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Job polarisation in the UK: An assessment and implications for skills policyCraig Holmes And Ken MayhewESRC Centre on Skills, Knowledge and Organisation Performance,University of OxfordAbstractOur ongoing research is focused on mobility and segmentation in the labour market during a period where the nature of work and occupational composition are changing rapidly. We are particularly interested in two interlinked phenomena: routinisation and polarisation. Our work is still in progress, but this paper details a number of findings which have informed our approach. Predominantly, it provides an assessment of Goos and Manning (2007) and similar work and of the concept of the polarised or 'hourglass' labour market. It uses data taken from two waves of the National Child Development Study to study changing patterns of employment and of labour market outcomes over the period 1981 to 2004. The main proposition is that while the dataset used here does demonstrate changes in employment of the sort consistent with the routinisation hypothesis, it is not clear that a polarising labour market is the inevitable conclusion. We show that wage distributions do not appear to have changed dramatically over the time period. This paper points to the future direction of our research, as well as discussing some implications of the findings for education and skills policy.1 IntroductionThe determinants of and limitations to occupational and wage mobility are a long-studied and much debated topic. Our work has focused on two interlinked phenomena: routinisation, the process whereby labour engaged in routine task based occupations is replaced by increasingly cheap computer capital, and polarisation, the alleged growth of jobs at the top and the bottom of the quality spectrum, and the decline, or hollowing out, of those in the middle. Our work is set in the broader context of reconsidering the theory and evidence for segmented labour markets. In the original literature (see Leontaridi, 1998, for a survey), a number of different explanations were put forward for possible segmentation, ranging from the rise of internal labour markets to more radical capitalist conspiracy theories. Our starting hypothesis differs from these and other approaches and is, as far as we are aware, new to the literature: we propose that segmentation in labour markets may result from polarisation, caused by to the decline of employment in middling jobs that may previously have acted as transitional steps towards better paying or higher quality occupations.As is typical in studies of intragenerational mobility, the approach taken in our work employs a longitudinal study from the UK to assess lifetime occupational mobility during the period most commonly associated with routinisation. This paper details a number of important findings which inform the future direction of our research. Our greatest concern comes from looking at wage distributions over this period - these distributions do not appear to have changed dramatically over the time period. The largest number of jobs continue to be in the middle of the wage spectrum, leading us to question to the conventional wisdom that UK labour markets have polarised.Our explanation for this disconnect between the received literature and our analysis is that the existing evidence of polarisation rests on an assumption about occupational wage structure that appears unreasonably strong. As a result, we argue that while employment patterns have changed in a way that is consistent with routinisation, a polarising labour market may not be an inevitable result. This paper argues that the existing methodology (for example, Goos and Manning, 2007; Autor, Katz and Kearney, 2006) is inappropriate for evaluating the polarising phenomenon and that a new approach is needed.Despite this finding and the implications it may have for our starting hypothesis, the dataset we are using shows clearly that some occupations are in decline, creating a group of displaced routine occupation workers. One future direction for our work will be to look at the mobility of these workers and, returning to our interest in segmentation, to investigate whether there are certain occupational moves which are significantly restricted. Another related question that needs to be addressed is the potential for differences in the experiences of subsequent cohorts. A recent paper by Autor and Dorn (2009) has shown that generally the oldest workers remain in occupations with declining employment, potentially due to a greater degree of skill specificity. Later entrants into the labour market may be increasingly polarised, with implications for their future mobility.The paper is arranged as follows. Section 2 will describe the theoretical background to our interest in routinisation and polarisation. Section 3 discusses the data and the limitations that have been encountered. Section 4 presents our initial results, broken down into the two areas of interest: employment by occupational group and wages distributions. We limit the analysis in this section to the most important highlights, with more extensive results presented in Holmes (2010). Section 5 concludes and discusses the future direction of the work, including a discussion of the implications it may have for skills policies. 