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By Gladys Lopez-Acevedo, Senior Economist, Poverty Reduction and Equity Department, the World Bank

There's widespread agreement that a stronger focus on quality jobs — typically thought of as jobs that are well paid, stable, and with reasonable conditions — are perhaps the best way for emerging and developing countries to lift themselves out of poverty and reduce inequality. However, there's little agreement on how to measure and analyze job quality not only because the literature on the topic is quite recent and heterogeneous but also because of a lack of adequate data to measure job quality properly.


Workers seting up an electric sub station in Santiago de Chile


Not surprisingly, this was a major topic of interest at the recent November 2012 LACEA (Latin America and Caribbean Economics Association) — LAMES (Latin American Econometric Society) conference in Peru. Today's blog looks at an innovative paper that tries to break new ground in measuring job quality. It focuses on Chile, which in recent decades has enjoyed strong economic growth — yet continues to suffer inequality and poverty. A key question is how the determinants and dynamics of job quality influence the labor market, with much lower productivity growth in the service sectors compared with the capital-intensive ones.

Difficulties in measuring job quality

There are several definitions of job quality (good jobs). Traditionally, the concept has been associated with wages, but increasingly there's a desire to broaden the interpretation to include additional measures such as job satisfaction, stability, and social security. In Europe, other job quality concepts have been developed like family and employment, psychological health related to job quality, and organizational work. Organizations like the International Labour Organization (ILO) launched the concept of "Decent Work," which has further stimulated the debate.

As a result, there are several conceptual frameworks around good jobs (the ILO's, the International Finance Corporation's, the 2013 World Development Report's, the European Union's, and Oxford's). There are even some initiatives in sectors such as apparel trying to collect the right information to adequately measure job quality (including compliance data, work satisfaction, etc.). However, the challenge is to make these concepts fully operational.

A big part of the problem is that there are few empirical studies analyzing job quality. But one recent study by Oscar Landerretche, Professor at the Department of Economics of the University of Chile (with Federico Humeeus and Esteban Puentes) does just that. It is innovative in the sense that it uses the Oxford job quality index (not with all the variables, just a few) and applies it to a panel data of Chilean workers mainly in the formal sector to understand which variables seem to contribute to job quality. Although the study doesn't fully capture all the dimensions of job quality as the strict literature would mandate, the advantage is that it has a nice panel data set that allows the authors to control for heterogeneity to identify which factors (firm and individual) contribute to job quality (as they define it).

Bigger firms and a good labor history matter

What did the study show? As Landerretche tells the JKP, several results stand out.
  • • The type of contract, job tenure, and other characteristics of the job such as training improve with firm size and the presence of a union.
  • • All of the characteristics associated with job quality improve when the worker has a history of having high quality contracts. As economist say, there is hysteresis—that is, short-term effects might have long-term persistent effects.
  • • Other factors, such as gender, public versus private sectors, and specific type of economic sectors don’t appear to matter.
The authors contend that their findings have two major policy implications. First, policy makers might consider acting at the level of the worker's trajectory, which is as important as firm size or unionization. That means promoting high quality labor contracts for young workers and for new entrants into the labor market. The reason is that if these types of workers get high quality jobs, they will probably demand them in the future. Second, given that smaller firms are less likely to provide these high-quality jobs, policy makers might want to adopt a number of measures—like preferential access to credit—to improve the productivity of these firms in order to provide the high-quality jobs.
By Gladys Lopez-Acevedo, Senior Economist, Poverty Reduction and Economic Management, the World Bank

Traditionally, policy makers have focused on creating jobs to reduce poverty, but jobs alone may not be sufficient. Job quality also matters, although creating "good" jobs is a huge challenge given the advent of global supply chains, which link thousands of firms extending across cultural and political boundaries. One area where there is a large and growing debate about globalization and labor standards is working conditions in apparel factories. At one extreme are those who argue that globalization erodes working conditions and reduces labor compliance in export-oriented sectors. At the other extreme are those who insist that free trade does not interfere with labor compliance. As it turns out, we are learning that good human resource policies may tip the scales.

Made in Cambodia
"Made in Cambodia" by @ndres1, 2010.

The value of human resource policies

In response to growing public concern about "sweatshops" - which are typically associated with low wages, long hours, high temperatures, excessive noise, poor air quality, unsanitary conditions, and abuse (both verbal and physical) - several organizations have pressured governments and employers to improve working conditions. Public exposure, such as anti-sweatshop demonstrations in the 1990s, seems to have paid off in some developing countries. For example, in Indonesia, a study on the impact of these campaigns shows that they led to large real wage increases, although there were some costs in terms of reduced investment, falling profits, and increased probability of closure for smaller plants, but little significant effects on employment (Harrison and Scorse, 2010).

