Help wanted: Katherine S. Newman and Elisabeth S. Jacobs on how tight labour markets benefit the poor

This episode of Hub Dialogues features host Sean Speer in conversation with labour market experts Katherine S. Newman and Elisabeth S. Jacobs about their interesting new book, Moving the Needle: What Tight Labor Markets Do For the Poor. 

You can listen to this episode of Hub Dialogues on Acast, Amazon, Apple, Google, Spotify, or YouTube. The episodes are generously supported by The Ira Gluskin And Maxine Granovsky Gluskin Charitable Foundation.

SEAN SPEER: Welcome to Hub Dialogues. I’m your host, Sean Speer, editor-at-large at The Hub. I’m honoured to be joined today by Katherine Newman and Elisabeth Jacobs, who are leading thinkers and scholars on labour markets, human capital, and mobility. Katherine is provost and executive vice president of academic affairs at the University of California. Elisabeth is a senior fellow at the Urban Institute and co-founder of WorkRise, a research-to-action network on jobs, workers, and mobility. They’re also the co-authors of a must-read new book, Moving the Needle: What Tight Labor Markets Do For the Poor. I’m grateful to speak with them about the book, including how a tight labour market might reshape our political economy. Katherine and Elisabeth, thanks for joining us at Hub Dialogues and congratulations on the book.

Let’s dig right into it. People will be increasingly familiar with the lexicon of tight labour markets. I think at an intuitive level, listeners will understand that it’s a context in which there’s greater labour demand than there is supply, but you’re not using the term loosely. In fact, the book uses a ton of data and analysis to actually define, at least from the point of view of workers, what optimal tightness looks like. Can you please unpack that a bit, what did you conclude, and what are the implications of a low unemployment rate?

KATHERINE NEWMAN: Tight labour markets from our point of view really begin when unemployment is down around 4.5 percent. Today, we’re even tighter than that. We would call what we’re in presently an extremely tight labour market. The effects that we point to, which involve bringing people into the labour market who historically have been excluded, rising wages especially at the bottom, improvement in working conditions including benefits, the development of internal upward mobility opportunities, tend to appear when unemployment goes below 4.5 percent.

SEAN SPEER: Before we look to the present and the future, I wanted to ask about the past, if that’s okay. The labour markets in Canada and the United States, in large part because of the massive growth of the labour supply resulting from the baby boom, were such that for several decades, even in good economic periods, we had relatively high unemployment rates. I remember, for instance, that even during the global financial crisis, our unemployment rate never reached the norms through much of the 1980s and ’90s.

Can you talk a bit about the historical patterns between labour supply and demand before we get into what’s changed and what the implications may be?

ELISABETH JACOBS: We know that we’ve had tight labour markets in the way that Katherine just described, so a prolonged period of unemployment under 4.5 percent. That’s happened before. It happened in the ’90s in the dot-com boom. We saw similar things happening in the labour market, including amongst lower-wage workers, these kinds of opportunities for higher wages, higher mobility ladders, et cetera.

That’s the one time that we’ve seen these kinds of durable and very low unemployment rates. We’ve had ups and downs, for sure, but this kind of stickiness that we feel we see in the data that you need has really only happened that one other time in the history that we’re able to track using the data.

SEAN SPEER: Looking ahead, as the growth in the labour supply declines, we’re seeing demand outstrip supply for the first time in a long time. Is that happening evenly across the economy? That is to say, are you observing that demand is particularly greater than supply in certain industries, occupations, or even at certain skill levels?

KATHERINE NEWMAN: There are all kinds of variations, so it’s always a bit of a risk to talk about national unemployment rates. Which is why in the book, we go down to the state level, and originally went down even lower because there are micro differences that are quite important. If you were looking at the border regions, for example, the southern border regions in particular, you would see much higher levels of unemployment than you see in the Northeast, for example.

There are real variations and they have to do with the industries that are on the ground, they have to do with where population growth is located, where immigration is headed. There are real variations and it’s important to recognize them because workers don’t live in the nation. They live in the place where they live, and the constraints and opportunities they face are highly local, except for that very small group of people at the top that are very, very geographically mobile. I would say geography has a great deal to do with where those labour markets tighten, but some of the dynamics we wanted to look at can be observed nationally, so it’s important to have both perspectives.