2 BackgroundThis section outlines the theoretical motivation for our work, in particular, the interlinked theories of routinisation and polarisation. The routinisation hypothesis, usually attributed to Autor, Levy and Murnane (2003), is a refinement of the idea of skill-based technical change. In the latter, technological advance increases the relative demand for skilled labour which is complementary to, for example, increased utilisation of advanced technology. The routinisation hypothesis argues that technological advances, especially computer capital, provide a substitute for tasks with a clear set of regular instructions and so will decrease firms' demand for labour to perform these tasks. At the same time, non-routine occupations may be complementary to computer capital and so firms will demand more labour to perform these occupations. Non-routine task-based jobs fall into two categories: skilled professional and managerial jobs, which are the most complementary to technical progress, and unskilled manual tasks or services (e.g. cleaning). The latter is not generally directly affected by technical change, but the impact of technology on other parts of the labour market is likely to lead to a rise of employment in these jobs.Goos and Manning (2007) use this task categorisation to show that non-routine occupations tend to fall at the top and bottom of the wage spectrum, with routine occupations somewhere between. This observation leads to the polarisation hypothesis, with increasing employment at high-paying and low-paying jobs and falling employment for middle-income jobs. Goos and Manning then look at changes in employment for occupations of varying quality, proxied by initial median wage (in 1979). They find there has been employment growth in wage deciles at both ends of the pay spectrum and declines in the middle deciles. Similar results are found by Autor, Katz and Kearney (2006) for the United States and Spitz-Oener (2006) for Germany. We are interested in what these changes in the structure of the labour market have meant for mobility. Existing work on polarisation and routinisation shows what has been happening at the macro level, in terms of the share of employment in different occupations and the effect on wage inequality. However, little work has been done on the impact at the individual level. There are currently unanswered questions about the labour market experiences of displaced workers in declining routine occupations, the factors that may determine these moves and the relative experience of later generations once the labour market has routinised or polarised. The literature provokes questions about the impact on overall mobility for low wage workers if the number of middling jobs above them become more scarce. It is this idea which has motivated our focus on segmented labour markets. 3 Data and issuesThe data used in this paper is taken from the National Child Development Study (NCDS). The members of the NCDS study were all born in a single week in March 1958 in Great Britain. Data has been collected on these members in a series of waves. The most useful waves for our present purposes are the fourth and seventh waves, taken in 1981 and 2004-5 respectively. The fourth wave is the first one taken after the school leaving age (respondents were aged 23) and records early labour market experiences. The seventh wave was completed in 2004-5 (respondents were aged 46-47) and has the most recent data on wages, employment and education. Our approach, in line with the existing literature, uses Standard Occupational Classifications as the basis for considering jobs. A recurring issue with labour market data over time is the changing classification of occupations. The 1981 wave uses the KOS (Key Occupations for Statistical Purposes) system of job title classification, which categorises occupations within the 18 CODOT (Classification of Occupation and Directory of Occupational Titles) major groups, while the 2004 wave uses the most recent SOC2000 classification. The SOC2000 coding system of occupations has a four level classification system, from major group (first digit) to unit group (fourth digit). To make data comparable across the two waves, we have derived a conversion system between KOS and SOC2000 codes, using the descriptions of occupations provided for each group. The conversion is not always perfect (see Holmes, 2010, for a discussion). In some cases a category in SOC2000 could apply to several categories under KOS (and vice versa) and subjective judgements have been made. Total exclusions on this basis account for 12.43% at the minor group (third digit) level.As has been indicated in the introduction, one of the central findings of this paper is that it is not immediately apparent from wage distribution data that employees in this cohort have polarised, leading to an examination and critique of the established methodology to demonstrate the polarisation effect. An obvious question that has been raised is over the validity of using longitudinal data to analyse this. The most pressing concern is that the data will be biased due to career advancement or promotion. For example, an increase in employment of managerial occupations for a single cohort will, at least in part, be due to individuals progressing to better jobs due to experience.Our justification is as follows. Firstly, we can use evidence from cross-sectional data to support our argument. In the annexe to Holmes (2010), wage distributions from the Family Expenditure Survey between 1981 and 2000 are presented to show a similar lack of decline in the middle of the income distribution. We acknowledge that further work on this is still need and we intend to make use of the larger New Earnings Survey to complete the analysis. It