NFG Jobs Toolbox. Chapter 1: Introduction

NFG Jobs Toolbox: A Funder's Guide to Jobs

Jobs and the Economy

While national trends are positive a mismatch of geography and skills shuts out many low-income communities and individuals. The problem is not simply a numerical jobs shortage in low-income areas. New jobs do not match up with either the location or the skill levels of chronically jobless individuals. The "geographical mismatch" is especially significant. Less than five percent of welfare recipients own an automobile, while mass transit systems are typically ineffective in moving people from low-income areas to high-job-growth areas. As a result, many jobs are literally out of reach.

The "skills mismatch" is equally real, especially in the dramatically growing human services sectors. In recent years, new jobs have steadily demanded greater levels of education or training - skills chronically jobless individuals often lack. (See The Skills Gap for more information.)

It is unlikely that private sector activity alone will generate enough jobs to fill this gap. Indeed, if the private sector has not been able to solve the problem of inner-city and rural joblessness during this historic economic boom, it probably never will.

This disparity raises a fundamental question for funders. If the private sector's best performance in a half century cannot fix the jobs shortage in disadvantaged areas or the labor pressures brought about by welfare reform, what is the appropriate role of philanthropy in finding solutions? Grantmaking strategies should take these broad economic forces into account in order to remain effective on the neighborhood level.

Many of the communities left behind by economic expansion are the same areas targeted by Neighborhood Funders Group members and other grantmakers. Moreover, many grantees and local foundation partners are uniquely positioned to address these labor force issues and, in fact, already are. With full implementation of welfare reform and its repeal of the federal guarantee of assistance to poor families, jobs will become a more urgent concern in communities all over the country.

Despite aggregate national prosperity, central cities and poor rural areas (primarily in the Southeast) continue to struggle. Other rural areas have fared better, and suburban communities are the top economic performers. The key distinction in these contrasting circumstances is place. In other words, with continued low rates of unemployment on the national level, joblessness has increasingly become a localized phenomenon. (See Why a Neighborhood Focus? for a thorough discussion of place.)

The decline in welfare rolls tells a similar story. In the few years since Congress restructured the welfare program, researchers have identified a dramatic shift in the geographical distribution of families receiving assistance. Caseloads have generally fallen in both urban and rural areas, but the drop within central cities has been far less pronounced. For example, 48 percent of all welfare recipients in Pennsylvania now live in Philadelphia, compared to 38 percent before welfare reform. In Wisconsin, 85 percent of recipients live in Milwaukee, up from just 39 percent pre-welfare reform. In urban centers like Detroit, Miami, St. Louis, Cleveland and Baltimore, the story is the same.⁴

Work No Longer Ensures a Route out of Poverty

Neighborhood-level jobs trends have been shaped by several broad, overarching economic changes. Perhaps the most significant trend has been the changing relationship of employment and poverty. Simply put, even though more people are working, the number of people who are poor is a rising percentage of the population. One explanation for this is that the wage structure of work has changed.

Between January 1990 and April 1998, the American economy created approximately 13.5 million new jobs. The April 1998 unemployment rate was just 4.3 percent, compared to nearly eight percent in 1991.⁵ During these same seven years, the overall number of jobs created by the economy has grown steadily.

Percent of Poor Persons Below 50% of Poverty Level 1976-96
Source: U.S. Department of Commerce, Bureau of the Census, 1988

A Changing Relationship Between Employment and Poverty

Unfortunately, this strong job growth has not translated into lower poverty rates. In the 1990s, the poverty rate has fluctuated between 13.5 percent (1990) and 15.1 percent (1993).⁶ Perhaps more significant, the general pattern since 1970 has been a gradual increase in the poverty rate. While the poverty rate has declined in recent years from its 1993 peak, improvements have not kept pace with either the drop in the unemployment rate or the growth in new jobs.

Prime Age Workers with Full-Time Employment Living Below Poverty Level
Source: Economic Policy Institute / U.S. Bureau of the Cenmsus (1992) Unpublished Data

In exploring the relationship between poverty and unemployment in recent years, it is important to add a note of caution about unemployment rates. Unemployment rates are not always good indicators of the severity of employment problems in a neighborhood. It is not uncommon for low-income neighborhoods to have unemployment rates three times higher than the surrounding metropolitan area or region. Moreover, unemployment rates for specific population groups within a neighborhood maybe higher than local or regional ones. For example, unemployment rates for young African-American males in some neighborhoods have been estimated as high as 50 percent.

In addition, these official unemployment rates only measure people who are in the "labor force" (defined as persons who are employed or actively searching for jobs). The unemployment rate does not take into account so-called "discouraged workers" who may desire employment, but have given up active search for work. In some neighborhoods, the number of discouraged workers exceeds the number of unemployed. Despite these shortcomings, the relationship between these unemployment and poverty statistics seems clear. Low unemployment does not always guarantee low poverty rates, and, more generally, work does not necessarily lead a poor person out of poverty.⁷ The most obvious explanation for this disconnection is that real (constant dollar) wages for most workers are declining. Between 1979 and 1995, real wages for workers in the lowest fifth of the labor force went down 11 percent. For those in the bottom tenth, the drop in real wages was 17 percent. These and other statistics suggest that low wage jobs are increasing in number, but that they pay less than before.

