Wage progression of less skilled workers

Less skilled workers could substantially improve their prospect of earnings by staying at their jobs for certain periods of time, according to a new study.

These workers could update their skills by acquiring more education. But if that is not feasible, the second best thing for them to do is to accumulate specific knowledge of the firm, as well as experience, the study found.

This study, based on data for 1993 to 1998 from the Survey of Labour and Income Dynamics, investigates the wage growth mechanism of young, less skilled workers. It compares the payoffs, or returns, to two employment strategies: jumping between jobs every year as opposed to staying on a job for a number of years.

The former strategy only increases experience, while the latter increases employment tenure and work experience at the same time.

The study found that "firm-specific human capital," or knowledge of a firm, acquired by less skilled workers may substitute for their lower "general human capital," or education. As a result, less skilled workers may be substantially better off by staying on their jobs instead of changing frequently.

The study defines less skilled workers as those who had acquired high school or lower education by 1993 and made no further advance thereafter. These workers were born between 1963 and 1977. Skilled workers are those who had acquired more than high school education by 1993.

In total, the study analysed labour market data for 1,527 less skilled men and 1,176 women. An average hourly wage rate was calculated on hourly wage rates of all jobs held by these workers from 1993 to 1998.

The study found that, for men or women, there was a payoff for a less skilled worker who worked for an additional year on his or her current job. For example, by staying on a job for five consecutive years, the hourly wage rate would grow on average 4.5% a year for a less skilled man, and about 4.0% for a less skilled woman.

These gains were only slightly lower than what their skilled counterparts would have received if they had also stuck to the same jobs during these five years.

Although it is sometimes argued that less skilled workers are mostly locked in dead-end jobs for which wages are stagnant, the study found that these workers could experience wage growth if they stayed with their current employer for a certain period of time.

However, it is important to note that these results are based on averages. Therefore, these findings do not rule out the possibility that at least some less skilled workers might be locked in dead-end jobs.

Information on methods and data quality available in the Integrated Meta Data Base: survey number 3889.

The research paper Wage progression of less skilled workers in Canada: Evidence from the SLID, 1993-1998, (11F0019MIE, no. 194, free) is now available on Statistics Canada's website (). From the Our products and services page, under Browse our Internet publications, choose Free, then Social conditions.

For more information, or to enquire about the concepts, methods or data quality of this release, contact René Morissette (613-951-3608), Business and Labour Market Analysis Division.