could be questioned why we did not simply start with cross-sectional data. However, our overall focus in this work is on mobility and the effect that the phenomena of routinisation and polarisation may have had on this. It is therefore essential that evidence of both are found within a dataset that is more appropriate for looking at issues of mobility. Later we show that our dataset do indeed exhibit the expected growth in non-routine occupations and decline in routine occupations. Therefore, it becomes a valid question as to why this has not lead to observable polarisation in the resulting wage distribution. This leads on to the final and, from our perspective, most important point, which is that the critique is one of the prevalent methodology, regardless of the data that has provoked its examination. The implicit assumption in existing studies is that the relative position of occupations in the wage distribution has remained approximately constant over time, so that it is appropriate to use initial wages as a proxy for job quality over the entire period being studied. We will argue that it is not appropriate to do so, certainly without an empirical justification that has not as yet been presented.One final issue that we have considered is the use of average wages as a proxy for job quality. There are obvious concerns about this (see Holmes, 2010), but for which a detailed examination falls outside of the scope of this paper. As a result, we will continue to use average wages as a proxy for job quality.4 ResultsOccupational structureThis 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.Figure SEQ Figure \* ARABIC 1: Changes in employment share of occupations between 1981 and 2004, by decile (1981 mean wages)Source: NCDS data (1981 and 2004), own calculationsFigure 1 shows the change in employment share of each of the ten groups. It shows that the initially highest and lowest paid occupations grew more than the middle earning occupations, which experience a severe decline. This finding is consistent with that found in Goos and Manning (2007), Autor, Katz and Kearney (2006) and Spitz-Oener (2006).Figure 1 shows the change in occupational employment share for one cohort who start in 1981 aged 23 and finish in 2004 aged 46. 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.Wage distributionsThe evidence presented in the previous section suggests support for the routinisation hypothesis and indicates that the occupations that have grown tended to be at top and bottom of the wage spectrum, based on initial earnings. However, perhaps the more important outcome when discussing a polarising labour markets is not changes in the relative size of different occupations, but the consequential change in wage distributions. This section will present our main contention: that while routinisation has led to a fall in employment of several types of occupation, it may not necessarily have caused a polarisation of the labour market in terms of wages. Figure SEQ Figure \* ARABIC 2: the effect of polarisation on wage distributionslog wagecumulative probability01initial distributionpolarising distributionOur starting point is to look at wage distributions before and after a period of routinisation as a way to better describe the overall consequences. 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. The end result is show in Figure 2.Given the evidence in the previous section that suggests that occupational employment patterns within the NCDS data have followed similar patterns found in the polarisation literature, we might expect to see evidence of the shift shown in Figure 2 within the wage distributions. Figure 3 and Figure 4 present hourly and weekly log gross wage distributions from the two NCDS waves. 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, as well as for all the available data as a comparison.Figure 3: Log hourly wage distributions, 1981 and 2004 (all workers and fulltime workers only)cumulative probabilitycumulative probabilitycumulative probabilitycumulative probabilityFigure 4: Log weekly wage distribution, 1981 and 2004 (all workers and fulltime workers only)It is not obvious from looking at these distributions that the middle of the wage spectrum has declined and that the top and bottom on the spectrum has grown - the shape of the distributions appear roughly the same. There has clearly been an increase in the variance of wages, especially at the top, but this should be expected as the dispersion of earnings in a particular age groups tends to increase over the course of the working life. In future work, we plan to complete a detailed econometric analysis of the changing wage distributions, using a quantile regression method (such as that used by Firpo, Fortin and Lemieux, 2007) to explain these changes as a result of several explanatory factors, including occupational structure and increased employment in non-routine occupations, returns to and distributions of educational attainment and other demographic factors. However, 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 REF _Ref253402358 \h Figure 5. This measure captures the change in slope across the wage distribution and accounts for the different range of wages earned over time. Figure 5: Changing employment by wage percentile, 1981 to 2004Figure 5 shows that there has been very little change in employment share in the highest paid and lowest paid jobs, as defined by these wage percentiles. In terms of the shape of the derived distributions, Figure 5 suggests that the slope at the bottom and at top is