Are the winners winning in the hourglass labour market?

Are the winners winning in the hourglass labour market? Craig Holmes and Ken Mayhew 30th International Labour Process Conference, Stockholm University, March 28th 2012

Introduction • Routinisation hypothesis (Autor, Levy and Murnane, 2003): • Computer capital replaces tasks, not skills • Labour employed in routine tasks can be swapped for technology • Non-routine tasks may be complementary to this technology  increase demand • Low skill non-routine jobs will also increase in employment share  increased suppy • Polarisation hypothesis (Goos and Manning, 2007) • Routine occupations found in middle of UK income distribution • Non-routine occupations found at top and bottom of distribution • Similar patterns found in US and across Europe

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) • There will be “winners” providing the labour force has sufficiently high skills • Existing workers: more opportunities for upward mobility • New entrants: better initial employment opportunities

Key points • Wages in growing higher skill non-routine occupational groups increasingly spread out: • 1995-2002: distribution shifted upwards, with long tail • 2002-2008: increased employment in lower wage jobs in these categories • Upward mobility from routine jobs  lower earnings, even after accounting for education/experience differences • New, more qualified labour market entrants not entering these jobs as often as might be expected • Suggests supply of qualified labour has more than met extra demand • Potentially also that routine jobs act as an important entry route

Room at the bottom, too? • The full implications of a polarised (or ‘hourglass’) labour market for mobility have generally been ignored: • Focus is on the ‘room at the top’. • Little said about the inevitable ‘room at the bottom’ • Decline in routine occupations creates additional downward mobility (Holmes and Mayhew, 2011) • Upward mobility from low-wage jobs more difficult “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” Crawford et al (2011):  Solution: increase skills of these workers, so that firms are encouraged to upskill low-wage jobs

Wages at the top • Evidence that polarisation is more obvious in occupations than in wages in the UK • Top earners moving rapidly away from rest of good non-routine jobs • Many of those in these jobs become relatively closer to the middle than the top • Holmes and Mayhew (2012): • Differentiated patterns of occupational wage premia across distribution • Higher returns to education at top end • Untangling all of the potential interactions between composition and wage premia at the aggregate level is difficult

Wages at the top • Gross weekly earnings data from UK Labour Force Survey • 1990s: • Increased employment in higher wage jobs across all good, non-routine occupations • Long tail: some of growth occurred a long way from the median • 2000s: • Some increase in low wage employment – despite increasing graduatisation • Some increase in very high wage employment  A hollowing out of the middle of the distribution • Differences by sector of employment (manufacturing, retail, financial intermediation and real estate/business activity)

Wages at the top • Managerial occupations:

Wages at the top • Professional occupations:

Room to move up? • NCDS earnings data on managerial workers, based on occupation five years before:

Room to move up? • NCDS earnings data on intermediate workers, based on occupation five years before:

Room to move up? • Is this the result of observable differences between the two? • Ordered logit model: • Dependent variable, Y – earnings group • Y = 1,…,20 • Include qualifications and demographics • Observed wages in 1991, 1999 and 2004. Observed occupations five years before each date.

A better start? • Younger cohort early employment patterns changed: • Less likely to go into routine occupations • More likely to go into intermediate occupation; no effect on probability of going into managerial position • Qualification levels matter • 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 does not have larger effect in younger cohort • Possibly contradict the notion of routine jobs ‘getting older’ (Autor and Dorn, 2009)

Summary • Three main concerns about the “winners” from changes to occupational structure • Wages in growing higher skill non-routine occupational groups increasingly spread out: • 1995-2002: distribution shifted upwards, with long tail • 2002-2008: increased employment in lower wage jobs in these categories • Upward mobility from routine jobs  lower earnings, even after accounting for education/experience differences • New, more qualified labour market entrants not entering these jobs as often as might be expected

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

Wages at the top • Example: graduates in managerial occupations

Wages at the top • Example: non-graduates in managerial occupations

Wages at the top • Example: managerial occupations in real esate, renting and business activities

Wages at the top • Example: managerial occupations in manufacturing

Wages at the top • Example: managerial occupations in retail and wholesale

Wages at the top • Example: managerial occupations in financial intermediation

Appendix: 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

Appendix: 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.

Appendix: occupational mobility

Are the winners winning in the hourglass labour market?