Elisabeth, do you want to add to that?

ELISABETH JACOBS: The only thing that I would add is to your question about industry and occupation and how there might be variation across those even in a given place. We certainly see some of that but again, to Katherine’s point, at a certain point you need to aggregate up to tell a story about what’s happening more generally. I think we can say more generally, the trends all point in a particular direction, which is the story that we’re telling about what happens to workers at large.

That doesn’t mean that every worker and every occupation in a place, even a place that’s doing well, is going to see the same kinds of opportunities. At the same time, there’s a lot of opportunity for switching, particularly at the bottom of the ladder, for moving into some of those places where there’s real opportunity in a given place that’s really hot.

SEAN SPEER: We’ll come back to some of your observations, particularly about the geographic dynamics. Before we get there, I want to take up the subject of job polarization, which is another of the major labour market trends over the past quarter century or so. The idea being that the relative share of mid-skill jobs has fallen in economies like Canada and the United States, and the relative share of low and high-skill jobs have increased.

There are different factors for that, of course. Some of it is trade pressure. Some of it is the adoption of technology and automation in certain sectors. I want to ask you: if we’re entering this period of tight labour markets in what is sometimes called a U-shaped labour market, how will the developments that you’re describing interact with the more secular trend of job polarization? Is there a potential to transform low-skilled occupations into mid-skilled ones?

KATHERINE NEWMAN: I do think that’s a very important point. It goes along with the observation we make in the book that the quickest increases, the fastest-rising increases, are at the bottom, and that does suggest an improvement in the prospects of those workers. It also means that employers are looking for ways to increase the human capital of people at the bottom because they’re costing them more, so you do see more investment in training, for example. I don’t know that that cures the U, but it certainly moves people up, and enables them to be upwardly mobile inside firms and between firms where they may get even greater advantage.

Does that completely wipe out this polarization trend? No, I don’t think so, but it does help to move people who have been at the bottom up in terms of their standard of living and up in terms of their human capital profile, which I think is really important. One of the most important aspects of tight labour markets is that it encourages, almost naturally, employers to invest in training and sometimes to invest in formal education, but especially in training and licensing and all of the different ways in which employers can enhance the human capital of their workforce.

Now in the past, when you have looser labour markets, you get qualified people walking in the front door, you don’t see that kind of investment, but when labour markets really tighten, you do. That, I think, is the greatest prospect for improving, over the long run, the prospects of people at the very bottom.

SEAN SPEER: One thing that strikes me about some of the analysis in the book is that a lot of the places where there seems to be the most demand are areas where it’s not obvious how those functions can be outsourced. A lot of them are caregiving, or food and hospitality, which tend to be face-to-face. They involve human interaction.

In a world in which employers are struggling to fill jobs, and a lot of these jobs are ones that can’t be easily outsourced to jurisdictions with larger labour supplies, what are the options? Do you want to talk a bit about how employers can solve for a tight labour market?

KATHERINE NEWMAN: Well, they can make their workers more productive. That’s probably their best bet, especially when they’re paying more, but if I may tell a short anecdote here.

SEAN SPEER: Please.

KATHERINE NEWMAN: Many years ago, I wrote a book called, No Shame in My Game: The Working Poor in the Inner City. The focus of that book was the fast-food industry, and I chose it because I thought, this can’t be outsourced and it can’t be automated. People have to eat their hamburgers where they are, and they need somebody to cook them. Well, if you go into a fast-food restaurant now, including the ones I studied, you will see that there are automated screens for entering an order that were not there before. Those were all done across the counter.

You do have some industries that we thought could never be automated, looking a little more automation-friendly. Similarly, we are starting to see in hospitals the use of robots to deliver supplies around the hospital. It’s still nascent, and as long as growth rates are high, you don’t really observe it that much because there’s growth going on at the same time that automation is developing.

I don’t think we completely understand the limits of automation. I certainly agree that you can’t transport those fast-food jobs to some other place. They happen where they happen. Of course, as we know, automation generates demand for other kinds of occupations. Somebody’s got to monitor those menus and make sure the electronics are working, and that’s a group of people that weren’t in those restaurants before.

Overall, most economists argue that automation tends to either hold steady or increase employment overall, but of course, workers don’t live in an economy of overall. They live in the occupations they have, and so if one group is displaced and another group grows, it doesn’t help the displaced group unless there’s some way to train them so that they can move into those other occupations.

