News
May 22, 2018

Can We Find the Employment High Road in Low-Wage Industries?


Russell Ormiston, an Associate Professor of Economics at Allegheny College, reported on research about the prevalance of illegal labor practices in the U.S. residential construction industry.
 

Many Americans have jobs that don’t pay well. In fact, about 25% of American adults work in “basically poverty-level jobs,” explained Paul Osterman, the NTU Professor of Human Resources and Management at the MIT Sloan School of Management, at a research symposium on job quality that was held at MIT Sloan in April. 

Osterman is leading a research project launched by the Good Companies, Good Jobs Initiative at MIT Sloan and focusing on prospects for improving job quality in a number of industries that employ large numbers of low-wage workers in the U.S.  According to Barbara Dyer, Executive Director of the Good Companies, Good Jobs Initiative and a Senior Lecturer at MIT Sloan, the Initiative seeks to understand how to diffuse employment practices that benefit both organizations and workers—particularly in traditionally low-wage industries, and particularly as those industries are experiencing rapid change. Dyer explained to the symposium attendees that one of the Initiative’s areas of focus is practice-oriented research with findings that have the potential to inform decisions in business, public policy, and philanthropy.

The April symposium was designed to enable the scholars working on the job quality research project to present their initial findings and obtain rigorous feedback from colleagues.  The symposium examined job quality in six industries: retail, restaurants, residential construction, long-term care, manufacturing, and hospitals and outpatient care centers. The presenters considered questions such as the structure of the industry they studied and the incentives that affect job quality—as well as leverage points for potentially improving the quality of the industry’s low-wage jobs.

One thing that was clear from the presentations is that the path to creating better working conditions for frontline employees varies substantially by industry. Here are a few highlights from the speakers’ assessments of each of the six industries:

 

  1. Manufacturing: An Employment High Road Approach is Viable. Susan Helper, the Carlton Professor of Economics at the Weatherhead School of Management at Case Western University, said that in manufacturing there is evidence that certain management practices, especially cross-training, are associated with both greater productivity for the company and higher wages for production employees. One factor, she noted, is that production labor costs in manufacturing frequently represent a comparatively small percentage of overall input costs, with materials often representing a much higher percentage—a combination of circumstances that suggests that firms could benefit if investing in workers’ training and compensation means that the workers handle expensive materials more efficiently.

    Indeed, Helper’s research, conducted with Raphael Martins, found a significant number of manufacturing firms combining capital intensity, work practices associated with high performance (such as cross-training), and above-average wages for the industry.  But, Helper added, one factor that potentially holds smaller manufacturing companies back from creating high-performance workplaces is the firms’ position in the supply chain, because purchasing departments of leading manufacturing firms often focus on piece price. Encouraging lead firms to adopt more collaborative relationships with suppliers, she pointed out, would make it easier for those suppliers to adopt “high-road” employment strategies.
     

  2. Residential Construction: Widespread Poor Treatment. The research team who studied the residential construction industry reported that they were taken aback to discover how widespread illegal labor practices were in U.S. residential construction. “Illegal and exploitative labor practices are rampant in the residential construction industry,” they concluded in their slide presentation.

    While nonresidential construction is heavily unionized and involves highly skilled work, residential construction in the U.S. involves many transient, underfunded firms that are small and nonunionized, explained Russell Ormiston, an Associate Professor of Economics at Allegheny College. According to Ormiston, small residential construction companies have little incentive to train employees, because employees move between firms frequently to obtain work, and larger companies are traditionally not liable for the work of subcontractors. He added that, with limited barriers to entry, small residential construction subcontractors are very price-sensitive and may seek to minimize labor costs however necessary—often through both legal and illegal practices. For example, according to Ormiston, misidentification of employees as independent contractors is common in the industry, as is wage theft and the use of undocumented immigrant workers.
     

  3. Hospitals and Outpatient Care Centers: Moving up the Career Ladder is Possible, But Not Common. Eileen Appelbaum, Co-Director of the Center for Economic and Policy Research and Visiting Professor in the Department of Management at the University of Leicester, described the career prospects for medical assistants and certified nursing assistants who work in hospitals and outpatient care centers in the U.S. She explained that the health care industry provides a range of jobs in skills and pay—so, if we can figure how to facilitate the transitions between job levels, no one should have to remain in a comparatively low-wage health care job forever. However, Appelbaum added, moving from a medical assistant or a certified nursing assistant job to a higher-paying licensed practical nurse (LPN) position requires considerable external training (such as a 12-month program at a community college, as well as a diploma exam); in practice, relatively few medical assistants or CNAs manage to make that transition.