Structural Changes in the Economy Affect Labor Markets

The structure of the economy as a whole is also changing. This change stems from the globalization of commerce and a resulting shift in the American economy from goods producer to service provider - as witnessed by rapid growth in information technologies, financial services, communications and the like. The most noticeable manifestation of these changes has been the flight of manufacturing jobs overseas or to Latin American countries where labor costs are low. As the chart below shows, manufacturing employment has declined slightly in the last 10 years, while the services sector and the retail sector have experienced significant employment growth. The decline in manufacturing has resulted in the loss of well-paying jobs for many less-educated individuals, including people of color and immigrants. This decline in manufacturing employment has had profound consequences for many urban neighborhoods.⁸

Employment by Sector 1988 & 1998
Source, U.S. Department of Labor, 1998

The Skills Gap

From a neighborhood jobs perspective, this restructuring has affected large numbers of workers concentrated in particular communities. Moreover, the new jobs created by today's economy require higher skill levels necessary than a decade ago. Not only are low-skill sectors like manufacturing in decline, but workers are less well-prepared for these new employment opportunities. The inability of entry-level workers to meet the skill requirements of entry-level jobs has been described by researchers as a growing "skills gap" or "skills mismatch." ⁹

Several factors have contributed to this demand for more skilled and productive workers. They include pressures created by global competition, the computerization of the workplace, and the adoption of new organizational models that give workers more decision-making responsibility.¹⁰

While the skills necessary for employment increase, many employers believe that the quality of the workforce - particularly the entry-level workforce - has declined. The so-called soft skills, - positive attitudes and work behaviors, communication skills, and the willingness to learn - separate those who succeed and those who do not.

The Contingent Worker Trend

Temporary agencies are becoming the preferred channel for hiring and screening new employees. In fact, temporary employment agencies are one of the fastest growing sectors of the U.S. economy.¹¹ Between 1983 and 1996, the number of persons working for temporary agencies grew from 471,800 to 2,310,800, nearly a five-fold increase. Manpower Incorporated, an international temporary agency, has more employees on an annual basis than any other U.S. company.

This shift to contingent workers has brought certain negative consequences to entry-level job seekers. In years past, an entry-level position was a foot in the door and offered long-term prospects of advancement in a company. Today, some of the largest corporations contract with temporary agencies to provide them with most or all of their entry-level employees. As a result, many new workers have difficulty finding a permanent position or turning an entry-level temp job into a permanent position. When the transition to permanent standing occurs, the job is offered through the brokerage of temporary agencies. Entry-level workers sometimes spend months or even years "on approval," shifting from assignment to assignment at different companies without the benefits of full employment status.

Employment in the Temporary Help Industry
Source: Economic Policy Institute / Bureau of Labor Statistics, 1988

Contingent Workers are Cheaper for Employers

Employers prefer to use temporary agencies for two reasons. First, firms can more easily and cheaply manage fluctuations in their workforce needs. For example, companies experiencing a downturn can readily terminate temporary employees than lay-off permanent staff. Second, temporary agencies give companies an opportunity to "try out" an employee without incurring the obligation of permanent employment. If a temporary employee proves satisfactory, the firm can hire that person permanently. If the worker is not satisfactory or the firm decides to reduce its labor force, that employee can be dismissed without liability or obligation.

In addition to using temporary agencies, employers have restructured their workforces in other ways. Many firms have gone to part-time employees. Companies do not have to pay benefits for part-time employees, thus realizing a huge cost savings. The proliferation of part-time employment has made it much more difficult for working people to get out of poverty.

Local Employers are Affected by Global Business

The business world is much more competitive now than it was two decades ago and this increased competition has implications for neighborhood jobs efforts. The globalization of the economy has left few protected markets. American manufacturing firms now compete against European and Asian counterparts. The neighborhood diner competes against national restaurant chains. Local bookstores compete against Barnes & Noble and internet mail-order services such as amazon.com. This level of competition has raised the bar for neighborhood jobs efforts, and makes neighborhood-based business strategies much more difficult to execute successfully.

⁴ Jason DeParle, "Shrinking Welfare Rolls Leave Record High Share of Minorities," New York Times, July 27, 1998.
⁵ U.S. Department of Labor, Bureau of Labor Statistics.
⁶ U.S. Department of Commerce, Census Bureau.
⁷ See Rebecca Blank's discussion of these trends in It Takes a Nation: A New Agenda for Fighting Poverty, Russell Sage Foundation, 1997, pages 60-65.
⁸ This argument was forcefully made by William Julius Wilson in The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy, University of Chicago Press, 1987.
⁹ See, for example, the National Center on Education and the Economy's report America's Choice: High Skills or Low Wages, June 1990.
¹⁰ For a discussion of employer expectations, see Harry J. Holzer, What Employers Want: Job Prospects for Less-Educated Workers, Russell Sage Foundation, 1996.
¹¹ See Dorie Seavey, New Avenues into Jobs: Early Lessons from Nonprofit Temp Agencies and Employment Brokers, Center for Community Change, March 1996.

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