By Katherine Newman and Elisabeth Jacobs, co-authors of Moving the Needle: What Tight Labor Markets Do for the Poor
For nearly half a century, scholars and policymakers alike have pointed to the devasting impact of joblessness for individuals, families, and communities. William Julius Wilson’s classic When Work Disappears highlighted the ways that the absence of opportunity for work contributed to downward spiral for would-be workers, their families, and their communities. But what happens when work is abundant? Virtually no one had asked that question, which is what motivated our work on Moving the Needle.
In Fall 2019, three years into the lengthiest period of low unemployment that the United States had seen in decades, we set out to answer that question using a combination of ethnographic fieldwork and quantitative data analysis tracing the employment and earnings trajectories of 18,000 individuals across business cycles for the last half century. What we have found is striking: When unemployment dips below 4.5%, the odds that a marginalized worker—especially Black workers, younger workers, and those without a high school diploma—finds and keeps a job over the long-term increase dramatically. Their earnings start higher and increase faster relative to their peers who find work when jobseekers outnumber job openings.
Our research didn’t just look at the numbers. We also talked to people who were navigating the new reality — workers who were greeted with open arms by employers who had previously been viewed as “unhirable,” employers who described new recruitment and promotion pathways designed to offer on-the-job-training and transferable skills in order to attract and retain workers, and long-time residents of communities once ravaged by poverty and now thriving thanks to growing numbers of neighbors with stable paychecks. The stories we heard over and over again were journeys from hardship to stability, from business as usual to innovation in HR practices, from neighborhoods in chaos to peaceful communities enjoying an increase in home-grown social capital.
The key to success here is to be in very tight labor markets like the one we are currently experiencing—not just garden-variety low unemployment rates. When unemployment is at record lows—a classic sign of a tight labor market—workers gain leverage relative to employers. As a result, employers change their practices in pivotal ways that boost opportunity. We see improvements in wages, working conditions, benefits, and prospects for upward mobility emerge for low wage workers. Remember the “fight for $15?” That war is over, and workers won. Indeed, wages have been rising faster among the working poor than anyone else. Target inaugurated a new wage scale in early 2022 that brings new workers in at $15-24 an hour. Benefits that were unheard of at places like McDonalds—health and dental insurance, retirement, and college tuition reimbursement—are now routine.
Contemporary tight labor markets have provided momentum for narrowing longstanding racial gaps in the workforce. While unemployment for Black workers remains substantially higher than that of white workers, joblessness declined faster for Black men and wages increased more rapidly among them than for any other group in the labor market. Tight labor markets help to narrow racial gaps in earnings, an otherwise elusive goal in a society that has been plagued by economic inequality by race.
Improving conditions for low wage workers hasn’t happened by accident or out of newfound business benevolence. Tight labor markets force the hand of employers to raise pay and provide for better working conditions because, otherwise, they will not be able to find workers — and they risk losing the employees they have to better paying jobs. Tight labor markets also provide momentum for labor organizing, because workers’ power is amplified when labor is in high demand.
Employers turn to sources of applicant pools they wouldn’t have considered when they had the opportunity to be choosy. As a result, people who have traditionally found it very hard to crack the employment barrier—from citizens returning from the prison system to high school dropouts—find they are in greater demand. Their problems are hardly over; it is still the case that ex-prisoners face daunting barriers in finding jobs. But when labor markets are tight, the likelihood of success is significantly improved.
Moreover, when employers tap unusual sources, they end up having to invest more in training them. The training they pay for translates into millions of workers who now have more human capital, from commercial driver’s licenses to mastery of Microsoft Excel spreadsheets necessary to do their jobs. That internal investment transforms workers into people who can move up inside companies or jump ship to an employer that will offer even more. Tight labor markets underwrite a mobility machine that blunts the runaway credentialism we have seen because employers cannot demand those skills from the outset. They must cultivate them.
The plus side of this ledger spills over from individual workers to the families they are supporting. According to our research, when unemployment declines below 4%, families receive nearly all (94%) of the child support they are owed. When unemployment rises, that figure falls quickly (to 82.5%). Men—who make up 80% of non-custodial parents—are better able to support their children when they are working, even when they are not the child’s legal guardian.
Children who are raised in economically stable households are far more likely to be healthy, graduate from high school, and find employment themselves, as compared to those who experience economic instability. For instance, children of workers who lost jobs in the 1982 recession have far worse outcomes than those whose parents remained employed. They had lower earnings, higher unemployment rates, and higher demands for social services.
The negative consequences of income instability are particularly acute for Black families and their children, both because Black Americans have fewer economics resources with which to buffer economic shocks and because persistent labor market discrimination makes it more difficult for Black workers to find stable work. Record low unemployment helps to reduce income instability, thereby mitigating a major source of long-term disadvantage.
While the contemporary period of tight labor markets has generated remarkable opportunity for those on the margins, it has been accompanied by rising costs of living that have outpaced wage gains in many parts of the country. Housing and child care remain especially expensive, even as overall inflations rates have cooled. These are very real problems for families with low incomes, many of whom describe feeling trapped on a “hamster wheel” that makes getting ahead challenging even in times of genuine opportunity. But they are also solvable problems, if policymakers were able to muster the political will to tackle them.
Moving the Needle teaches us that we should think hard about the costs the country can avoid when we keep people on the job and poverty declines as a result. Over time, we are likely to see rising rates of educational attainment, lower levels of domestic violence, far less reliance on public benefits to make ends meet, and ultimately, reductions in the price tag for the social safety net. Tight labor markets are an engine for durable economic stability and growing mobility for American households, and for broader economic growth. It is rare for social scientists to offer up a good news story with regards to poverty and opportunity in the United States — but Moving the Needle follows the data to do just that.