A Moonshot to Address Wage Stagnation

By: JFF Staff

Students are taught that if they work hard, they can graduate, join the workforce, and achieve the American Dream. If that’s true, then why are so many workers struggling financially? Despite a growing economy, many Americans are seeing their contributions met with flat or declining real wages. For the US to continue to thrive, it must be possible for everyone to secure a living wage.

Maria Flynn, president and CEO of JFF, recently caught up with Tom Kalil, chief innovation officer of Schmidt Futures and former deputy director of the White House Office of Science and Technology Policy, to talk about the $1 Billion Wage Gain Challenge, a moonshot to address wage stagnation.

Tom: At Schmidt Futures, our mission is advancing society through technology, inspiring breakthroughs in scientific knowledge, and promoting shared prosperity. We’re partnering with JFF on $1 Billion Wage Gain Challenge because we think it’s important that all Americans and all regions of the country benefit from economic growth.

Many Americans—particularly non-college-educated workers—struggle to make ends meet, even when they have more than one job. I recently met with working American families in Stockton who can’t afford a car and have to wait hours for a bus; who, after they’ve paid their bills, have only $150 in discretionary income that needs to last a month; and who have never been able to take their kids on a vacation.

Although we are excited about the potential of technological change to drive economic growth and increases in productivity, it’s not necessarily the case that these advances will cause all boats to rise. Technological change could reduce the demand for workers with low skills. There could also be a mismatch between the skills required for the jobs that are being created and the skills that some working Americans currently have.

That’s why we need more and better ideas that have the potential to grow the middle class. Today, entrepreneurs aspire to create a unicorn—a startup with a market cap of $1 billion. In the future, we’d like to see more entrepreneurs and civic problem-solvers that have ideas for creating a unicorn for the middle class—a scalable model for increasing the incomes of working Americans by $1 billion.

Maria: Why do you think the public and private sectors are currently under-investing in innovations that could expand the middle class?

Tom: At the federal level, the US government is serious about applying science and technology to problems in national security, health care, energy, and space. But agencies that are responsible for promoting economic and social mobility, like the Department of Labor, have little or no capacity to foster innovation, take risks, and engage with researchers, entrepreneurs, and social enterprises.

In the private sector, we are seeing the emergence of an “HR tech” sector. These technologies could transform the way companies hire and train their workers. However, these companies tend to focus on the upper end of the labor market, as opposed to addressing the unique needs of low-skill, low-wage workers.

Maria: If the United States increased its capacity to support innovation that was designed to expand the middle class, what are examples of goals that we might set?

Tom: Let me give you a few possibilities; my hope is that participants in the JFF $1 billion Wage Challenge will be able to come up with many more.

1. Empower a non-college-educated worker to master a skill that is a ticket to the middle class in months, not years: The Defense Department supported the development of an AI-based digital tutor that is allowing new Navy recruits to outperform Navy IT technicians with 7–10 years of experience. Using the digital tutor, unemployed veterans with a high school degree have been able to get jobs paying $50,000 to $60,000 after only six months of training.

2. Enable a company to make hiring decisions on the basis of skills and competencies, as opposed to whether a worker has a four-year degree. Startups are developing technology-based solutions that are more predictive of on-the-job performance than whether a worker has a four-year degree. This could create more opportunities for workers who have the skills but not the degree. Ideally, these solutions could not only inform corporate hiring decisions—they could provide actionable advice to workers. For example, they might learn that they have the skills that they need to be competitive for a higher-paying job or that a modest investment in upgrading their skills would have a big payoff.

3. Reduce the financial barriers for workers to gain in-demand skills: Some employers are expanding their workforce with “earn and learn” models such as apprenticeships; those don’t require students to go into debt. Universities, nonprofits, and companies are experimenting with “income share agreements” to finance training so that workers only have to pay for the training if they see an increase in their income. Done responsibly, ISAs could increase the amount of public and private investment in training programs that deliver results for working Americans.

4. Help low-skill workers increase their levels of literacy and numeracy: Currently, 36 million adults in the United States are reading at the 3rd-grade level or below. Clearly, these workers are not positioned to thrive in the 21st century. We need solutions like mobile games for basic skills that are as engaging as video games like Angry Birds or Fortnight!

5. Strengthen the financial case for corporate investments in training: Researchers have developed methodologies, such as “cognitive task analysis,” that allow them to discover what top performers in a given job know and are able to do. Training based on these insights is much more effective. I think it is plausible that multidisciplinary collaboration between industrial psychologists and economists could strengthen the case for private-sector investments in training. This would require demonstrating the financial value of closing the gap between top performers and median performers.

