Employer practices

Employer Practices and Economic Mobility: What Does the Evidence Say?

Archana Pyati June 17, 2022

This is one of two posts that share findings from a new report on employer practices and their influence on workers’ economic security and mobility. Commissioned by WorkRise, researchers at the Massachusetts Institute of Technology (MIT) Sloan School of Management produced a study that summarizes evidence and identifies salient open research questions on how employer practices can promote economic mobility. This work will inform the development of WorkRise’s research agenda and grantmaking on this topic. This post focuses on what MIT Sloan researchers found in their review of the evidence. A second post highlights promising research opportunities that could advance the state of knowledge, policies, and practices in support of workers’ mobility.  

In a historically tight labor market, employers are taking extraordinary steps to compete for workers. Some are offering higher pay or signing bonuses to hew hires, while others are attracting talent with promises of health insurance, flexible hours, or assistance with child care. Many of these overtures have been extended to workers in low-wage industries, who are experiencing the fastest wage growth, an outcome advocates say is long overdue but may not reverse long-standing trends.

Since the 1980s, US workers without college degrees have increasingly experienced stagnant wage growth and fewer opportunities to advance, improve earnings, or build careers. Women and people of color face additional structural disadvantages, including persistent gaps in pay and access to benefits and other elements of good jobs. Now, recent events have renewed the urgency to act: the COVID-19 pandemic, the murder of George Floyd by police, and subsequent protests for racial justice forced a national reckoning—including at all levels of government and in corporate boardrooms—with inequalities embedded in norms, systems, and institutions, including the workplace.

Recent actions by employers to raise wages and improve working conditions show responsiveness to jobseekers’ demands. However, they also underscore the power of and variation in employer and organizational practices to shape workers’ daily economic realities. Absent broad public policies that go beyond standards set by employment and labor laws, employers have substantial flexibility to create the kinds of jobs and work environments that suit their needs.    

Yet little is known about how these practices and their variability affect workers’ long-term prospects. Do specific practices promote or impede greater mobility—measured in economic attainment and access to better jobs—in the labor market? Can firms reduce inequality between high-wage and low-wage workers both within their walls and across an industry sector through voluntary change?

These questions animate a new study by a multidisciplinary team of scholars at the MIT Sloan School of Management commissioned by WorkRise. The research team reviewed more than 100 empirical studies to assess whether a defined set of practices could improve economic mobility for workers who have been marginalized and excluded from opportunity. The practices they reviewed include pay and wage setting; scheduling; paid and unpaid leave; recruitment; hiring and promotion; work systems, or how jobs and tasks are designed; and diversity, equity, and inclusion (DEI). They did not review policies and practices that support workforce training, worker voice and organizing, and outsourcing or offshoring.

Framework for evaluating practices

The researchers developed a three-part framework to evaluate whether employer practices could positively influence economic security and mobility. First, they focused on whether a specific practice could improve low-quality jobs, with regards to earnings or other work conditions. Next, they assessed whether specific practice, beyond providing better pay, could make workers more likely to remain in a job instead of quitting. And finally, they determined whether a practice broadens access to higher-wage jobs to people who are stuck in low-wage jobs, unemployed, or out of the labor force. The researchers also assessed whether specific practices could benefit both workers and firms and explored barriers to employer adoption and implementation.

Key findings

Here are highlights from the researchers’ review of empirical studies across the practice areas described above:

