## The Low-Skill, Bad-Job Trap

_IMF Working Papers, July 1, 1994_

## Source details

**Canonical URL:** [The Low-Skill, Bad-Job Trap](https://www.imf.org/en/publications/wp/issues/2016/12/30/the-low-skill-bad-job-trap-870)

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## Bibliographic details
- Authors: Alun H. Thomas
- Published: July 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451954524.001

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### Core findings
- The paper explains how a country can fall into a “low-skill, bad-job trap,” in which workers acquire insufficient training and firms provide insufficient skilled vacancies.
- In countries where a large proportion of the workforce is unskilled:
  - Firms have little incentive to provide good jobs (requiring high skills and providing high wages).
  - If few good jobs are available, workers have little incentive to acquire skills.
- The paper examines the need and effectiveness of training policy in breaking this trap.
- The paper provides a possible explanation for why western countries have responded so differently to the broad-based shift in labor demand from unskilled to skilled labor.

### Mechanisms and analytical themes
- Interaction between labor demand and labor supply:
  - Low-skilled workforce → low incentives for firms to create skilled vacancies.
  - Few skilled vacancies → low incentives for workers to invest in training.
- Market failures emphasized:
  - Training supply externality.
  - Vacancy supply externality.
- Labor market outcomes discussed:
  - Skilled labor versus unskilled labor dynamics.
  - Wage-employment experience and earnings differentials tied to job quality and skill composition.

### Policy implications and areas analyzed
- Need and effectiveness of training policy:
  - Training policy is analyzed as a potential instrument to address the coordination failures between firms’ vacancy decisions and workers’ training choices.
- Explanation for heterogeneous responses across western countries to shifts in labor demand:
  - Differences in how countries addressed training and vacancy creation may account for divergent labor-market outcomes.

### Subject areas and keywords
- Subject: Education, Labor, Labor demand, Labor supply, Skilled labor, Wages
- Keywords: Central and Eastern Europe, earnings differential, Europe, job vacancy, Labor demand, Labor supply, market failure, Skilled labor, training function, training supply externality, vacancy decision, vacancy supply externality, wage-employment experience, Wages, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-low-skill-bad-job-trap-870_