The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Mismatch in the Low-Wage Labor Market: Job Hiring Perspective . Policy Implications


The evidence described above suggests that unskilled workers, especially inner-city minorities, face a variety of barriers on the demand side of the labor market relative to their own characteristics: high-skill demands of employers, racial discrimination, lack of transportation to and information about suburban jobs, and lack of effective networks and "contacts." Taken together, these factors generate difficulties for unskilled workers in gaining or keeping employment, especially at wages/benefits above the most minimal level.(38)

These problems suggest the need for a wide range of labor market interventions by government and other local agencies.

Job Placement Assistance from Intermediaries

Many of the "mismatch" problems noted above that are associated with spatial issues, such as transportation and information, can be addressed with assistance from labor market "intermediaries," that is, third party agencies that can help bridge the gap between workers and potential employers along a variety of dimensions. These agencies can assist workers with job search or job placement, particularly if they develop good relations with local (often suburban) employers. They can also provide workers with transportation assistance, limited amounts of training (often targeted to jobs with specific employers), and support services aimed at improving job retention. Well-known examples of intermediaries that incorporate some or all of these activities include the Center for Employment and Training (CET), STRIVE, and Project Match in Chicago; around the country, a wide range of institutions (such as community-based organizations, community colleges, and others) are increasingly looking to play these roles.(39)  The "Bridges-to-Work" demonstration currently being conducted by the Department of Housing and Urban Development also incorporates some of these notions (though with a relatively greater emphasis on transportation).(40)

Thus, the intermediaries can help address "mismatch" problems related to spatial issues and race, and perhaps those dealing with skills as well. The intermediaries should be especially useful in tight labor markets (such as those we are currently experiencing), where many employers have strong needs for unskilled labor and are having difficulty meeting their needs with their traditional hiring practices. But, to maintain the confidence of local employers, the intermediaries must practice careful screening of its participants and cannot place those who lack job readiness or other basic employment skills. Indeed, this conflict between serving the needs of employers and those of disadvantaged workers has hampered the effectiveness of the U.S. Employment Service(41) and other intermediary agencies. If intermediaries need to screen out the most disadvantaged workers to maintain their credibility with employers, then other approaches will have to be developed to provide some opportunities (or at least a safety net) for those groups of workers.

Improving Enforcement of EEO Laws

While racial discrimination in hiring is likely to be less severe in tight labor markets, the evidence suggests that it persists, particularly in small and/or suburban establishments. Improving the enforcement of EEO laws at the hiring stage in these sectors might therefore be a useful complement to activities that are designed to overcome spatial barriers to suburban employment. But to do so effectively the government would need to develop new ways of monitoring employment practices in these types of establishments.(42)

Job Creation

For those individuals who might have difficulty meeting very basic private-sector skill demands on their own, even in tight labor markets, job creation strategies are an option to consider. These should be used as needed, especially in local areas or time periods when there is more slack in labor markets.

These efforts can take the form of subsidized employment in the private sector or direct public-sector employment. The latter can be explicitly "transitional" in nature, designed to provide individuals with early labor market experience and perhaps some credentials that would indicate to private employers their job readiness and competencies with regards to basic skills; at the same time, some services to local communities can be provided as well.(43)  In other cases the employment might be viewed instead as work of "last resort," perhaps as a condition of receiving continued public assistance (such as in "sheltered workshops" for those who are not job-ready).

Wages, Benefits, and Other Supports

Given the high turnover rates and low wages/benefits that characterize employment for unskilled workers in many jobs, enhancing their earned wages and benefits might be a precondition for enabling them to achieve some economic self-sufficiency. Several states already have, or are currently considering implementing, earned income credits against state taxes that parallel the federal Earned Income Tax Credit program. The federal program needs to be periodically updated or indexed to the cost of living, to maintain the real value of credits over time. Since those without children, especially noncustodial fathers, currently qualify for very little credit, we should consider expanding it to cover them as well.

Additional subsidies for health care, child care, and transportation should also be considered. On the last issue, redesigning public transit routes to allow easier access of inner-city residents to areas of high job growth in the suburbs might also be a useful policy approach.

Over the Long Term:  Skills and Mobility

While all of the approaches outlined above might improve employment and earnings prospects for unskilled workers, over the longer term, our goal should be to improve the skills that many workers bring to the labor market in the first place. The relevant skills here include the basic cognitive/social skills described above, early work experience, and credentials that clearly signal those skills to employers. To achieve these, young people in low-income communities must have improved opportunities and incentives for learning over their entire childhood and adolescence. Approaches therefore should include early childhood development programs, school reform efforts and school choice, effective school-to-work programs, and more support (both financial and informational) for post-secondary education and training.

Given the fairly strong evidence that is developing on how racial and perhaps economic segregation impair the educational and employment outcomes of young blacks,(44) policies designed to improve the residential mobility of these individuals seem warranted as well. The "Moving-to-Opportunity" demonstration project incorporates this approach, as did the earlier Gautreaux program. Evidence from the latter indicated positive effects on the earnings and employment of parents who moved as well as on the educational attainment of their children(45); early evidence on the former does not yet show any labor market effects for parents, but implies a major reduction in the exposure of children to crime, which could well lead to improvements in educational attainment and additional decreases in crime participation over time.(46)  Creating incentives for localities to reduce their exclusionary zoning practices or build more housing for lower-income residents(47) should be encouraged as well.