  • Pay and wages: Wages are a core measure of job quality, and raising wages has a demonstrably positive impact on reducing poverty and racial inequality. Getting a higher-wage job early in one’s career can facilitate economic mobility. Yet pay practices vary considerably across firms for similar workers, reinforcing the idea that employers exercise significant discretion over what workers earn. The evidence is mixed on whether wage increases will pay for themselves through greater productivity or cost reductions for the firm. This means employers may require external pressures—including tight labor markets, minimum wage policies, labor unions, or norms across industry sectors—to raise wages.
  • Scheduling: Stabilizing work schedules can improve workers’ well-being and support mobility by reducing income volatility and material hardship. Unstable, precarious schedules not only increase volatility in hours and income and create economic hardship but also make it more likely workers will quit or leave the labor force altogether. Evidence shows stable scheduling can also benefit employers through lower turnover and greater worker productivity.
  • Paid or unpaid leave: Evidence suggests paid family and sick leaves of less than one year can support economic mobility through job continuity and keep women, in particular, attached to the labor force. Yet these benefits are more likely to be accessible to white-collar workers than low-wage workers. Public policy interventions are likely needed to promote economic mobility for low-wage workers through paid leave.
  • Recruitment, hiring, and promotion: Internal promotions within a firm aren’t currently a primary pathway out of low-wage work; research shows low-wage workers are often segregated into separate tracks or limited by an insufficient number of higher-wage positions to be promoted into. Sector-based training programs that go beyond single-employer recruitment strategies and have intensive support services show promise in creating pathways out of low-wage work. Researchers also identify the following specific evidence-based practices to mitigate racial and gender bias and increase transparency in hiring and promotion: hiring based on skills rather than credentials, formalizing processes to limit managerial discretion, formalizing job posting and publicized job ladders, establishing oversight and accountability structures, and providing apprenticeship and internship opportunities to help workers build skills and social ties within a firm. 
  • Work systems: How individual jobs and teams are structured and designed can provide opportunities for workers to build skills, contribute to the organization, and stay motivated and engaged. A set of complementary practices known as high-involvement work systems (HIWS) could improve job quality and worker satisfaction and increase job tenure while making firms more productive. However, more evidence is needed to understand how HIWS practices could be implemented in low-wage sectors and how they affect worker outcomes. Much of the evidence base on the latter focuses on high-wage, managerial workers. More evidence is needed to understand how HIWS practices would work for hourly or frontline workers and in low-wage sectors and industries.
  • DEI: Researchers identify several evidenced-backed employer practices to make workplaces more diverse, equitable, and inclusive so women and workers of color—who experience discrimination, occupational segregation, and structural disadvantage in the labor market—have opportunities to advance and earn more. These policies include establishing goals and numerical targets for recruitment and hiring, providing employee resource or affinity groups that create supportive peer communities, offering structured mentorship opportunities, and forming diversity task forces and committees that can gather data; inform hiring, promotion and compensation policies; and mobilize support for DEI across managers and employees alike. Mandatory diversity trainings are a less effective strategy for creating inclusive workplaces; evidence shows they can create a backlash or activate bias against women and workers of color.   
  • Complementarities and social capital: Companies can either build or erode social capital and trust through their policies and practices. Researchers note firms and workers can maximize the benefits of specific practices when they complement and reinforce one another; pursuing them in isolation or implementing contradictory practices will likely have a modest or negative effect. Choosing practices at random can send mixed messages about an employer’s commitment to its workforce. For example, raising wages while maintaining an unpredictable scheduling not only conveys a lack of intentionality but also undermines trust and leads to poor worker outcomes.  

Prevalence, context, and knowledge gaps

How common are these practices that could create greater mobility for workers? The researchers note their prevalence is difficult to quantify because publicly available data on company practices and policies are scant or out-of-date. The estimates that do exist suggest they’ve been adopted by a “modest fraction of organizations,” despite many practices being feasible and potentially good for workers and firms. More information can be gleaned from federally administered surveys of employees for some practices. For example, the share of workers covered by paid leave has nearly tripled since the mid-2000s, the result of an evolving employer stance on paid leave and state laws requiring it. Time-use surveys also indicate flexible hours are now more common.

Of course, individual companies exist in specific industry, policy, and institutional contexts, which can hinder and facilitate practices that improve workers’ economic prospects. For example, the service sector—where low-wage jobs dominate—has experienced a deskilling of work, depriving workers of opportunities to build skills to move out of low-wage work. The presence of unions or strong regulations around wages, scheduling, and leave have a significant effect on the types of practices employers adopt, as can the absence of worker bargaining power and a weak regulatory environment.

The study makes one thing clear: employer practices can strengthen workers’ economic security and mobility, and certain practices have the potential to be “win-wins” for workers and their employers. Yet much more needs to be learned about the long-term effects and influences of specific practices. More robust data infrastructure, experimental and nonexperimental research studies, and greater employer engagement with mobility research are needed to understand the mechanisms (the “how”) and effects (the “what”) of employer practices on workers and companies. We’ll explore promising directions for research outlined by the MIT Sloan research team in the next post.