How about other aspects of employment besides wages, such as decent and healthy working conditions, and rights of association? A recent Massachusetts Institute of Technology study explored this question by comparing two pretty similar factories supplying Nike (both are in Mexico, produce more or less the same products for Nike and other brands, and are subject to the same code of conduct). On the surface, these factories appear to have similar employment practices, and they receive comparable scores when audited by Nike’s compliance staff. But the study shows that their actual labor conditions differ significantly. Beyond the code of conduct and various monitoring efforts aimed at enforcing it, workplace conditions and labor standards are shaped by very different patterns of work organization and human resource management policies (Locke et al., 2010). The promotion of these alternative work/human resource management practices can complement traditional monitoring efforts in ways that promote better labor standards.

While the term "human resource management practices" may inspire thoughts of administration and bureaucracy, in developing countries these policies shape and define job quality. Ichniowski et al. (1997) argue that adopting new human resource practices - such as work teams, flexible job assignments, employment security, training in multiple jobs, and extensive reliance on incentive pay - might be viewed as an aspect of production technology akin to shop-floor production technologies. As such, these practices may improve productivity, factory performance, and survival. Subsequent studies support the idea that better work practices can help survival (Brown et al. (2011, 2012).

The Better Work program

In 2001, the Better Factories Cambodia (BFC) program was created by the International Labor Organization (ILO) to monitor and help factories improve working conditions. It grew out of the 1999 U.S.-Cambodia bilateral trade agreement, which created an incentive for factories to improve working conditions by linking such improvements to greater access to the U.S. market. A number of recent studies document sustained increases in working conditions in Cambodia (Miller et al., 2009; Shea et al., 2010; Adler and Woolcock, 2010). Other studies show that the presence of a reputation-sensitive buyer and the policy of public disclosure of noncompliance increased the likelihood of compliance (Oka, 2010a and 2010b). In addition, overall, working conditions didn’t fall as the environment became more competitive (Beresford, 2009). One study even finds that ending the program of public disclosure reduced the rate of compliance, especially between the first and second visit (Ang et al., 2011).

Currently, targeted policies to improve human resource practices are widespread. The Better Work program (www.betterwork.org), which grew out of Better Factories Cambodia, has been one of the most significant programs. Run by the ILO and the International Finance Corporation (IFC), in close collaboration with local and international stakeholders, including unions and buyers, it has been growing over the past decade - with established operations in countries such as Bangladesh, Cambodia, Haiti, Indonesia, Nicaragua, Lesotho, Jordan, and Vietnam. It promotes and enforces labor standards and technical assistance to firms in apparel and textiles to increase their competitiveness in international markets. It also collects periodic data on workers, managers, and firm performance at the factory level as part of their monitoring and evaluation plan. The event that spawned both holidays occurred in Chicago on May 4, 1886, but different political dynamics reflect how they have come to be commemorated in different ways. What became known as the Haymarket Affair (or Haymarket Massacre) started as a peaceful rally in Haymarket Square to support workers that were striking for an 8-hour work day. It turned deadly when a bomb was thrown (the culprit is still unknown), followed by a shoot-out that killed several police officers and civilians. The trial was widely publicized, with eight anarchists sentenced to death on conspiracy charges.

Better Work has a significant presence in the apparel sector - for instance, all export apparel firms participate in Better Work Cambodia. It is also exploring extending its operations to other sectors, such as electronics and tourism.
By David A. Robalino, Labor and Youth Team Leader, the World Bank

I often come to Same, Ecuador for vacations. It's a very small town of unknown population on the country’s northern Pacific coast. About 25 years ago, the only way to get there was in cars with four-wheel drive, but now there is a paved road that brings visitors from Quito down the Andes in around 5 1/2 hours.

Economists would normally predict that better infrastructure – in this case, improved access – would bode well for a small, isolated town. But the reality, certainly in the eyes of the long-time locals, is that the opposite occurred.

The good years
Before the road, the majority of tourists were foreigners looking for Same's extensive beaches, protected by cliffs, royal palms, and tropical vegetation. They spent in dollars (back then Ecuador still had the Sucre as its currency, although in the early 2000s, it switched to the dollar) and supported jobs – often created by foreigners who came and never left – that evolved around hotels and restaurants, fishing, crafts, and agriculture.

Tomas Gonzales in a diving suit
Tomas Gonzales in a diving suit

Juan Jose (Juanjo), an Argentian national who came to Same 30 years ago while in his late twenties, opened Bar Marina right at the beach – where tourists could buy fresh juices, cocktails, and pizzas. The business used to generate the equivalent of $300 per day net of operating costs. Pepo, a charismatic Spaniard now in his late 60s, bought ocean front land and built bungalows that he could rent all year long. At his restaurant, clients could enjoy paellas prepared with fresh local seafood while overlooking the ocean. Businesses like Juanjo's and Pepo's hired local workers as cooks, barmen, or guides; contracted local services for cleaning, maintenance, and construction; and purchased local products (such as tropical fruits and seafood). Tomas Gonzales, a seasoned fisherman who dives in the coral reefs to capture "dorados" using harpoons, remembers the times when he could catch enough fish in a few hours to sell and support his family for an entire week without venturing far into the ocean.

