Forty-four percent of American workers are employed in some of the least appealing or most dangerous jobs available, typically for low wages with little prospect for advancement. The positions have high turnover, so many employers view these jobs as expendable and put little resources into retaining these workers, creating a vicious cycle. Women, people of color, and those under 25 make up a disproportionate share of this group of workers trapped in low-wage jobs.
Amid the pandemic, the longstanding problem has worsened for employers in industries that rely on this workforce — such as retail, hospitality, and food service — as firms struggle to fill vacancies and retain employees. New Harvard Business School research offers a possible strategy to help businesses do well and do good. It found that if companies invested in workers and provided them training and a pathway to career advancement within the company, they’d slow the churn, improve competitiveness by keeping experienced workers and developing a more highly skilled workforce, improve staffers future job prospects, and potentially help lift millions out of poverty.
The Gazette spoke with Joseph B. Fuller ’79, M.B.A. ’81, co-chair of the Managing the Future of Work and the Project on Workforce at HBS, who co-authored the report with Manjari Raman, program director for Managing the Future of Work, to learn why these employees become trapped and what companies can and should do. The interview has been edited for clarity and length.
Joseph B. Fuller
GAZETTE: What were you hoping to better understand when you began this research?
FULLER: A large percentage of workers in the United States never succeed in developing a path that gives them economic security even though they are working. Historically, we’ve used phrases like “the working poor,” and we’ve had public policy mechanisms like the Earned Income Tax Credit to try to encourage people to work. But the lack of mobility out of a low-income band is something I wanted to understand better. What are the impediments to people acquiring skills that would allow them to be more productive? Could we begin to identify the difference between people who managed to punch their way out of the low-wage trap versus people who don’t?
We looked at people who started off making below 200 percent of the poverty line in the United States, or a little less than $40,000 for a household of three. Most people don’t realize, but 44 percent of American workers fall into this category. We looked at workers who had escaped that group and those who hadn’t. What distinguished the experience of people who had gotten a promotion or gotten a substantial wage increase versus those who hadn’t? And how did employers view low-wage workers who advanced versus those who didn’t? The impact of escaping the low-wage trap on someone’s life is pretty material. There was a $27,000 difference in the annual earnings between those who had and those still stuck in low-wage work.
GAZETTE: What did you learn about why so many workers stay stuck in these low-wage, low-opportunity jobs despite a desire to advance?
FULLER: Where you start in the labor market, where you start accumulating experience and skills, has a pretty strong impact on how things turn out. For a lot of young workers, if you’re not on a pathway that has some prospect for advancement and economic security by your mid- to late 20s, the deck will get stacked higher and higher against you. Between 18-24 or 25, it’s very, very important that you get launched onto something that supports a decent lifestyle, family formation, economic security. Once you’ve got a job and start accumulating skills, the likelihood that you can get another job and accumulate more skills goes up. But if you’re not employed or caught in a job that has a very low [skills] requirement, if you’re frequently leaving one employer for another, either because there’s a layoff or you don’t like your boss or it’s too hard to get to, you’re continually knocked back toward the starting line. Each time you do that, it becomes that much harder to get off the low-wage carousel.
We found that the inability to accumulate new skills through work was a major factor in determining if people ended up being locked into this low-wage work trap. Once you’re working, the notion that you’re going to go to night school, do Harvard X, whatever, to upgrade your skills is pretty implausible. It’s not a null set, but Horatio Alger stories are few and far between. We should celebrate them, but it’s unrealistic to rely on heroic expressions of self-efficacy to address the challenge of upward mobility. If you’re working for low wages, you probably rely on somewhat inefficient transportation, probably have a fairly long commute. Low-wage workers skew female, skew having caregiving obligations, so these are people working hard to make ends meet. Between fatigue, and other obligations, if they don’t have an easily accessible way to augment their skills, which means through work, the avenues for them to acquire skills to be considered for advancement are really constrained.
This was a surprising finding: A lot of people who progressed shifted industries. They gained some basic work experience and used that as a springboard. We don’t know if it’s strictly sectoral, but a change in employers was often correlated with moving forward. Whether that’s better skills matching — they moved to an industry that’s a better fit for their skills or to an industry that was more willing to invest in people — or once they demonstrated the basic competence, a new employer then was prepared to make a bet on them. We don’t know entirely what explains this phenomenon, but 85 percent of the people who had escaped the low-wage trap had switched industries.