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Post: : How companies’ business models put workers in a ‘low-wage trap’ — and how to break the cycle

Employers are often resigned to high turnover in low-wage jobs as a “cost of doing business,” and therefore don’t fully commit to retaining or upskilling workers in those positions, according to a new report published this week. 

Meanwhile, many workers making low wages want stability and upward mobility at their jobs — but wind up losing out on opportunities to build new skills and advance, and find it difficult to escape poverty even though they have years of work experience.

“Many entry-level jobs lead workers to being caught in a low-wage trap, and employers fuel that by designing jobs around the assumption that high levels of turnover are inevitable,” Joseph Fuller, the study’s lead author and a Harvard Business School professor of management practice who co-leads the school’s Managing the Future of Work initiative, told MarketWatch.

Three in five workers who started in a low-wage job were unable to move to a position above the low-wage threshold in the five years between 2012 and 2017, according to the study.

Fuller and his co-author, Managing the Future of Work program director and senior researcher Manjari Raman, based their analysis on a literature review; resumes and job postings from 2012 to 2017 from the Emsi Burning Glass databases; and their own surveys conducted from September to November 2020 of 1,025 U.S. low-wage workers and 1,150 business leaders at various levels, as well as one-on-one interviews. 

Workers and employers were asked about their pre-pandemic experiences, but also about how COVID-19 had impacted working conditions and upward-mobility prospects. The sample of workers, who were ages 21 and older with at least three years’ continuous work experience, included people who had experienced upward mobility at work as well as people who hadn’t. 

The majority of low-wage workers — defined in the study as those who earn about $20 an hour or less, or who live in households of three with an annual household income of $39,970 or less — “expressed a significant sense of agency, ownership over their own futures, and desire to improve their circumstances,” Fuller said. Some 62% of workers cited upward mobility when asked what would make them stay at their company.

But what they need in order to achieve that, he added, is “specific, actionable” steps they can take to achieve that outcome — for example, being advised by their boss that they could get a promotion and raise if they learned how to do spreadsheets in Microsoft

Office, and also given information, support and guidance on how to go about acquiring that skill. 

More than half of workers surveyed said their employer hadn’t discussed what skills they should obtain for advancement, nor how to obtain them. Only 55% said a mentor or supervisor had at any point helped them succeed. 

Many of these workers also valued a stable, familiar work environment — where they felt accepted and respected, had made friends, and had figured out transportation and scheduling around their job, for instance — and were willing to stay there if certain needs were met.

On the flip side, employers that design systems and create job descriptions based on assumptions of very high turnover aren’t likely to invest much time or training in workers they expect will leave soon, Fuller said. “This logic gets embedded in the way jobs are designed, and that causes workers often to seek an alternative,” he said. 

To be fair, many companies do have formal policies in place regarding upskilling, mentorship and feedback to help low-wage workers advance — best practices and “good intentions at the top of the house,” as Fuller put it. But drilling down to the frontline supervisor level, he said, “all of this is much easier said than done.”

“Companies very often don’t walk the talk relative to the support they give low-wage workers,” Fuller said. “While companies can have policies endorsed by senior management to provide that support, unless it happens on the shop floor, in the restaurant, in the retail location, delivered by that frontline manager, it doesn’t happen.”

‘If you just have supervisors who are offering some mentorship, directing people into pathways programs, and giving them clear and actionable feedback, those are the core things.’

— Joseph Fuller, a Harvard Business School professor of management practice

Every time these workers change employers or industries, he said, “they often are kind of moving backwards” in terms of skill development and how their resume will be read by an applicant tracking system’s algorithm. “The vast majority of learning how to be a better, more productive worker happens on the job,” Fuller added. 

Workers who did move out of the poverty threshold between 2012 and 2017 often did so by changing industries, the study also found. Avenues for upward mobility were more available in industries such as financial services and healthcare.

The authors defined upward mobility as “an improvement in skills that enhances an employee’s productivity and results in an increase in the employee’s pay or a promotion or both.”

A record number of U.S. workers voluntarily quit their jobs in November, the most recent month for which data are available, with quitting concentrated in low-wage sectors.

“Many low-wage earners are asking themselves, ‘Is this job worth it?’” said a separate report last fall by the consulting firm Mercer. “Low-wage, frontline workers and employees of color are much more likely to consider leaving — and at rates higher than pre-pandemic. These workers seek higher-quality jobs, more security, safety and better pay.”

Some critics argue that paying workers a living wage rather than just a minimum wage, and paying salaries that match inflation, would help temper the so-called Great Resignation.

The Harvard Business School study authors, for their part, described the higher wages, signing bonuses and increased flexibility employers have dangled to entice workers in a tight pandemic labor market as “‘one-time’ enhancements to the ‘old deal’”; “a one-time upward adjustment to wages and benefits” at best, rather than some “new era” of improved employment terms for low-wage workers.

“While expedient, they will not address the economic harm done to workers and employers by the high-turnover, low-wage approach embedded in many companies’ business models. As businesses reopen, many will find that they will be unable to attract the quality or quantity of talent they want, despite employing such tactics,” they wrote.

“Instead, in the future, [businesses] will need to build durable talent-management pipelines — including for their least-paid workers — that will enhance their prospects relative to competitors stuck in the old, wasteful paradigm.”

Other actions employers can take, according to Fuller: Make clear during the hiring process the extent to which there are opportunities for advancement; have “pathways programs” where, through resources either endorsed or provided by the company, workers have a clear grasp of how to bolster their skills and be considered for advancement; question whether their high turnover projection is really a valid assumption; and understand why people leave their employment and what to do about it.

“If you just have supervisors who are offering some mentorship, directing people into pathways programs, and giving them clear and actionable feedback, those are the core things,” Fuller said.

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