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

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 –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.

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 Occupational groups Primary segment Secondary segment

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

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

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

Change in employment share of wage deciles. Initially highest and lowest paid occupations grew more than the middle earning occupations 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

Changing distributions from NCDS cohort (hourly and weekly, full-time workers): 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: Job polarisation in the UK: an assessment

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 Professional8.4%9.5%13.2% Managerial10.1%12.6%25.6% Routine69.3%66.6%41.1% Service12.2%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?