Institute on Education and the Economy

Politics and Society, Vol. 25, Iss. 2

In Search of the High Road in a Low-Wage Service Industry

Thomas Bailey and Annette Bernhardt

When faced with rising wage inequality and large numbers of low-wage jobs, policy makers are increasingly looking to innovations in the business community for solutions. Advocates argue that "high performance systems" will both strengthen the competitiveness of American firms and improve the quality of jobs. But the proposed benefits for workers remain largely untested. Drawing on a series of case studies, we therefore examine the effect of firm restructuring on job quality, defined in terms of wages, benefits, and the opportunities for skill acquisition and promotion. The firms were chosen from the traditionally low-wage retail trade industry and each had implemented some level of reform in both the "production" and the service ends of their operations. Ultimately, however, it is unclear whether the high performance model holds much promise, at least in this sector. The reforms did create somewhat more interesting and varied jobs. But regardless of the extent of innovation and despite the strong performance of these firms, we found very little improvement either in wages or in the chances for upward mobility from entry-level positions. These findings question the simple delineation between an efficient "high road" and an inefficient "low road." In some contexts, a highly rationalized and low-wage business strategy may be more efficient. And even where high-road innovations are implemented, low wages may still persist, because productivity gains are translated into price cuts instead of wage increases. In those firms where job quality was above average, employers turned to college students and experienced workers rather than investing in the training of low-skill workers. These points have several implications for public policy, which are taken up at the conclusion of the paper.

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