Job polarisation in the UK: An assessment and implications for skills policy

1. Job polarisation in the UK: An assessment and implications for skills policy Ken Mayhew and Craig Holmes ESRC Centre on Skills, Knowledge and Organisational Performance, University of Oxford

2. SKOPE research programme on segmentation • Labour market segmentation: • the division of the labour market into submarkets between which mobility is severely limited. • Most commonly seen as a dual market • Individuals may become trapped in the ‘wrong segment’. • Initial literature in 1960s and 1970s found only limited empirical support • Polarisation: • the alleged growth in employment at the top and bottom of labour market, and hollowing-out of the middle • Could lead to a form of segmentation

3. Directions of research • Assessment of polarisation evidence • Existing approaches and methodological criticism • New approaches – explaining changing wage distributions • Wage and occupational mobility resulting from routinisation • Destinations of displaced routine occupation workers • Experience of new entrants compared to existing workers – are new entrants more polarised? • Role of skills in both cases • Implications for a updated theory of labour market segmentation

4. Directions of research • Assessment of polarisation evidence • Existing approaches and methodological criticism • New approaches – explaining changing wage distributions • Wage and occupational mobility resulting from routinisation • Destinations of displaced routine occupation workers • Experience of new entrants compared to existing workers – are new entrants more polarised? • Role of skills in both cases • Implications for a updated theory of labour market segmentation

5. Directions of research • Assessment of polarisation evidence • Existing approaches and methodological criticism • New approaches – explaining changing wage distributions • Holmes (2010), SKOPE research paper • Looking at wage distributions reveals little hollowing-out • However, evidence of routinisation-led employment changes exists • Explanation: existing evidence make strong assumptions about wage structure over last thirty years, linking employment effects to polarisation

6. Job polarisation in the UK • Polarisation hypothesis (Goos and Manning 2007): • Price of computer capital has fallen since late 1970s • Computer capital replaces labour engaged in routine tasks • Non-routine tasks may be complementary to computer capital (e.g. management, skilled professionals) • Result: growth in non-routine occupations due to changes in demand (complementarities) and supply (displaced routine workers) • Routine occupations found in middle of income distribution • Non-routine occupations found at top and bottom of distribution • Managers, skilled professionals at the top • Non-routine ‘service’ occupations at the bottom e.g. hairdressers, cleaners

7. Job polarisation in the UK • Existing evidence of polarisation: • UK: Goos and Manning – increased employment share in lowest and highest job quality deciles, decrease in middle quality deciles • Similar results found for US (Autor, Katz and Kearney; 2006) and Germany (Spitz-Oener; 2006) • Deciles determined by initial median wage (UK, USA) or median skill index (Germany) • Key assumption: wage or skill structure of occupations has remained reasonably static.

8. Assessment of polarisation: data • National Child Development Survey • All participants born in a single week in March 1958 • Waves four (1981, aged 23) and seven (2004, aged 46) used • KOS occupational codes in 1981 converted to SOC2000 • Conversion based on descriptions • In some cases a category in SOC2000 could apply to several categories under KOS – these were omitted • Omissions account for 12.4% of data at 3-digit level (occupational minor group, 70 categories)

9. Assessment of polarisation: issues • Longitudinal study rather than cross sectional data • Interested in effect on mobility of polarisation – need to find evidence of polarisation within a single cohort • Replication of wage distribution analysis for cross sectional data: • Family Expenditure Survey (1981-2000) – annexe to Holmes (2010) • New Earnings Survey (1986-2009) • Longitudinal study exhibits evidence of routinisation-led employment shifts  Why does this not lead to polarising wage distributions? • Main criticism is methodological and is not specific to a single cohort dataset

10. Results: occupational structure • Change in employment share of each of the ten wage deciles. • It shows that the initially highest and lowest paid occupations grew more than the middle earning occupations. • Replicates the Goos and Manning methodology for our NCDS dataset. This is consistent with routinisation.

11. Results: wage distributions • Resulting wage distributions are important • Absent of other effects, a polarising labour force should be observed as in the diagram below

12. Results: wage distributions • Changing distributions from NCDS cohort (hourly and weekly, full-time workers):

13. Results: wage distributions • Econometric methods for analysing changes accurately • Descriptive method (see Holmes, 2010) – change in employment at each (log) wage percentile • Polarisation illustrative example:

14. Results: wage distributions

15. Results: wage distributions • Possible explanation: wage structure of occupations has changed significantly • Complicated relationship of supply and demand for occupations • If routine workers were middle skill as well as middle income, those moving to ‘good’ non-routine occupations may earn lower wages than existing averages. • Similarly, those moving ‘down’ may be more productive than existing employees, and earn higher wages • Some declining occupations may have earned a higher than middling wage (e.g. craftsmen) – these workers may move closer to the middle of the earning spectrum •  Creation of a new type of middling job

16. Results: wages and occupational structure • Shows that many low-wage growing occupations moved upwards. Displaced routine workers maintain wage position? • Change in employment share of each of the ten wage deciles – average two wave wage (red) and 1981 wave wage (blue) • Consistent wage structure  U-shaped relationship of Goos and Manning

17. Conclusions • A hollowed-out labour market has • Fewer middle jobs for low wage workers to move into • Increasing competition for those that remain. • Significant upward mobility may either be slower, or require much more difficult and sizeable leaps. • Before embarking on a study of mobility using longitudinal analysis, it is important to understand the ways the polarisation phenomena has or has not manifested within a datasetthat can be used for analysing working life mobility

18. Conclusions • Within the NCDS cohort, employment has risen in occupations with the highest and lowest wages in 1981 • However, wage distributions show little obvious evidence of polarisation • Existing evidence relies on a strong assumption that wage structures have remained constant over the past three decades • Changing wage structures, due to the associated changes in supply and demand of different workers, may have led to a different type of middling occupation

19. Conclusions: further directions • Education and skills policy • The UK government places great emphasis on workplace skill acquisition as a way to improve welfare of bottom end e.g. Train to Gain. • Clearly, evaluations of such a policy is dependent upon understanding the determinants of occupational mobility and the constraints faced by those looking to progress upwards. • Implication for segmentation • Polarisation now seems a less likely mechanism for creating segmented labour markets than we may have though. • However, this process may have created some barriers to mobility

20. Conclusions: further directions • The longitudinal dataset can be used to look at mobility in a labour market affected by routinisation. • Questions: • Who remains in declining occupations? • Where have displaced routine workers moved to? • What are the wage or job quality outcomes of both groups? • There may be a difference across cohorts • Declining occupations are getting older (Autor and Dorn; 2009) • Cohorts differ in skills or qualifications e.g. expansion of HE • Compare findings to later longitudinal studies or cross-sectional data