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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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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How many workers hold low-wage jobs?
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Who are the people in the low-wage labor market and what are the characteristics
of the jobs they hold?
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employment experiences of low-wage workers over a three-and-one-half-year
follow-up period and what are their typical job and employment spell lengths?
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What wage growth do low-wage workers experience?
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Do labor market experiences differ across key subgroups of workers?
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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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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?
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In March 1996, less than one-third of all workers were low-wage
workers. In March 1996, about 28 percent of all workers were
low-wage workers, with hourly wages below $7.50 in 1996 dollars. Most workers
(43 percent) were medium-wage workers, with wages between $7.50 and $15 per
hour. About 29 percent were high-wage workers, with wages over $15 per hour.
The share of low-wage workers decreased somewhat during the mid- to late
1990s as the unemployment rate declined. These estimated shares are similar
to those found in previous studies covering earlier periods that used a similar
hourly wage cutoff value to define low-wage workers.
Who Are the People in the Low-Wage Labor Market?
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Low-wage workers are disproportionately young, female, nonwhite,
with a high school credential or less, and with health
limitations. During the mid- to late 1990s, more than one-third
of all employed females were in the low-wage labor market, compared to 22
percent of all employed males. Similarly, about 84 percent of employed teenagers
between the ages of 16 and 19 held low-wage jobs, compared to less than
one-quarter for those between the ages of 30 and 60. Differences by education
level are especially large; about 56 percent of workers who did not complete
high school were low-wage workers, compared to 36 percent of workers with
a high school diploma or GED, and only about 14 percent of workers who completed
college.
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Single parents with children, those who had recently received
public assistance, and workers in households with incomes below the federal
poverty level are disproportionately likely to be low-wage
workers. More than 40 percent of employed single parents with
children in our sample were in the low-wage labor market, compared to 25
percent of married couples with or without children. Similarly, workers who
received public assistance in the past year were twice as likely as their
counterparts to be in the low-wage labor market (58 versus 27 percent).
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Despite these patterns, low-wage workers are a relatively diverse
group. They exist in a wide range of subgroups defined by
individual and household characteristics. For example, although workers in
households below the federal poverty level were much more likely to be low-wage
workers than those with incomes greater than 200 percent of poverty (79 percent,
compared to only 20 percent), nearly 60 percent of all low-wage workers were
in higher-income households. Similarly, in March 1996, nearly 20 percent
of all low-wage workers graduated college.
What Are the Characteristics of Jobs That Low-Wage Workers
Hold?
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Many low-wage workers earn considerably less than the low-wage
cutoff value used in our study. In March 1996, only 21 percent
of low-wage workers earned between $7.00 and $7.50 (the hourly wage cutoff
value used in our study). More than one-quarter earned less than $5.00 per
hour (close to the $4.75 minimum wage). On average, low-wage workers earned
$5.58 per hour, compared to $13.62 for all
workers.(1) Interestingly, the wage distributions
for low-wage workers are similar for males and females.
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However, most work full-time, and many are covered by health
insurance through their employers. Most low-wage workers in
our sample reported working full-time (defined as those working at least
35 hours per week). Among male workers in March 1996, about 85 percent of
those with low wages reported working full-time; the figure for higher-wage
male workers is about 96 percent.(2) Similarly,
about 66 percent of low-wage female workers reported working full-time, compared
to 83 percent of other employed females. Many had health insurance coverage
through their employers; interestingly, health insurance coverage rates for
low-wage workers were higher for females than for males (57 percent,
compared to 41 percent), perhaps due in part to the fact that fewer females
were self-employed.
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Low-wage workers are substantially overrepresented in service
professions and underrepresented in professional and technical
occupations. In 1996, nearly one-third of all low-wage workers
were in service occupations, compared to only 10 percent of higher-wage workers.
Conversely, only 14 percent of low-wage workers were in professional and
technical occupations, compared to 40 percent for other workers. Only about
6 percent of low-wage workers were unionized, compared to 16 percent of
medium-wage and 25 percent of high-wage workers. Finally, a larger share
of low-wage workers than other workers are self-employed (13 percent, compared
to 9 percent).
What Are the Overall Employment Experiences of Low-Wage
Workers?
What Wage Growth Do Low-Wage Workers Experience?
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Low-wage workers experienced considerable wage growth during
the study period. Average wage increases for low-wage workers
were about 25 percent over a three-year period after they started their jobs,
or a real wage increase of nearly 8 percent per year (Figure 2). Female workers
had lower wages than male workers throughout the follow-up period, but wage
growth was similar by gender.
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The majority of workers experienced some increases in wages,and
some workers experienced fairly large gains. About 80 percent
of both male and female workers experienced an increase in real wages. Some
low-wage workers also experienced significant amounts of wage
growth — for example, nearly half of males and 40 percent of females
experienced a wage growth of more than 25 percent between their initial job
and their most recent job three years later.
Figure Exec.2.
Trends in Real Wages Over Time Among Those Who Start a Low Wage Job, by
Gender
Source: 1996 SIPP longitudinal file using workers who started
low-wage jobs within six months after the start of the panel period
Note: All wags are reported in 199 dollars.
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Low-wage workers also moved to "better" jobs over
time. Low-wage workers worked more hours over time, and a higher
fraction had health insurance coverage through their jobs. The fraction of
workers working full-time increased for both male and female workers. Similarly,
the fraction of low-wage workers in jobs that offered fringe benefits, such
as health insurance, increased by more than 50 percent.
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Despite the high amounts of wage growth, many workers still had
low wages and earnings. Because they started at fairly low
wage levels, despite wage increases, many workers, especially females, had
low wages and annualized earnings that would put them below the federal poverty
level for a family of four (50 percent of male workers and more than 60 percent
of female workers).
Do Labor Market Experiences Differ Across Key Subgroups of Low-Wage
Workers?
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We find some differences in labor market outcomes across key
demographic subgroups of the low-wage population, although the differences
are not large. Males, prime-age workers (those between ages
20 and 60), educated workers, whites, those without health limitations, and
those in higher-income households typically spend more time in higher-wage
jobs than their respective counterparts and experience greater wage growth.
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We also find that 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 than those in lower-quality
jobs to spend time in higher-wage jobs and to have higher wage growth. 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.
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Among male workers, business owners were more likely than jobholders
to experience greater wage growth. Self-employed male workers
spent substantially more time in medium- and high-wage jobs than did male
jobholders, and had higher wages in the last follow-up period. These differences
are statistically significant in the multivariate regression models.
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Time spent employed was associated with wage
growth. Low-wage workers who were employed for most of the
period (at least 75 percent of months) experienced greater wage growth than
those who were employed for fewer months, and especially for males. For instance,
about 33 percent of continuously-employed males earned more than $10 per
hour at the end of the follow-up period, compared to only 17 percent of males
who were intermittently employed.
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Among those continuously employed, job switchers experienced
somewhat greater wage growth than job stayers, especially for
females. Among continuously-employed workers, those who switched
jobs spent more time in the medium- or high-wage labor market than those
who stayed in their initial jobs. The job switchers also experienced more
wage growth during the follow-up period, and these differences are statistically
significant.
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In general, differences in labor market success across subgroups
are smaller than expected. Although, in both our descriptive
and multivariate analyses, we identified groups that are at particular risk
of poor labor market outcomes, we could not fully account for the variation
in outcomes across low-wage workers. Thus, substantial diversity exists in
labor market success within groups. Clearly, important residual
factors affect the wage progression of those starting low-wage jobs.
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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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