This is a very mobile development. I don’t think we’ve seen the end of it, and I don’t think we could even forecast the end of it. What I would say is that at the moment, labour demand is definitely outstripping the supply and automation is not able to blunt this. We would see much higher unemployment if it could, and we don’t.

SEAN SPEER: I want to take up the subject of geography, which we’ve talked about already. You’ll know, and many of our listeners will know, that sometimes these gaps between demand and supply can result from a mismatch in a local labour market. That is to say, labour demand and supply may not be in the same place. I grew up in a town in Canada for which this discussion may not resonate as much because it’s a place that has experienced deindustrialization and population loss.

Do you want to talk about the geographic distribution of your analysis? I assume it’s more concentrated in some places than others. If so, what should we be doing? Should people be relocating, and is there a role for public policy to facilitate that?

ELISABETH JACOBS: First of all, the trends that we see function across the country. While there’s certain variation within that, we see overall that this is a relationship that persists. That’s just a starting place. That said, there are certainly deep pockets of the U.S. and in Canada where places have deindustrialized, where opportunity isn’t necessarily there, and so I’m sure hearing stories about a white-hot labour market is like, “What are you talking about? That’s not good for me.”

I think if there’s one thing that we’ve learned during the pandemic it’s how much work isn’t actually place-specific. I think we’re in a transition period right now, we’re figuring out what actually has to take place in an office, in a place, and what can happen not in a place but remotely. There’s really an open question there and a lot of opportunity. That’s one thing adds a new development coming out of this confusing period is that it’s unclear how much place really matters. This idea that you need to move people from low-opportunity places into high-opportunity places, I think is very much in question because there are so many positions that used to be thought of in place that aren’t anymore.

Then the other thing that I’ll say is that there are spillover effects in terms of a hot place. It can become less expensive to move an industry from a very expensive urban market to a much less expensive rural market that may have deindustrialized. I think even in the context of, for example, the green jobs transition in the U.S., there are real transitions happening that are re-industrializing, in some ways, places that have been deindustrialized in the past. That all is part of the engine of what comes out of labour markets that are really driving productivity and change in positive ways.

SEAN SPEER: There’s a ton of insight there, Elisabeth. Let me pick up some of those points. A lot of our conversation has been focused on relatively low-skilled occupations, what you might call working-class occupations. One of the challenges in Canada is a lot of the demand for those jobs is in labour markets with really high housing prices, so that people face this conflict, the labour market is screaming at the top of its lungs for workers, but they simply can’t afford to live in those high-demand areas.

Do you want to talk about the place of housing in your story, and the role for public policy to enable people to be responsive to those labour market signals?

KATHERINE NEWMAN: We did focus on this in a chapter that’s specifically about neighbourhoods and how neighbourhoods respond to tight labour markets. Because most of the research was being done in Boston, which is an overheated rental market, we’re very aware of the phenomenon you’re describing. What I would say is that there isn’t an easy solution here.

You do see that the same phenomena or same drivers that are leading to tight labour markets are also leading to increased costs in terms of rent, in particular. The first thing that happens is that you see affluent people who can’t afford the rents in the central city anymore, starting to push out into areas that were more impoverished in the past. That’s a transition that has happened many, many times over. You have neighborhoods in the sort of inner ring going from poor to rich to poor to rich as the economic cycle proceeds.

One of the policy dimensions that we do discuss in the book is the importance of moving away from very strict phaseouts of housing benefits that have protected poor people or given them a greater degree of housing stability than they’ve had in the past, but because we have these very strict cutoffs because, at least in the U.S., we are obsessed by free riders and panic that somehow if people are not driven to the satanic mills that they won’t go to work.

In fact, what we see is that the vast majority of Americans want to work, want to pull ahead, but they can’t outstrip these housing costs. What we need to do is to take programs like Section 8 and make them a little bit more flexible, a little bit more oriented toward enabling long-term freedom from the need for those benefits, rather than being obsessed by cutting people off so quickly that they can’t actually consolidate the gains that are accruing to them in tight labour markets.