roughly similar over time. The largest changes all occur in the middle of the wage spectrum, with increases in employment for jobs earning wages that fall between 30% and 50% of the highest wage and decreases in employment for jobs earning wages that fall between 50% and 80% of the highest wage. These changes are more consistent with a picture of faster wage growth at the top, which could mean increasing returns to higher education, increasing returns to experience or career progression. Our findings are by no means conclusive and we reiterate that the quantile regression approach is a necessary next step.If non-routine occupations have grown in employment share, routine occupations have fallen in employment share and the latter occupations initially appeared in the middle of the wage distribution, there needs to be a reason why wage distributions are not polarising. We argue that the structure of wages for occupations is not likely to have remained constant over the time period and that, as a result, evidence such as that presented in Figure 1 and used extensively in the existing literature does not directly demonstrate polarisation.The wage structure of occupations could have transformed for a number of reasons. We highlight two that are directly associated with the underlying process of routinisation. Firstly, as demands for different occupations change, it seems likely that the relative earnings of these occupations will also change. Secondly, as certain occupations grow, some of them will inevitably employ those from the old middle-income occupations in decline. To the extent that wages are not solely determined by occupation, but by individual skills and productivity, this may mean that expanding occupations have a great deal more variance in the wages earned by those performing them. The resulting labour market may as a consequence be typified by a different sort of middle wage occupation.Thus, the disappearance of middling jobs should not lead to the automatic conclusion that the job market is polarising. It could also be the case that the some of occupations that are growing have, in the process, moved nearer the middle of the new wage spectrum. For example, the relative wages of initially low paying jobs may have increased, or those of high paying jobs may have decreased. Furthermore, there may be different wages experienced by workers in those occupations before routinisation, and those who move into those jobs as a result of being displaced from routine occupations.The most telling result comes from a re-evaluation of the initial Goos-Manning methodology, as in Figure 1, where occupations are ranked not by the initial mean wage in 1981, but by an average of the initial mean wage and the mean wage of occupations, controlled for price inflation, in 2004. In the existing work using cross-sectional studies, the average wage for each decile covers the entire age distribution, whereas so far we have decided on the decile of each occupation based solely on the wage of 23 year-old members of the NCDS in 1981. It makes sense that a measure of job quality based on an average wage of the young and older workers in that occupations would be closer to the Goos-Manning measure. In this case, our data set gives us the older workers wage at the end of our time period. This would not be an issue if the relative wages of different occupations structure had remained broadly the same, leading to the same U-shaped relationship between employment share growth and average wages of occupations. However, REF _Ref253408488 Figure 6 shows a much weaker version of the U-shaped patterns of growth, with the lowest deciles showing a declining employment share, albeit with less of a decline than the middle occupations.A possible explanation for this is that low earning occupations (based on the 1981 wage) have improved in their relative position over the period and, as such, the employment growth is recorded in a higher occupational decile in REF _Ref253408488 Figure 6 than in REF _Ref253406663 Figure 1. Low wage occupations expanding and moving toward the middle of the income spectrum may partially explain the lack of an observed decline in the wage distribution. Analysis such as that presented in REF _Ref253408488 Figure 6 may reveal only part of the story. We also need to understand the outcomes of those moving into better jobs and whether those that have moved upwards experience similar wages to the existing employees, or if they are considered less productive in their new occupation. Such individuals, whilst recorded in our diagrams as employment growth in the top deciles, may actually remain in roughly the same relative position in the wage distribution. To understand this better requires more detailed analysis of the mobility of individuals in our sample, in particular looking at their occupational and income destinations. Occupational and wage mobility as a consequence of the decline in routine occupations and the growth of non-routine occupations is, as indicated previously, a major part of our future research.Figure 6: Changes in employment share of occupations between 1981 and 2004, by decile (whole sample mean wage and 1981 mean wages )5ConclusionThe starting point of our research was that polarisation may has affected mobility, since a hollowed-out labour market has, by definition, fewer middle jobs for low wage workers to move into and increasing competition for those that remain. This means that significant upward movements 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 our chosen