Polarisation, mobility and segmentation in the labour market Craig Holmes ESRC Centre on Skills, Knowledge and Organisational Performance, University of Oxford

Labour market segmentation Labour market segmentation theory developed as a departure from traditional models of labour supply and demand in the 1960s and 1970s LMS suggests it is possible to identify parts of the labour market between which mobility is severely or entirely restricted These restrictions are related to factors other than individual skills or abilities Dual market: primary and secondary sector distinguished by wages, security, prospects for promotion and training investment Initial employment matters  workers becoming ‘trapped’

Labour market segmentation The initial literature did not find significant empirical support. Mayhew and Roswell (1976) looking at mobility between three labour market segments in the UK over the past working life of employees in 1972. Segments were defined by occupation and status within their jobs. Allocation of each occupation-status pair was based on the authors' own judgment, intention of creating segments of the lowest possible mobility. Mobility matrices derived from this method show significant mobility between segments for many individuals. Mobility matrices derived from this method show significant mobility between segments for many individuals (although many more are immobile), a result unaffected by using different bases for segment allocation. This acts as evidence against the existence of segmentation which would need to find groupings of occupation-status pairs were there was definite immobility. The authors acknowledge an unease with this method, but argue that it is preferable to alternatives for a number of reasons ranging from the potential unsuitability of desirability scales to computational infeasibility . They later use alternative bases for allocation to show whether their results are based on their initial subjective allocation

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

Polarisation and segmentation Obvious overlap between the primary and secondary segments and growth occupations Individuals tend to move short distances within the labour market in terms of job quality. Declining middling occupations reduces options for transitory upward steps to better occupations. Hence, a hollowed-out labour market could create two segments with limited mobility between them.

The labour market and segmentation Jobs defined by occupation, industry and skill: Industries Occupational groups increasing in quality Levels of skill or expertise within each industry-occupation

The labour market and segmentation Example 1: craft union model or occupational labour markets Industries Primary segment Occupational groups Secondary segment

The labour market and segmentation Example 2: internal labour markets Industries Primary segment Occupational groups Secondary segment

The labour market and segmentation Example 3: polarisation Industries Primary segment Occupational groups Middling occupations Secondary segment

The labour market and segmentation 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 dataset that can be used for analysing working life mobility

Job polarisation in the UK: an assessment Holmes, (2010), SKOPE research paper No. 90 Looks at single cohort from National Child Development Study between 1981 (aged 23) and 2004 (aged 46). Replicates the Goos and Manning methodology for our NCDS dataset Finds growth in high wage and low wage occupations, decline in mid-range occupations, proxied by 1981 wage Evidence of routinisation driven employment changes

Job polarisation in the UK: an assessment However, wage distributions exhibit little evidence of polarisation Most jobs still fall in the middle of wage distribution How can these two observations be reconciled? 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 new type of middling occupation

Job polarisation in the UK: an assessment Change in employment share of wage deciles. Initially highest and lowest paid occupations grew more than the middle earning occupations This section replicates, for a single cohort, the Goos and Manning methodology used to asses the extent to which the labour market has become more polarised. To show changes to the occupational structure, we used SOC2000 occupational minor group, which gives 70 occupational categories, both those reported in the 2004 wave of NCDS interviews and those derived for the 1981 wave using the conversion described in the above section. These occupational categories have been ranked by mean wage of the occupation based on 1981 wages and divided into ten groups, each with approximately 10% of total employment, with group one having the highest paying occupations and group 10 the lowest paying occupations. With one exception, all occupations fall into one group. This lumpiness means that group sizes vary from 9.24% to 11.07%. The one occupation which was split was Administrative Occupations: Records, which has an employment share of 18.90% in 1981. The group is split over three deciles, the middle of which had exactly 10% of employment and contained only workers from this occupation. Of course, some of these occupational transitions are the result of individual career progression. It remains an ongoing challenge to isolate the effect on employment shares that derives entirely from routinisation and polarisation, in the absence of a earlier comparable longitudinal study.

