Can Capital Incentivize The Creation Of Good Jobs?

The United States has been experiencing increasing economic inequality. While there has been job growth in the past few years, most of those jobs are low-wage, temporary or precarious, and continue the patterns that sustain that inequality. In response, labor, community groups and other parts of civil society have been organizing campaigns to improve the economic standards of workers in cities and states across the country.

Those campaigns include “Fight For $15” to increase the minimum wage to $15 dollars per hour and include paid sick days. Based on a recent report from National Employment Law Project (NELP), 42 percent of U.S. workers make less than $15 per hour. Women and people of color are over-represented in jobs paying less than a $15 hourly wage. Put together, this means a sizable percentage of our workforce are living on poverty wages. Close to 24 cities and 20 states have increased the minimum wage in the past three years.

At Pacific Community Ventures (PCV), and at the Surdna Foundation, we support these efforts. We believe that better standards for workers are critical to bring our country toward broadly-shared economic prosperity. But we also believe that in addition to creating good-paying jobs for workers, we need to change business culture. There are different parts of policy and business culture that we will be exploring to get us closer to our goals of creating quality jobs for low-income communities and communities of color.

Defining, Measuring, and Creating Quality Jobs

One of the areas that we are exploring is the incorporation of job quality metrics and technical assistance by Community Development Financial Institutions (CDFIs) in their financing activities to better support businesses and workers within underserved communities. Over the last 20 years, CDFIs have deployed over $35 billion to low-income communities — driving business expansion and supporting the creation of economic opportunity in the communities most in need. Currently America’s CDFIs lend to nearly 14,000 local businesses in low-income communities around the country each year. While it’s a fraction of the market, we believe that including job quality as part of their social impact goals will create a model that other impact investors can build upon.

With Surdna’s support, Pacific Community Ventures published our groundbreaking report Moving Beyond Job Creation that sought to answer two important questions at the center of CDFIs efforts to create quality jobs: 1) What is a quality job, and 2) how can CDFIs measure job quality? The paper was the first in a series of research projects intended to support CDFIs, the broader impact investing industry, policymakers, and business owners.

After conducting in-depth research and interviews with leading experts in labor issues, impact investing, and the small business sector, among other related fields, PCV identified five dimensions of a quality job. Given that the specific elements of a quality job vary by industry, business size, job function, and employee demographics, PCV synthesized a flexible definition. A quality job, according to the study, provides at least three of the following five key elements:

  • a living wage
  • basic benefits
  • career-building opportunities
  • wealth-building opportunities
  • a fair and engaging workplace.

The paper also offered practical steps for CDFIs and others to take to incorporate the measurement of job quality into their existing data collection processes that would support their financing efforts aimed at creating quality jobs.

Quality Job Creation Benefits Both Workers and Businesses

The incorporation of job quality as part of the deployment of capital in our communities has many benefits. Improving job quality for workers has a ripple effect on economic growth, including improving the performance of companies. Businesses constantly make strategic and operational choices between the high or low roads to sustainability and competitiveness. Research shows that resourceful firms pursue the path that simultaneously benefit the business bottom line and the workforce. They view employees – particularly frontline workers – as assets essential to productivity, innovation, quality, and customer service. They reorganize work processes for efficiency and to offer meaningful jobs. And they offer pay and benefits necessary to attract and retain committed, engaged, and motivated workers with essential skills. Their choices are reinforced by increased profit margins and marketplace advantages.

Creating quality jobs should not be viewed as a static goal, but rather as a continuous journey. CDFIs and the businesses they support should strive to foster incremental improvements in job quality, raising standards in deliberate yet meaningful ways for employees. Businesses and CDFIs should also view the fostering of quality jobs as an ongoing process.

Jobs that are good for workers, businesses, and communities ultimately bring us closer to an economy that works for everyone.

CDFI Best Practices Can Inform How Others Support Quality Job Creation

PCV and others like Opportunity Finance Network (OFN) are lifting up key practices in an effort to build the CDFI field’s awareness and capacity to support quality job creation – showing how embedding a quality jobs focus is doable and enables CDFIs to deliver greater impact in low-income communities. We hope that these best practices can be used to influence federal and state agencies such as the Small Business Administration, the U.S. Department of Treasury, and more.

