Characteristics of Low-Wage Workers and Their Labor Market Experiences:
Evidence from the Mid- to Late 1990s:

Executive Summary

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With the 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. As large numbers of current and former recipients enter the low-wage labor market, it is important to understand issues related to job retention and mobility among low-wage workers, as well as their prospects for wage progression.

While a number of researchers have examined issues related to the labor market experiences of workers in general, fewer studies have directly examined the labor-market experiences of low-wage workers. Moreover, these studies use data from the late 1980s and early 1990s but have not examined the situations of low-wage workers in more recent times. To learn how low-wage workers have fared in recent times, the Assistant Secretary for Planning and Evaluation (ASPE) at the U.S. Department of Health and Human Services (DHHS) contracted with Mathematica Policy Research, Inc. (MPR) to provide a comprehensive profile of the characteristics and labor market experiences of low-wage workers since the passage of PRWORA. This study uses 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.

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Key Research Questions

The study examines a broad range of research questions pertaining to the low-wage labor market during the mid- to late 1990s. These questions include:

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Data And Methods

This study was conducted using data from the 1996 longitudinal panel of the 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.

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. 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. We used both descriptive and multivariate regression analytic methods to address the research questions for the study. We used cross-sectional samples of workers to answer some analysis questions, entry cohort samples of workers starting low-wage jobs to answer other questions, and samples of low-wage job spells for others. We conducted the analyses using the full sample, as well as for key subgroups defined by worker and job characteristics.

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Key Findings

Our analysis provides a complex picture of the characteristics of low-wage workers and their jobs, as well as their labor market dynamics. We summarize the key analysis findings here:

How Many Workers Hold Low-Wage Jobs?

Who Are the People in the Low-Wage Labor Market?

What Are the Characteristics of Jobs That Low-Wage Workers Hold?

What Are the Overall Employment Experiences of Low-Wage Workers?

What Wage Growth Do Low-Wage Workers Experience?

Do Labor Market Experiences Differ Across Key Subgroups of Low-Wage Workers?

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The labor market dynamics of low-wage workers — about 28 percent of all workers — are complex. Low-wage workers in our sample were employed for most of the three-and-one-half year follow-up period (about 79 percent of weeks). However, there was considerable movement in and out of the low-wage labor market for these workers. While about 70 percent of male workers and 50 percent of female workers held medium-wage jobs at some point during the follow-up period, on average, males spent only about 30 percent of the time in these jobs, and the corresponding figure for females was about 20 percent. However, we see an upward trend in employment rates in these higher-paying jobs over time for both males and females.

We find significant wage growth for low-wage workers in our sample. Overall, the average real wage increase was about 25 percent during the follow-up period (for those employed at the start and end of the period). In addition, about 80 percent of workers experienced an increase in real wages, with some experiencing significant amounts of wage growth. Furthermore, low-wage workers tended to move into better jobs (as measured by hours worked and available fringe benefits). Despite this wage growth, however, many workers still had low earnings. Because they started at fairly low wage levels, by the end of the follow-up period, more than one-half of workers had earnings that would put them below the federal poverty level for a family of four.

We conducted subgroup analyses to try to explain the diversity in labor market outcomes across low-wage workers. Our analysis consistently found that, among the low-wage population, males, prime-age workers (those between ages 20 and 60), educated workers, whites, those without health limitations, and those in wealthier households typically spent more time in higher-wage jobs and experienced more wage growth than their respective counterparts. Furthermore, job quality matters — those who start with better jobs (measured by higher initial wages, health insurance coverage, and full-time work status) are more likely to experience wage growth than those in lower-quality jobs. In addition, we find some differences across occupations — males in professional and sales occupations and females in professional and clerical occupations have more positive labor market outcomes than other workers. Business owners were also more likely than jobholders to experience greater wage growth.

We find also some association between the overall employment experiences of low-wage workers during the follow-up period and their wage growth. First, wage progression was greater for those who were employed for most of the period than those employed less, suggesting that policies promoting employment retention could improve the wage growth of low-wage workers. Second, among workers continuously employed during the follow-up period, those who switched jobs tended to have better outcomes than those who stayed with their same employer, suggesting that job turnover was an avenue for wage growth for some low-wage workers.

We find also, however, that substantial diversity exists in labor market success within worker subgroups. Thus, although we identified groups that are of particular risk of poor labor market outcomes, we could not fully account for the variation in labor market outcomes across low-wage workers. Clearly, important residual factors affect the wage progression of those starting low-wage jobs.

Overall, our results clearly indicate that low-wage workers have some upward mobility over the medium term. At the same time, however, a segment of the low-wage population remains entrenched in low-wage jobs. Thus, there is considerable diversity in labor market success for low-wage workers. Of course, it has to be kept in mind that the economic conditions were very strong during the mid- to late 1990s, and our results may be different under a weaker economy.

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(1) Medium-wage workers earned an average of about $11 per hour, and high-wage workers earned an average of about $25 per hour.

(2) Higher-wage workers include those who were in medium-wage or high-wage jobs.

(3) A job spell was classified as "low-wage" on the basis of the worker's wage rate at the start of the job spell. A low-wage job spell ended when the worker moved to another low-wage job, moved to a higher-wage job (either with the same or different employer), became unemployed, or left the labor force.

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