    Appelbaum noted that, in some instances, training centers created as a result of management-union negotiations have had success in helping CNAs move up the health care career ladder. While these centers reach only a fraction of the CNA/medical assistant labor force, the training center model might be replicated.
     

  4. Long-Term Care: Opportunities for Improvement.  Osterman explained that the long-term care sector employs homecare aides and certified nursing assistants—and both are low-wage positions that garner little respect from other medical professionals. One factor that restrains the wages that can be paid for such jobs is Medicaid reimbursement rates; however, Osterman noted, that’s not the whole story, since wages are similarly low for these workers in assisted living and continuing care retirement communities, which are less dependent on Medicaid.

    Osterman made the case that the health care system could benefit by giving these direct care workers opportunities for training to expand their roles and skills. He argued that could save costs by, for example, shifting some work from nurses and avoiding hospital readmissions, and homecare aides could receive a portion of that savings in the form of increased pay. “The power players [in the health care industry] should be interested” in this money-saving opportunity, Osterman argued, but they are not currently focused on it. He noted that there is likely to be a looming shortage of workers in long-term care as the baby boom ages and requires more care.

    “Long-term care is an opportunity awaiting political leadership,” Osterman concluded. “There is an opportunity for a coalition of consumers and workers” to improve job quality in this industry.
     

  5. The Restaurant Industry: Fast-growing Occupations, but Problematic Job Quality. Rosemary Batt, the Alice Hanson Cook Professor of Women and Work at the ILR School at Cornell University, reported on her work with colleagues analyzing jobs in the restaurant industry—an industry in which job growth is among the highest in the country, but wages and benefits are among the lowest. While the quality of jobs improves for workers in higher-priced fine-dining customer segments, most workers are employed in jobs at the bottom—in fast food or moderately priced restaurants.  Job quality is also lower for workers in “back-of-house” jobs such as dishwashing, Batt explained, compared to “front-of-house” jobs where workers can earn tips.  And occupational segregation is a serious concern, with minority and immigrant workers disproportionately stuck in back-of-house jobs.

    In general, Batt reported “the quality of jobs in restaurants is poor,” as workers face problems of chronic understaffing, irregular and unpredictable work hours, unsafe working conditions, discrimination, sexual harassment, and wage and hour law violations. Many workers try to build careers in the industry, and one option is to gain experience in a lower-priced segment and then move to higher-priced segments, where conditions are better. Batt pointed out, however, that there’s little data on job mobility across segments or which workers are able to build their careers by moving across employers.
     

  6. Retail: Some Jobs are Better than Others. Françoise Carré, Research Director at the Center for Social Policy at the University of Massachusetts Boston’s McCormack Graduate School of Policy and Global Studies, reported on research she conducted with UCLA Professor Chris Tilly on retail, a sector that represents 13% of total employment in the U.S. Although Carré said there are some conditions in which retailers generate better jobs than average for the sector, that practice isn’t likely to simply diffuse through the sector. For example, she said, family ownership is associated with better retail jobs, but that is declining while private equity firms are playing an increasing role in retail. And even “better jobs” in retail are often not very good jobs, Carré explained. In most companies, almost all entry-level hiring is part-time, and managers often have only minimal hiring criteria.

    On the policy front, Carré said that raising the minimum wage would improve the quality of retail jobs, since retail workers hold about one-fourth of all minimum wage jobs in the U.S. Another policy change that would have a positive impact on job quality in retail is limiting the “hours arms race” that pressures stores to stay open overnight; this could be done, she proposed, through hours regulations targeted by geographic area and type of store.

    The presenters and their colleagues are continuing their analysis of the six sectors, and their detailed findings and recommendations are slated to appear in a forthcoming book from MIT Press. The book is tentatively titled Shifting to the High Road: Job Quality in Low-Wage Industries.

    ---Martha E. Mangelsdorf

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