Job polarisation in the UK: an assessment Resulting wage distributions are important Absent of other effects, a polarising labour force should be observed as in the diagram below A polarising workforce has a greater number of individuals earning low and high wages and a decreasing number of individuals earning middling wages. Consider an initial wage distribution, represented in Figure 2 as a cumulative distribution function. Holding everything else constant, employment increases in the lowest paying jobs will steepen the lowest section of the distribution function. The lowest deciles of workers covers a smaller range of wages as there are more workers earning the lowest wages. A similar steepening would be seen at the top of the distribution as employment increases in well-paid jobs. At the same time, falling employment in the intermediate jobs flattens the distribution function in the middle, as the range of wages covering the middle deciles increases with lower employment in the middle.

Job polarisation in the UK: an assessment Changing distributions from NCDS cohort (hourly and weekly, full-time workers): Although hourly wages are the preferred measure, the lack of hours of work data in the later wave limits the sample size. Looking at weekly wages increases the sample size, although this not a reliable basis for comparing distributions over time if patterns of work have changed. To correct partially for this, I present weekly wage distributions for just those in full time employment

Job polarisation in the UK: an assessment Econometric methods for analysing changes accurately Descriptive method (see Holmes, 2010) – change in employment at each (log) wage percentile Polarisation illustrative example: Holmes (2010) presents a descriptive method for analysing the changing slopes of the wage distribution. The method is similar to that used by Fauth and Brinkley (2006). The wage range is split into 100 divisions, each comprising 1% of the total. The change in each group's employment rate between 1981 and 2004 is shown in Figure 5. We remove from the sample a number of obvious outliers, which occupied around 20% of the initial wage range. For weekly full time wages, 16 observations were removed for 2004, and 10 for 1981.

Job polarisation in the UK: an assessment Holmes (2010) presents a descriptive method for analysing the changing slopes of the wage distribution. The method is similar to that used by Fauth and Brinkley (2006). The wage range is split into 100 divisions, each comprising 1% of the total. The change in each group's employment rate between 1981 and 2004 is shown in Figure 5. We remove from the sample a number of obvious outliers, which occupied around 20% of the initial wage range. For weekly full time wages, 16 observations were removed for 2004, and 10 for 1981.

Further research This suggests polarisation may not be as clear-cut a mechanism for creating labour market segmentation However, still suggests several issues for further mobility analysis Destinations of displaced routine occupation workers Are they able to move upwards? Difference between occupational and wage mobility Experience of new entrants compared to existing workers Are new entrants more polarised? Do they experience different patterns of occupational and wage mobility Role of skills in both cases

Further research Destination of displaced routine workers Model: four occupational categories (professional, managerial, routine and service) Separate out transitions from routine occupations caused by routinisation from those caused by career advancement Similarly for transitions between routine and service occupations Empirical strategy: Define four occupational categories (SOC, SEG) Calculate transition probabilities in NCDS (1981 – 2004) Apply to larger sample of 23 year olds in 1981 (e.g. LFS) and compare to a counterfactual occupational structure (e.g. 46 year olds in LFS 1981)

Further research Destination of displaced routine workers Initial results: Probability of transition to professional depends on having a degree, rather than starting occupation Need to breakdown upward movers by upskilled and non-upskilled Initial structure, 1981, 23 year olds Pre-routinised structure, 46 year olds Post-routinised structure, 46 years olds Professional 8.4% 9.5% 13.2% Managerial 10.1% 12.6% 25.6% Routine 69.3% 66.6% 41.1% Service 12.2% 11.3% 20.1%

Further research Different experiences of later cohorts Autor and Dorn (2009) – declining occupations are getting “older” Continue using cohort approach - make use of later cohort study (1970 British Cohort Study) for comparison Differences at entry – more polarised as older workers hold on to positions in declining occupations. New entrants driving cross sectional polarisation? Different mobility opportunities compared to NCDS cohort?