We do think there are policy instruments. Some cities have experimented with rent control. That’s very controversial, but some have used it to good effect in order to stabilize housing. Housing is probably the single most complex variable in affordability, and it’s not an easy one, especially if the supply of housing is constrained. Now, in many American cities now, we are seeing state governments take the bull by the horns and order localities to build more housing. Basically by saying, “If you don’t build more housing, we are going to come in and determine what housing you’re going to have built, so do it now yourselves or we will do it for you.”

Here in California where I live, we’re seeing this play out. It was true in Massachusetts as well. You had these ordinances that basically demanded a certain proportion of affordable housing, and any community that fell below that level would see the state come in and order their own architects. Transit-oriented housing is a big piece of this because there’s also a desire to see that this be accommodated through public transit rather than overload the road.

There are various policy instruments, some of which are driven by a clean energy agenda, others of which are driven by the need to make housing affordable. Very little of it is driven by the need to accommodate to a tight labour market, in part because it just moves so quickly that it’s difficult to adjust housing costs accordingly. Making transit more affordable. I mean, it’s not fun to have to commute a long distance, but making it at least feasible. There are cities that are experimenting with free transit. Boston is experimenting right now with making public buses free in order to, again, make it possible for people to move farther out of the city and still be within the labour market orbit of the city.

There are many policy instruments that are worth looking at.

SEAN SPEER: There’s been some controversy in Canada around the place of what we call temporary foreign workers. These are workers who aren’t entering the country through the permanent resident stream, but that companies rely on, on an almost transactional basis, to meet their labour needs. Critics would say that, while there may be some particular sectors where temporary foreign workers are necessary, the rise of TFWs in the past decade or so is an effort on the part of businesses to extract themselves from the dynamics of a tight labour market.

Do you want to talk a bit about the role of immigration in your story, generally, and in particular, efforts on the part of business to use immigration to blunt the market’s upward pressure on wages?

ELISABETH JACOBS: We think that there are a number of demographic forces behind the tight labour markets that we saw pre-pandemic and now in the period we’re in now. One of those in the U.S. is the fact that we’ve really clamped down on immigration, in addition to the fact that we have declining birth rates and an aging baby boom. All of those things come together to reduce labour supply. Whether or not that’s the right way to create a tight labour market is certainly an open question, but it’s certainly an important factor because the balance of supply and demand is determined by demographic forces, with immigration being a big part of that.

SEAN SPEER: Just in parentheses, Katherine, Elisabeth, we have a extraordinary model where our permanent resident targets are extremely high, about half a million people per year moving forward, but that only tells a small part of the story because through visas, temporary foreign workers, educational visas, et cetera, the actual number entering the country is something more like 1.2 million, 1.3 million per year. That other part tends to be neglected when we think about public policy, particularly as it relates to labour markets.

KATHERINE NEWMAN: Canada just has a much more intelligent immigration policy. Let’s face it. It seems to be driven more by data, and by thinking about the needs of the country and the demands of the labour market than the U.S., which seems to be driven by divisive politics and almost data-free in our way of thinking. A number of us have advocated that the U.S. should be paying much more attention to what the Canadian model looks like. It is a more intelligent model. It is geared toward a society that needs more people, and we need more people too.

In fact, we think—Elisabeth and I have written about how you could accommodate a more flexible and generous immigration policy, as long as those people are subject to the same laws and the same benefits. What we don’t want is to see immigration used as a cudgel to drive down wages as it was in the past, and that was a long-distance past in particular. It’s the reason why immigration became such a flashpoint for many working-class communities because they saw that this was strike-breaking, and they saw that this was an effort to blunt their wage improvements and so on.

We need more people. Immigration has long been a tremendous strength of the United States. I wouldn’t be here if it weren’t for immigration policies of the past. I’ve never asked Elisabeth about her family, but I know mine wouldn’t be here if my grandfather hadn’t been led into Ellis Island when he was a child. We do not want to see immigrants become, as they often were and still are, especially for the undocumented, the exploited bottom layer of the labour market that have no rights that will be respected.

SEAN SPEER: Canadian labour productivity has been pretty abysmal for a long time. In fact, we’ve published analysis at The Hub that shows that it actually fell into negative territory during different times in the pandemic. Can you talk a bit about the potential interaction between tight labour markets and labour productivity?