dataset. This paper raises some concerns about existing methodologies and presents some key findings which should cause us to question to ready an acceptance of the nature of polarisation.This paper has used a dataset comprising two waves of the National Child Development Study to show that between 1981 and 2004, consistent with the existing literature, jobs that have fallen in employment share tend to fall nearer the middle of the wage spectrum, where position in the wage spectrum is based on the average wage of the occupation at the beginning of our period of study. However, we have argued that this finding is only necessarily indicative of polarising labour markets if it is assumed that the wage structure of occupations has remained constant. Looking at the resulting wage distributions, as we have, suggests that employment at the highest and lowest paying jobs have not expanded at the expense of employment in the middle of the wage spectrum.Future research on this issue will be taken in several directions. Firstly, we will further investigate the extent to which polarisation has in fact taken place across the wider working population, using occupation and wage data from a large cross-sectional data set such as the New Earnings Survey. We suggest that a quantile regression approach to resulting wage distributions will lead to a clearer picture of the extent to which labour markets have polarised.Secondly, we will return to the broader issue of labour market segmentation. If this paper has suggested anything, it is that polarisation seems a less likely mechanism for creating segmented labour markets than we may have thought. However, there still remain a number of areas where routinisation may have created barriers to mobility. One task will be to look at generational issues; in particular, whether the experience of new entrants to the labour market as it transforms is different to those already in the labour market. New entrants may be increasingly polarised and predominantly enter at the ends of the job quality spectrum, whereas those in the middle of the spectrum are able to retain the remaining middling jobs. We are fortunate that a later longitudinal study - the 1970 British Cohort Study - is available to compare the initial entry and later mobility of two cohorts: one who entered the labour market at the start of the period where routine occupations experienced a decline and another who entered the labour market after these occupational changes were well underway.A second task is to look at the mobility and destinations of the displaced workers. There are two sorts of mobility to consider. Occupational mobility analysis may reveal which jobs displaced workers can move to and to which they find moving more difficult. We also need to consider whether skills have any explanatory power here, or whether limitations to mobility may arise for some other reasons. Wage mobility analysis will help us answer questions about the persistence of employment in the middle of the wage distribution. One possibility is that displaced routine workers maintain their position in the labour market, albeit in a different occupation. This is likely to occur if the return to skills is much more important than the occupational wage premium. Finally, we need to consider what this means for education and skills policy. Much of SKOPE's research is concerned with the relationship between educational attainment and skill acquisition on the one hand, and labour market success on the other. The UK government places great emphasis on workplace skill acquisition as a way to improve the lot of those at the bottom end. This is largely the justification for schemes such as Train to Gain. Clearly, evaluations of such a policy is dependent upon understanding the determinants of occupational mobility and the constraints faced by those looking to progress upwards. We see this project making an important contribution to this understanding.ReferencesAutor, D, and Dorn, D, (2009), This job is “getting old”: measuring changes in job opportunities using occupational age structure, American Economic Review, 99(2).Autor, D, Levy, F, and Murnane, R, (2003), The skill content of recent technological change: an empirical exploration, Quarterly Journal of Economics, 118(4).Autor, D, Katz, L, and Kearney, M, (2006), The polarisation of the U.S. labour market, American Economic Review, 96(2).Fauth, R, and Brinkley, I, (2006), Efficiency and labour market polarisation, Knowledge economy programme report, London: The Work Foundation.Firpo, S, Fortin, N, and Lemieux, T, (2007), Decomposing wage distributions using recentered influence function regressions, unpublished paper presented at the 2007 NBER Summer Institute.Goos, M, and Manning, A, (2007), Lousy jobs and lovely jobs: the rising polarization of work in Britain, The Review of Economics and Statistics, 89 (1).Holmes, C, (2010), Job polarisation in the UK: An assessment using longitudinal data, SKOPE Research Paper No. 90.Leontaridi, M, (1998), Segmented labour markets: theory and evidence, Journal of Economic Surveys, 12(1).Lloyd, C, and Mayhew, K, (2009), Skill: the solution to low wage work, SKOPE.Oesch, D, and Rodriguez, J, (2009), Upgrading or polarization? Occupational change in Britain, Germany, Spain and Switzerland, 1990-2008, DemoSoc Working Paper No. 32.Spitz-Oener, A, (2006), Technical change, job tasks and rising educational demands: looking outside the wage structure, Journal of Labour Economics, 24(2). ................
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