The problem years
But things changed with the new road. More people started to come to Same, many locals sold their land cheaply to developers, parts of the palms and tropical vegetation were replaced by hotels, and a gated community with mediterranean style houses emerged on the north side of the village up the hills – attracting what was left of the "high-end" tourism. Same was left with “low-end tourism” – mainly nationals with thin budgets who visited only during the summer months or holidays. As for jobs, it is true that there are more of them now, but each one generates less real income, there aren’t enough to employ local youth, and crime rates have started to climb.

Juanjo
Juanjo at Bar Marina

"The road destroyed Same," says Juanjo, whose profits have shrunk to a few dollars per day, with sales involving little more than mohitos and beer. Even for the fishing business things aren’t going well. Except for GPS, fishermen continue to use the frail boats and technologies of the past. Gonzales complains of lack of access to credit and competition from bigger boats coming from the north, which are also destroying the coral reefs and killing the local fish. "We could have great fishing and tourism around here," he says nostalgically, "but it is difficult to get organized and we lack capital to invest."

A “win-win” road
Could building the road to Same have been handled differently? In theory, by bringing down transportation costs, the road should have helped develop the local tourism and fishing industries and the production of goods and servicies that goes with them. In a way, it did, but it wasn’t the right type of tourism or fishing, at least not for Same or the towns nearby. Probably more educated and better informed local entrepreneurs and workers wouldn't have sold their land and would have preserved the fauna and flora. Probably with the right advisory services, training, and capital, Gonzales and other fishermen could have developed their businesses and now be exporting seafood to international markets.

Who knows. However, next time a road is built to wherever, it would be good to investigate the other types of investments and regulations needed to truly promote local development and create goods jobs. That said, if you’re planning a trip, don’t hesitate to visit Same – where there are still beautiful places to visit and explore.
In the aftermath of the “Great Recession,” much of the world continues to focus on the quantity of jobs being generated in industrial and developing countries, and on how they affect employment and unemployment.

But, over the longer term, we also need to the raise the quality of jobs produced in our economies and the skills of workers who might fill them. I have done a great deal of empirical work on U.S. job quality and what these trends mean for education and workforce development policies. While this work focuses almost exclusively on U.S. labor markets, some general principles and policy implications emerge that I believe are applicable to industrial countries and to those now industrializing.

What are these principles? First that job quality – as measured by pay levels and benefits, and the degree of permanence over the longer-term – matters independently of the quality of the workers who fill these jobs. For a given level of skills, some firms choose “high road” practices and create “high performance workplaces,” consistently paying higher wages and providing better benefits, and not just because of regulations or unions. But in a world in which product and factor markets are becoming ever more competitive (owing to growing globalization and digital technologies), high-road compensation practices must coexist with high worker productivity for firms to survive and thrive. Indeed, if workers do not have basic skills that merit investments in training or if it is difficult to find workers with these basic skills, firms will instead create low quality jobs.

The second principle is that job quality is increasingly more positively correlated with worker skills. In previous generations, high-quality U.S. jobs in durable manufacturing and elsewhere could be substitutes for worker skills. Now job and worker quality are becoming complements. And that implies higher levels of income inequality across workers of different education and skills levels than would be generated only by skills differences. Thus, when high school dropouts could get good jobs in durable manufacturing, differences in job quality across workers tended to limit inequality; today, when only workers with postsecondary credentials can get good jobs in health technology or the information technology sector, differences in job quality exacerbate inequality between those with and without those credentials (see my recent book, Where Are All the Good Jobs Going?)

 

Thoughts for Labor Market Policy

What do these observations mean for labor market policy? Policies that incent or assist employers to create high-quality jobs – such as increases in the minimum wage, higher rates of unionization, or government efforts to target new and growing firms – must also make sure that skilled workers are available to fill them. But rather than focusing only on academic skills and higher education separately from the labor market, the U.S. evidence suggests a need for education and workforce policies that more effectively link to labor demand and to sectors and employers where good jobs are generated. Education institutions (like U.S. community colleges) and other training providers must work more closely with employers and industry associations, targeting high-demand and higher-wage sectors and firms.

This can be done through high-quality career and technical education at both secondary and postsecondary schools – which combine strong academic and occupational training – and through “sectoral” workforce development programs for disadvantaged and dislocated adults. Indeed, U.S. evidence suggests that such efforts are often the most successful and cost-effective training programs for such workers. And employers can be encouraged, through tax credits or subsidies and technical assistance, to create workplaces and jobs that generate and reward these skills. In fact, I recently advocated a set of competitive grants from the U.S. federal government to the states that would fund training partnerships between employers in key industries, education providers, workforce agencies, and intermediaries at the state level (see the Hamilton Project at the Brookings Institution).

Of course, in a dynamic world where labor demand shifts occur frequently and in unanticipated ways, workers must receive strong general training as well as occupation-specific skills. And our training systems must be nimble enough to allow for workers to be retooled and retrained. Workforce development systems must be created that can engage employers on a large scale, so that they find it practical and affordable to retrain their incumbent workers or new hires, when necessary.

Taking such steps will not be a panacea for the large increases in income inequality that we observe in globalizing labor markets, but it almost certainly would help.

Harry J. Holzer is a Professor of Public Policy at Georgetown University

 

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