KATHERINE NEWMAN: Elisabeth, you want to take a shot at that one [chuckles] while I think about it [crosstalk]— 

ELISABETH JACOBS: I can take a shot at that. I don’t know if this’ll answer exactly your question, but I can talk a little bit about some thoughts on productivity. The U.S. labour market has been, similarly, somewhat less productive than one might expect, given all of the other factors going on, and there’s an open question as to why that’s happening and I don’t think anyone knows. That’s part of the pause, I think, from both Katherine and myself is that’s a good question and no one actually knows the answer, and that wasn’t part of what we were addressing directly.

I will say that there are good reasons to think that some of the things that we put in place over time that make the labour market more functional for workers, for example, protections, processes, things that may seem like red tape but are actually super important for making sure that, for example, buildings don’t fall down in construction. Which is a great example of an industry that’s seen flat or falling productivity with workers in ways that are surprising, given all that we know about how society is advanced.

There are good reasons why we have those things in place. I don’t know if that’s the actual cause of what’s driving down productivity or not. I think it’s a real open question, but there are some good reasons why you might imagine that productivity wouldn’t fly ahead if you’re actually regulating and making markets work in a way that is kinder and fairer to the people involved. There’s a trade-off, with productivity being one of various things that you might measure to see if something is working correctly or not.

That’s my stab at an answer. I think there are many more. Katherine, if you have anything to add, I’m happy to [crosstalk]—

KATHERINE NEWMAN: The only thing I can add is I wouldn’t want to be in charge of measuring productivity in a period when remote work has become so predominant. I don’t think we really know how to measure this anymore. I think there’s a lot more work to be done, and the jury is out as to whether or not we really are less productive. I’m not absolutely sure that’s the case.

Because one of the things that happens with remote work is that lots of people are working many other hours than they used to. They come back to work late at night, they work on the weekend because now work is being done—it’s not being done in the office or it’s not only being done in the office. I just think it’s a difficult thing to measure, but put that on your list, Sean, of things other people should work on.

[laughter]

SEAN SPEER: Well, what I had in mind—I’ll move to another question—but what I had in mind comes back to something you raised earlier, Katherine. Which is, will we see a greater investment in productivity-enhancing equipment and technology because of tight labour markets and as such, actually start to see growth in labour productivity as workers are able to leverage those investments?

KATHERINE NEWMAN: Well, we certainly see more investment in people themselves, their skills. I don’t know how much more investment there has been in technology, per se, but the ability of people to use technology, the literacy that we have with technology, all of that clearly is being enhanced because you have to get more out of the people that you’ve hired. You can’t not pay them those higher wages, and you want to hold on to them, so investing in them and giving them more portable skills becomes one of the ways you do that, even if you lose them in the end to some other company willing to pay more.

SEAN SPEER: Earlier in our conversation, Katherine, you mentioned the potential for tight labour markets to pull marginalized groups into the centre of the economy. Do you want to talk a bit about that and in particular, how we can create a culture and a policy framework that can better accommodate and utilize the human capital of persons with disabilities?

KATHERINE NEWMAN: Yes. There are a number of groups that are showing record levels of employment, and people with disabilities are one of those groups. Another group that Elisabeth and I highlight are people with criminal records who are now in much greater demand than they were before. You’ve got many groups that were sitting on the edges of the labour market trying to find their way in and being blocked because of these qualitative distinctions and prejudices, fundamentally.

The wonderful thing about tight labour markets is it’s like a prejudice-busting machine. It forces employers to look in directions they wouldn’t have before. Now, when they start to take those people in, much of the time they’re pleasantly surprised. Oh, it turns out Joe, who’s been in jail for the last 20 years, is actually a pretty good worker. If Joe’s given half a chance, especially because he knows this is his once-in-a-lifetime chance, Joe will not only work out well, Joe will turn out to work out better than some of those other people that had an easier time getting in your front door.

The big question in our minds, and we were able to look at this to a little bit of an extent, is, will that employer now think, “Joe is just a diamond in the rough,” or will they think, “All those other Joe’s out there, maybe I should take another look at them, and maybe I should have a regular way of searching for those other Joe’s”? We did see evidence of employers starting to build relationships, for example, with county sheriffs, especially seeking men with blue-collar skills, and starting to realize that is a labour supply that if it’s carefully vetted, they can make use of, and if they invest in it, it will turn out to be less turnover, higher productivity.