I think that effective solutions are going to require combining multiple approaches and insights from multiple disciplines. For example, I could imagine employers embracing skill-based hiring, learning technology companies using simulation or AI to allow workers to rapidly acquire in-demand skills, and investors backing new financial instruments that de-risk training from the point of view of the worker.

Maria: Some industries collaborate with each other on R&D that benefits the industry as a whole but that no single firm on its own has an incentive to invest in. How might this model of collaboration be applied to workforce development?

Tom: Government, industry, and academia often work together on research that benefits an entire sector but that no single firm is willing to invest in. The Obama administration and industry worked together to create a national network of Manufacturing Innovation Institutes that are strengthening America’s leadership in technologies such as 3D printing, photonics, lightweight metals, and flexible electronics.

We see a few examples of this kind of pre-competitive collaboration in skills, like the FAME program.

One could imagine these “skills consortia” taking steps such as:

• creating markets for employment tech solutions that allow firms to engage in skill-based hiring;

• sponsoring CTAs for a given set of skills that can increase the effectiveness and financial ROI of training for both employers and workers;

• supporting the development of advanced training technologies, such as AI-based digital tutors or simulations that enable workers to learn by doing;

• serving as the focal point for partnerships with training providers, community colleges, and workforce development systems; or

• improving the quality of real-time labor market information at both a regional and national level to identify and address emerging skills gaps.

Maria: What is market shaping, and what role could it play in fostering pro-worker innovations?

Tom: A wave of innovation in digital technologies (e.g., cloud and mobile computing, big data, machine learning) and science (e.g., the science of learning, the science of assessment, behavioral science) has enormous potential to solve challenges related to labor markets in the 21st century.

Some of these innovations are being driven by market forces—the interplay between workers, employers, entrepreneurs, and investors.

However, there are other solutions that are likely to have a high social return and a low private return. For example, venture capitalists are not making major investments in technologies that increase the literacy and numeracy of low-skill workers.

The global health community has developed a set of tools that I think are potentially relevant to address these kinds of market failures, which are called market-shaping or pull mechanisms. They identify unmet needs, publish performance-based specifications of the innovations that would address those needs, and offer incentives to firms that develop lifesaving global health technologies. For example, for-profit pharmaceutical companies are unlikely to invest in vaccines for diseases. Five countries and the Gates Foundation solved this market failure by pledging to purchase a safe and effective vaccine that prevents child deaths from pneumonia and bacterial meningitis, even though it had not been developed yet. This motivated major drug companies to develop a vaccine that will save the lives of 7 million children over the next 20 years.

How might this work for next-generation training and employment tech solutions? Imagine that a consortium of employers and foundations wanted to see the development of a product that increased the basic skills for workers with low levels of literacy and numeracy. They could describe what metrics could be used to evaluate a technology-based solution (e.g., completion rates, efficacy relative to classroom-based instruction, number of hours of usage required to “level up” the equivalent of a grade level in terms of literacy or numeracy), and determine what incentives would motivate researchers and entrepreneurs to create, evaluate, and deploy an effective solution.

Maria: How might the “request for startup” model be extended to employment tech?

Tom: Accelerators such as Y Combinator issue “startup ideas we’ve been waiting for people to apply with, sometimes for years.”

This model could be extended in a number of different ways in an area such as employment tech. Supporters of worker-centered innovation could:

• Work with universities that have strong programs in both HR, workforce science, and computer science to get more students thinking about startups to address unmet needs in the marketplace.

• Ask entrepreneurs to think about not only a startup they might launch, but the broader ecosystem or value chain that would need to exist for them to achieve their ultimate goal. For example, services for low-income workers may require a hybrid value chain, with a combination of for-profit, government, social enterprise, industry consortia, and nonprofit investments.

• Support the creation of high-quality information that would help startups in their idea formulation process, including a list of unmet needs, metrics for evaluating the success of products and services, relevant research findings in different fields, and potential scientific, technological, and business model building blocks.

• Support organizations such as the JFFLabs Acceleration program, which is working to pull startups into an ecosystem focused on benefiting low-income and underserved workers. Their mission is to not only help entrepreneurs build better tools but also connect participating companies with customer, investor, and mentor networks. Cohort companies have an opportunity to leverage the guidance of JFFLabs, as companies find opportunities to not only achieve business success but also benefit workers and the US economy.

For more, see:

• JFF Horizons: Building New Bridges to the Future of Work and Learning
• How Faster + Cheaper Alternatives Will Replace Most of HigherEd

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