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With passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), policymakers and researchers have recognized the importance of understanding the dynamics of the low-wage labor market and the economic opportunities in it. The "work first" focus and time limits established through the creation of the Temporary Assistance for Needy Families (TANF) program are designed to end the dependence of needy families by moving welfare recipients off the welfare rolls and into work. Given the low education and skill levels of typical welfare recipients, this work first emphasis has led many recipients into low-wage jobs. As large numbers of current and former recipients enter the low-wage labor market, we need to understand, in detail, job retention and mobility among low-wage workers, as well as their prospects for wage progression. A thorough understanding of these issues can provide insights into other possible policy initiatives for low-wage workers, such as strengthening work supports for former welfare recipients and improving job retention and career advancement strategies.
This report discusses the research that Mathematica Policy Research, Inc. (MPR) has conducted, under contract with the Assistant Secretary for Planning and Evaluation (ASPE) at the U.S. Department of Health and Human Services (HHS), to provide a comprehensive profile of the characteristics and labor market experiences of low-wage workers since the passage of PRWORA. The study was conducted using data from the 1996 longitudinal panel of the Survey of Income and Program Participation (SIPP), which covers the period between late 1995 and early 2000. The economy was strong during this time period; thus, the study's findings may be different under weaker economic conditions.
The study examines a broad range of research questions pertaining to the low-wage labor market. We categorize these questions into the following topical areas:
Subsequent chapters discuss our findings in detail. In the remainder of this chapter, we provide an overview of the data sources for the study, wage definitions, analysis samples, and our methodological approach. This chapter ends with a roadmap for the rest of the report.
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The 1996 longitudinal panel of the Survey of Income and Program Participation (SIPP), collected by the U.S. Bureau of the Census, is the primary data source that we used for examining the low-wage labor market in our study. Because of the wide range of study questions, we used different samples and methodological approaches for different types of analyses. We discuss these issues in this section (see the Methodological Appendix A for a more detailed discussion of these topics).
This study was conducted using data from the 1996 longitudinal panel of SIPP. The 1996 SIPP is a large, multipanel, longitudinal survey that collected demographic and socioeconomic information on a nationally representative sample of U.S. households. The data cover the period from late 1995 to early 2000, and 48 months of follow-up data are available for each individual in the longitudinal file. SIPP provides detailed monthly measures on labor force participation (for those age 15 and older), income, participation in public programs, and household composition. We supplemented the SIPP data with state-level data on economic conditions and poverty levels.
Our primary approach for defining low-wage workers was to use the hourly wage at which a full-time worker would have annual earnings below poverty for a family of four. We calculated separate low-wage cutoff values for each calendar year the SIPP panel covered. We then classified a worker as "low-wage" if the worker's wage rate was less than the cutoff level in the calendar year when the wage rate was reported. Using federal poverty guidelines, and assuming a full-time worker works 2,080 hours per year, we set the low-wage cutoff at $7.50 in 1996, $7.72 in 1997, $7.91 in 1998, $8.03 in 1999, and $8.20 in 2000. We defined medium-wage workers as those with wage rates between one and two times the low-wage cutoff value and high-wage workers as those with wages more than twice the low-wage cutoff value.
We conducted our analysis using employed SIPP sample members who were between ages 16 and 64 and who were not enrolled in school. We excluded students and older workers, because their labor market experiences are likely to be very different from those of the population that is the focus of this study.
The main analysis sample that we used in Chapter III to examine the prevalence of low-wage jobs and the characteristics of low-wage workers and their jobs is a cross-sectional sample of workers in March 1996. We selected March 1996 as the reference point for several reasons, including the fact that it is the earliest month in the SIPP data that is covered for all sample members (see Appendix A). We also constructed cross-sectional samples of workers in March 1997, March 1998, and March 1999 to examine changes in the prevalence and profiles of low-wage workers over time, due to changing economic conditions and TANF program parameters.
The analysis of the overall employment experiences of low-wage workers (see Chapter IV ) and the wage-growth analysis (see Chapter V ) were conducted using only those who started low-wage jobs or businesses during the first six months of the panel period. We selected this timing to ensure a sufficient follow-up period for examining medium-term labor market experiences and adequate analysis sample sizes. We identified the first new job that the worker held during the six-month period. If the sample member had more than one job or business at the same time, we selected the job or business at which the sample member worked the most hours. We classified a sample member as a low-, medium-, or high-wage worker on the basis of the worker's average hourly wage during the month of job start and the subsequent six months (for those months in which the worker was employed). We used this six-month period to help distinguish "true" low-wage workers from those who held low-wage jobs for only a very short time due to temporary changes in earnings or labor supply effort or to data errors. For similar reasons, we "smoothed" temporary wage fluctuations for the follow-up period using adjacent wages.
Our analysis to examine the distribution of the length of continuous job and employment spells for low-wage workers and the extent to which these spells end in higher-wage jobs or in nonemployment focused on the low-wage spell rather than on the low-wage worker (see Chapter VI). The sample for this duration analysis included an entry cohort of low-wage job and employment spells that began at any time during the follow-up period. Spells were classified as low-wage (or higher-wage) on the basis of the hourly wage rate at the start of the spell.
We used both descriptive and multivariate regression analytic methods to address the research questions for the study. We conducted the analysis for the full sample. In addition, because of differences in labor market participation decisions and experiences by gender, we conducted separate analyses for males and females. Within each gender group, we calculated statistics for the full sample, as well as for key subgroups defined by worker and job characteristics. We used sample weights from the SIPP files in all analyses (either the longitudinal or calendar year weights, depending on the analysis) to make our findings representative of all workers nationally.
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The rest of this report provides our findings. Chapter II reviews the literature that examines the low-wage labor market and discusses how our study fills in gaps in the previous research. Chapters III through VI present our empirical findings. In Chapter III, we discuss the characteristics of low-wage workers and their jobs. In Chapter IV, we discuss the overall employment experiences of low-wage workers during a three-year follow-up period, and Chapter V presents wage growth findings. Chapter VI presents results from analyses examining the duration of low-wage job and employment spells, the extent to which these spells end in higher-wage jobs, and reentry rates into the low-wage labor market. Finally, Chapter VII presents our summary and conclusions.
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