to address these challenges?
Paul Osterman: My fundamental concern is that far too many people work in low-wage jobs. Roughly a quarter of working adults are in jobs that pay poverty-level or near-poverty-level wages. The overarching goal should be to shrink the scope of this low-wage labor market.
Accomplishing this requires helping low-wage workers get better access to existing good jobs and increasing the number and proportion of high quality jobs available. Most policy in the past has focused on the access question, and we have learned a good deal about what kind of training and human capital development works to connect low-wage workers to good jobs.
The question of how to increase the relative proportion of high quality jobs available has not gotten equal attention but is also central. Imagine everyone suddenly had at least a community college degree. The jobs that offer low wages – which are prevalent in industries like retail and restaurants, but also exist in large numbers in healthcare, manufacturing, and virtually every other industry sector – would not disappear. We need to think about how to encourage firms to improve job quality.
One way to improve job quality is when employees have power.
Since you have spent quite a bit of time studying businesses and human resource practices, what’s your view on how business practices have changed over the past few decades and the role those changes have played in the prevalence of low-quality jobs?
There are a range of reasons that explain the prevalence of low quality jobs. In some cases, firms are simply squeezing their workforce, taking advantage of a weak job market or the ready availability of workers in weak positions to drive down wages. But simple greed is not the main story; there are other subtler forces at play.
The management idea of “core competency,” which encourages companies to focus on the resources and skills that distinguish them from others, has led many firms to sub-contract work. This creates a situation in which the contractors compete by seeking to drive down price, hence drive down wages.
Additionally, in many industries price competition is fierce, and firms find it hard to see an alternative path to success other than reducing variable labor costs, such as the cost of hourly workers. And we have yet to understand how best to think about and regulate emerging forms of employment, ranging from independent contractors to so called “gig” employees.
The challenges in the labor market are unequal in their impact across demographic groups. How would you characterize these disparate impacts, and what does this tell us about the nature of inequality in the US today?
One way to improve job quality is when employees have power. That power can flow from high skills, from tight labor supply that leads firms to bid for their services, or from various forms of worker organization and voice. It follows then that when groups vary in their power those with less will find themselves in worse jobs. This way of thinking helps explain why many immigrants and many people of color find themselves trapped in the low wage job market.
What ideas to address these challenges of inequality strike you as most promising, and are there any places where an approach or policy has been implemented that you would cite as particularly hopeful?
When it comes to skill training and access, we have a good idea of what to do. The main ideas are to expand the scope of so-called labor market intermediaries or sectoral programs that work with both employers and (potential) employees to place people in better jobs or to create job ladders. We also know that providing community colleges with resources and funding can improve human capital and job access. The challenge is finding someone willing and able to fund and support these initiatives.
When it comes to working with employers, we are on less sure ground. Enforcing and modernizing employment regulation is certainly important but only establishes a floor. Ensuring that public sector workers and government contractors are “high road” would be a step in the right direction. Using some combination of the bully-pulpit and technical assistance to encourage the adoption of the kind of team systems and employee involvement that leads to better jobs would be useful.
It would also be worthwhile to think about how to change the incentives and constraints that Wall Street places on firms that would like to invest in their human resources. Finally, on an industry-by-industry basis, we need a deeper understanding of the competitive pressures and incentives that firms face. And with this in hand, we need a way to think about how to make it in the interest of firms to upgrade their workforce. I have undertaken this exercise when it comes to long-term care, and I think in general we need a more sophisticated understanding of the challenges employers face when it comes to upgrading their workforce.