Last month, several colleagues and I attended the Opportunity Finance Network’s Small Business Finance Forum in Chicago, an event dedicated to strengthening the capacity and networks of Community Development Finance Institutions (CDFIs, like PCV) that invest in small businesses in underserved communities throughout the United States. Over 150 representatives from CDFIs, banks, foundations, research organizations and even online lenders attended this two-day event, which included over a dozen sessions covering a diverse set of topics relevant to small business investors.
Most sessions focused on approaches to increasing CDFIs’ efficacy and scale (e.g., pipeline development, underwriting, improving technical assistance programs, partnering with online lenders), while a few focused explicitly on opportunities for CDFIs to amplify their social impact. My colleague Brenna McCallick and I were thrilled to attend a panel focused on the ways that CDFIs can support the creation of quality jobs, because PCV InSight is leading a research project on this very topic. Our research seeks to identify the core characteristics of a high-quality job and the ways that CDFIs can feasibly measure and contribute to the creation of quality jobs – not just the quantity of jobs – so we were excited to learn from other CDFIs committed to tackling this important social issue in our country.
The session was moderated by Jose Garcia, program officer at the Surdna Foundation, who led a discussion with three CDFIs who have implemented different approaches to supporting and measuring job quality. The three panelists were Michael Jeans of Growth Opportunity Partners, a small CDFI based in Ohio; Sean Murphy of Fund Good Jobs, a young hybrid investor based in the Bay Area; and Raquel Valdez from BCL of Texas: a large and established CDFI investing in growth stage businesses. The discussion centered around three key questions: 1) What is the definition of a quality job? 2) How do panelist’s organizations measure job quality?, and 3) How can small business investors effectively support the creation of quality jobs?
What does a quality job look like?
Encouragingly, panelists shared similar views on the defining characteristics of a quality job. Michael Jeans stated that a quality job is one that offers “meaningful wages”, which he defined as a job that pays beyond a basic living wage, and also provides a path to improved quality of life and marketable skills. He went on to discuss the importance of employees developing the core competencies they need to not only excel in their jobs, but that provide them skills to advance along a career path. Relatedly, he stressed that employers must offer opportunities for promotion if they want to create quality jobs, and that employees must understand how his or her role contributes to the success of the business. Building on Jean’s ideas, Rachel Valdez of BCL stated that a quality job is one that offers professional growth opportunities and is not simply a source of income or benefits. Sean Murphy echoed the statements made by Jeans and Valdez, stating that a quality job is one that offers health benefits and professional development. Further, he stated, a quality job must pay a living wage, which is dependent on the cost of living where the employee is located.
How can you measure job quality?
While panelists were generally in agreement with the definition of a quality job, we quickly learned that each CDFI takes a unique approach to measuring the quality of jobs offered by their borrowers.
Growth Opportunity Partners
Jeanes described his organization’s hands-on approach to job quality measurement, which relies on a CRM platform to collect monthly financial statements and employee payroll data. This wage data is then compared to average income levels in the surrounding area, to ensure that employees of the financed businesses are being provided with “meaningful-wage” jobs, as he previously defined. Jeanes stated that while several borrowers initially thought that this reporting requirement would be burdensome, Growth Opportunity Partner’s staff were able to communicate the importance of this ongoing reporting to their work supporting small businesses in Northeast Ohio. Explaining the purpose of ongoing data collection efforts, Jeanes explained, has led borrowers to understand and even appreciate Growth Opportunity Partner’s approach to job quality measurement.
BCL of Texas
Valdez explained that while BCL of Texas is a 25-year old CDFI, it has recently explored various ways it can more effectively support the creation of quality jobs. BCL of Texas extensively researched the components of a quality job and the definition of a living wage, which drew significantly from the Living Wage Calculator, a tool developed by researchers at MIT which estimates the wage rate required to afford the minimum standards of living in a particular community or region. BCL of Texas’ research also focused on the aspects of a job that are critical to not only meeting basic needs, but also that improve employees’ quality of life. To measure job quality, BCL of Texas conducts annual surveys and interviews with borrowers to identify whether employees receive living wages. These surveys also provide staff a window into companies’ culture, which helps them to understand whether the business is supportive of employees’ professional development. Additionally, BCL of Texas has set an internal standard that 25 percent of its portfolio companies must pay their employees a living wage, which is determined by the MIT’s Living Wage Calculator ’s estimates for the cost of living in each community where borrowers are located.
Fund Good Jobs
Murphy of Fund Good Jobs explained that his organization uses a “proactive” measurement approach, which he described as his organization’s efforts to explicitly communicate upfront with borrowers about reporting requirements and the reasons why supporting good jobs are important to his organization. Murphy explained that Fund Good Jobs has embedded its commitment to supporting good jobs into its deal sourcing, as it only considers investing in businesses if a commitment to creating quality jobs is “in their DNA”. To assess the quality of the jobs its investees supports, Fund Good Jobs regularly collects and assesses financial statements to gauge employee wage levels, and performs on-site visits to meet with staff and see workplace conditions.
How can small business investors effectively support the creation of quality jobs?
Jeanes and Murphy both stressed that communication with borrowers and funders alike lies at the root of effectively supporting the creation of high-quality jobs. Jeanes mentioned that he felt it was important that funders understand this issue, and that CDFIs seeking to support quality jobs should communicate with banks that they can meet their Community Reinvestment Act (CRA)[1] mandate while also addressing this critical issue. Both Jeanes and Murphy explained that expectations and reporting requirements need to be discussed early and often with borrowers, so that borrowers buy into the lenders mission to support quality jobs and therefore are more likely to report on and improve the quality of the jobs they offer.[2]
Beyond effective communication with stakeholders, Valdez described concrete approaches that BCL of Texas has piloted to encourage its borrowers to support and create quality jobs. BCL of Texas has hosted several two-hour seminars for borrowers on this topic, which have included group discussions focused on defining a quality job and understanding the value of providing good jobs for employees and employers alike. Additionally, BCL of Texas has also offered one-on-one technical assistance for borrowers to help them understand the components of job quality and approaches to improving their hiring and HR practices. Lastly, BCL has conducted a cost analysis for companies to demonstrate the business case for investing more financial and human resources into employees. The first analysis that BCL of Texas has performed has focused on the hospitality industry, because a substantial portion of its borrowers operate within this sector.
At PCV we strongly believe that our industry can do more than focus on the number of jobs created or supported. There is an opportunity for CDFIs to work more closely with the businesses we support to promote the creation of good livelihoods and tangible professional opportunities for people in underserved communities. We’re excited by the work that these three CDFIs have undertaken, and we will be incorporating their approaches and suggestions into our quality jobs research.
If you have ideas on what constitutes a quality job or ways small business investors can measure job quality or promote the creation of quality jobs we would love to hear from you.
[1] The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The CRA requires that each depository institution’s record in helping meet the credit needs of its entire community be evaluated by the appropriate Federal financial supervisory agency periodically. See: http://www.federalreserve.gov/communitydev/cra_about.htm