For our part, Surdna will continue to help advance better quality jobs and shared prosperity in our local communities, in every way we can. The goal of our Strong Local Economies Program is to support the development of robust and sustainable economies that include a wide range of businesses and access to quality jobs. By working with partners like PCV, we can create scalable opportunities for upward economic mobility among communities that have experienced historical economic barriers, including low-income people, communities of color, women, and immigrants. Our work is guided by a strong commitment to social justice and equity – and we see it catching on.

The Heron Foundation also recently shared our work on moving beyond job creation, and kicked off a discussion forum on the topic. And this past year at the Opportunity Finance Network Small Business Finance Forum we held a discussion that featured a panel of CDFIs who shared how they support the creation of quality jobs. Many CDFIs in attendance expressed a desire to prioritize the creation of quality jobs, but cited the need for additional funder support to build their organization’s capacity to effectively work with businesses to improve job quality.

We’re committed to providing research and consulting that will enhance the capabilities of CDFIs and other intermediaries who support quality job creation, and believe it will be critical for foundations and other investors to support capacity-building efforts that will translate interest into action. We brought that discussion to the forefront at SOCAP 16 in September of last year – one of the world’s largest gatherings of impact investors and business leaders who want markets to work for people and communities as much as for profit.

The Role Of Policymakers In All This

CDFIs and foundations are doing their part to begin building a better economy for workers and for businesses. But our jobs problem – driven largely by globalization and technological advances that reduce the need for human labor – is too large and complex for the social sector or individual businesses and investors to confront on their own. While businesses are the sources of job creation, government programs can incentivize investment that leads to more jobs and to higher quality jobs.

When most of us think of government policy and working-class jobs these days, we think about policies that haven’t worked, and have benefited corporations and not American workers. But there is a slate of federal policies that are already in place, already working, with a few simple adjustments could be made much stronger and improve the wages, benefits, and workplaces of millions of American workers.

Recommendations include the following:

  • Empower The Small Business Administration to create thousands of good jobs for working people by collecting and analyzing data on the quality of jobs supported by SBA programs and introducing job quality provisions to existing loan programs
  • Incentive banks across America to create good jobs for working people by taking job quality into account when banks are rated for The Community Reinvestment Act
  • Use the federal government’s purchasing power to create good jobs for underserved communities by prioritizing quality job-creating companies when awarding government contracts
  • Incentivize publicly-traded companies to create better-quality jobs for millions of Americans by adding job quality to companies’ standard Securities & Exchange Commission reporting and disclosure
  • Use existing tax credits to create tens of thousands of good jobs for working people in underserved areas by using them to favor quality job-creating businesses

Government sets the rules for how our financial markets work – and whether or not those markets serve wealthy investors or empower businesses to create good jobs for working people. This report doubles-down on what’s working and lays out five market-based solutions to create good jobs and grow local economies.

What Comes Next

It’s one thing to sympathize with working Americans on the lack of good jobs being created, or to say businesses need to do better. As part of our vision to make quality job creation the norm, we believe that we must equip businesses with the practical tools and resources they need to offer higher quality jobs in a way that balances their business needs and bottom lines with better wages and benefits for their employees. We know that businesses want to provide good employment opportunities for their workers – but they are often uncertain of how to do so in ways that make sense for their business. We’re committed to enabling them to succeed – and believe a simple, practical quality jobs toolkit will help spur them to action.

Over the next two years we are working with the Workforce Strategies Initiative at the Aspen Institute to develop, pilot, and publish a quality jobs toolkit focused on retail small businesses. Small businesses are a big part of the U.S. retail sector. Small businesses represent a sizeable portion of the U.S. retail industry, with 98% of the sector comprised of businesses with 50 or fewer employees. The quality jobs toolkit has the potential to enable meaningful improvements in job quality in an industry that relies on a significant number of frontline workers and operates with limited resources — and once it’s proven out across the retail industry, it can be adapted to restaurants, health services, manufacturers, and other industries.

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