That is a shocker, but that’s actually what the data seemed to be showing, that you see a decline of unemployment among people with criminal records by about 50 percent in some states. We don’t have really good data on this, but in the states where we’ve got some data, we do see very dramatic declines when they’re tight labour markets, and you see this kind of investment that then turns into a longer-term opportunity. What we want to see is that this then starts to remove barriers. Now, there are policy instruments that we need in order to take that to its fullest extent.

For example, people with felony records cannot work on federally funded job sites, including construction. In Massachusetts, you’ve got all of these biotechnology labs that are being built with federal grant dollars. If you have a felony record, you cannot pour cement. That’s crazy. I understand the anxieties employers might have if they’re talking about, I don’t know, people who are convicted of an embezzlement working with money, but unless it’s a really targeted-type objection of that kind, we ought to get rid of those blanket restrictions. There are other kinds of restrictions in licensing, that people are denied the opportunity to even try to study for such a license. There are some formal ways in which we can get around this.

With respect to the disabled, Zoom technology has been a freaking amazing benefit to people who are disabled because they can do their jobs from a desk instead of having to move around through transit, which can be very difficult if you’re physically handicapped. Both physical and mental disabilities are, folks with those conditions, are employed at a much higher level when labour markets are tight. I will finish by saying, don’t we want them to do that, as opposed to seeing them in long-term disability roles where they’re dependent on government programs instead of earning for themselves?

SEAN SPEER: Do you think that if these trends persist, we’ll see downward pressure on credentialization in our labour market? Will this put an end to the race on the part of young people to get advanced degrees, and so on, to be able to participate in labour market? Then maybe just secondly to wrap up, why don’t you paint, in our final moments, just a broader picture of what a sustained period of tight labour markets means for our political economy?

ELISABETH JACOBS: We see in the data, and we have historic evidence of this as well, that historic evidence shows us in places where the labour market tightens, by looking at job ads, so what kind of credentials show up in an ad that an employer posts, you see a lot less credentialism, a lot less BA required when the labour market is tight. We see that across the country now. There’s a movement to move away from credentials-based hiring and towards skills-based hiring. I actually just spent today with a group of employers and job training practitioners who are thinking hard about that.

I would posit—and you can come back to me in a couple years when the economic circumstances change, we’ll see if I’m right—I would posit that what we’ve seen now between both the imperative created by tight labour markets, combined with a realization of the inequities that come with credential-based hiring come from who has access to education, who has the assets to complete a college education is very, very, very racially intertwined in the U.S. By moving away from credentials and towards skills, you end up with a workforce that’s much more tightly honed to what you need them to do and relying less on a very weak signal and on top of that, starts to break down some equity barriers that have been long baked into the U.S.

Those two things combined, I think are a reason to believe that this will stick and potentially outlast a tight labour market, and really fundamentally change the way we think about matching people to jobs in ways that create real equity that we haven’t had previously in this country. I’m going to cross my fingers on that one and turn it to Katherine for her wrap-up.

KATHERINE NEWMAN: Let me end very quickly. I’m going to do it by telling a story that we just learned about a day or so ago when we were doing another interview, where somebody called into a Detroit public radio station and explained that he had spent 18 years working as a temporary employee with no benefits, no health insurance, nothing, and that when labour markets tightened up, his employer made him a regular employee, vastly raised his wages, like by 50 percent, gave him health insurance. This is going to allow him to pay off his mortgage three times as fast as he otherwise thought he could, and spend a lot more money taking care of educating the next generation in his family.

If we were fortunate enough to see tight labour markets persist for a longer period of time, there would be millions of people just like him, and isn’t that what we really want? We want the great American or Canadian job machine to produce opportunity for upward mobility, to produce opportunity for stability, to reduce the need for people to rely on government benefits and allow them to rely on themselves while remaining attuned to the need for a safety net when things start to fall apart.

There is a very important role for that safety net, but it should become, in better times, a springboard for mobility. That’s the policy challenge, but there’s a great deal, even absent policy, that tight labour markets do on their own, just by changing the dynamics of supply and demand, to make this a better world especially for people at the very bottom.

SEAN SPEER: It’s a great message and been a great conversation. Thank you so much for joining me.

KATHERINE NEWMAN: Thank you. Take care.

ELISABETH JACOBS: Thanks for having us. Bye-bye.