Winners and Losers in the "Hourglass" Labour Market

1. Room at the top – and the bottom, too: the winners and losers in the "hourglass" labour market Craig Holmes and Ken Mayhew Education and Employers Taskforce research conference 2011, Warwick University, October 12th 2011

2. Introduction • The idea that there has been a growth in high-wage, high-skill jobs in the UK has been an attractive one for policymakers: “There is…evidence that the demand for skilled workers is currently outstripping supply, which suggests there is 'room at the top' for highly qualified graduates from all backgrounds.” (HM Government, 2011, p. 11) • However, there is debate about the cause of this: • Technology, particularly ICT capital, is a key factor • Jobs may be complementary or substitutable with technical innovation

3. Introduction • Two views: • Skill-biased technical change • Computer capital take-up increases firm demand for skilled workers and replaces unskilled workers • Routinisation hypothesis (Autor, Levy and Murnane, 2003): • Computer capital replaces tasks, not skills • Labour employed in routine tasks can be swapped for technology • Occupations performing non-routine tasks grow • Polarisation hypothesis (Goos and Manning, 2007) • Routine occupations found in middle of income distribution • Non-routine occupations found at top and bottom of distribution

4. Introduction • The full implications of a polarised (or ‘hourglass’) labour market for mobility have generally been ignored: • Focus is on the ‘room at the top’. • Opportunities to progress providing individuals have the right skills (increasingly, graduate qualifications) • Little said about the inevitable ‘room at the bottom’ • Crawford et al (2011): “attempting to move individuals from the bottom to the middle of the skill/income distribution may be harder, as there are fewer jobs in the middle”  Solution: increase supply of skilled workers, so that firms are encouraged to upskill low-wage jobs

5. Introduction • The hourglass labour market does not solely create opportunities and “winners” • Three groups of potential “losers”: • Those displaced from routine jobs • New entrants who would previously have gone into routine jobs • Those in low wage jobs • Evidence that polarisation is more obvious in occupations than in wages  Are the apparent “winners” actually winning much?

6. Data • National Child Development Study (NCDS) • Members all born in a single week in March 1958 • Use waves 1981, 1991, 1999-2000, 2004-5 • Data covers age 23 to age 46-7 • N = 10-12,000 in each wave • British Cohort Study (BCS) • Members all born in a single week in April 1970. • Use waves 1996, 1999, 2004, 2008 • Data covers age 25 to age 38 • N = 9,000 in each wave

7. Data • Occupations coded in KOS (1981) SOC90 (1991, 1999) and SOC2000 (2004). • Manually converted to SOC2000 based on occupation descriptions • Reduced to 3 digit coding to reduce dropped observations • Occupations placed into one of six groups: • Professional, managerial, intermediate, routine, service, manual non-routine • Allocation based on description, wages and wider economy employment changes • Managerial and intermediate are both higher skill, non-routine occupations without high qualification entry requirements • Manual non-routine and service are both low skill non-routine occupations.

8. Methodology • Displaced workers: • Logit model for transitions between occupational groups over 5-year periods (using NCDS 1981-2004) • Career moves separated out displacement using measure of decline in routine jobs across whole economy • Effect of displacement interacted with qualifications • New entrants • Logit model on occupational group at start of data, across both cohorts • Effects of qualifications, cohort and interactions

9. Methodology • Occupational mobility and wages • Wage deciles in destination occupational groups (NCDS: 1991, 1999 and 2004) • OLS regression of decile on educational attainment and occupation at start of period

10. Results: displaced workers • Career effects separated from displacement • Some qualifications increase mobility from routine jobs to intermediate, managerial and professional occupations • Vocational qualifications below level 4 have little effect • Academic qualifications at level 3 do not improve mobility over level 2 • Experience in routine jobs decreases mobility • Age • Decline in routine jobs increases transitions both upwards and, to an extent, downwards • Effects are mitigated by qualification levels

11. Results: displaced workers

12. Results: early employment • Younger cohort early employment patterns changed: • Less likely to go into routine occupations, holding everything else constant • More likely to go into service occupation; no effect on probability of going into managerial position • Qualifications decrease probability of going into routine and service occupations • Younger cohort more qualified • However: • Share of younger cohort going into routine jobs has not fallen in proportion with total number of jobs • Qualification levels have no effect on which younger cohort workers go into routine jobs

13. Results: mobility and earnings • Workers moving to higher wage non-routine occupations earn less if they come from routine or service occupations (after controlling for educational differences)

14. Conclusion • The development of an ‘hourglass’ labour market has lead to upward occupational mobility • However, it has also generated some downward mobility and led to worse outcomes for new entrants • The role of qualifications is mixed: • More qualified are more upwardly mobile, but not less downwardly mobile. • Qualifications have few effects for displaced workers • More qualified enter the labour market in better jobs, but not by as much as expected

15. Conclusion • Both suggest there are non-human capital barriers to mobility • There is a difference between wages and occupations when it comes to determining winners • Those moving to apparently good non-routine jobs earn less if they came from routine or service occupations • May reflect differences in unobserved skills (i.e. not reflected in qualifications) • May also reflect job design

16. Contact Details Craig Holmes ESRC Centre on Skills, Knowledge and Organisational Performance (SKOPE), Department of Education, Norham Gardens, Oxford Email: craig.holmes@education.ox.ac.uk