The Low-Wage Labor Market:
Challenges and Opportunities for Economic Self-Sufficiency
Executive Summary
The lowwage labor market has come increasingly into the policy spotlight
following welfare reform, as states strive to move welfare recipients into
employment. In this volume, experts in labor market analysis synthesize
the current literature on the lowwage labor market and highlight important
policy implications flowing from their review.
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Current research suggests the labor market is not — as classical
labor market theory depicts it — a single unified market in which
each worker is paid according to his/her additional value to the firm and
is promoted to better paid positions as that value increases. Rather,
it has two largely separate sectors a primary sector that functions more
or less as classical theory depicts and a secondary sector, which has few
ladders to job advancement, little job stability, and more gender and racial
discrimination than the primary market.
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Analysts of the secondary market focus on several types of workers —
including workers with low hourly wages, workers with low skills, and workers
whose annual earnings are low because they work only parttime or
intermittently. These groups overlap but are not identical. Different
policies may be necessary for different groups.
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The share of workers with low earnings is substantial. In 1997, for
example, over a third of female workers had hourly wages that would be
insufficient to lift a family of four out of poverty even if they worked
fullyear, fulltime.
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The share of workers with low or nearlow earnings is high and has been
increasing, up from 36 to 41 percent over the past decade. The recession
of the early 1990’s was particularly difficult for lowwage workers,
when nearly one million lowwage jobs were lost.
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Employment outcomes in the lowwage market vary greatly across regions,
with lower unemployment rates for less educated women in the Northeast and
Midwest compared to the South and West, and more favorable outcomes in the
suburbs and rural areas compared to central cities.
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The lowwage labor market should be able to absorb the new entrants
associated with welfare reform as long as the economy is healthy. The
needed adjustments may take some time, however. In the short run, many
welfare recipients leaving the rolls may have trouble finding employment.
The large inflow of new entrants into the lowwage labor market could
also reduce wage levels in that market.
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Policy interventions designed to help lowwage workers include raising
the minimum wage, public service employment, workertargeted tax credits,
and employertargeted tax credits.
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Raising the minimum wage is not a strategy that is welltargeted on
the working poor, because the majority of the working poor are earning more
than the minimum wage, and the majority of minimum wage earners are not poor
(and include a substantial number of teenagers). Nonetheless, raising
the minimum wage would likely improve the financial wellbeing for a
substantial number of working poor adults, including nearly one million single
parents.
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Opponents to raising the minimum wage claim that it would reduce employment
opportunities for lowwage workers. The weight of evidence indicates
that this effect would be minimal and impact primarily teenagers who are
typically not poor. Opponents also claim that raising the minimum wage
would decrease the availability of employerprovided training.
The evidence provides some support for this concern.
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Subsidized public service employment (PSE) can increase earnings and the
value of the output produced by lowwage workers. But PSE does
not appear to create new jobs as much as shuffle workers around among existing
jobs. The PSE evaluation evidence is restricted to older programs and
more recent smallscale demonstrations, however.
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The Earned Income Tax Credit (EITC) is an effective means for increasing
labor force participation, particularly among single mothers.
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Employertargeted tax credits, such as the Work Opportunity Tax Credit
and the Targeted Jobs Tax Credit, have received less favorable evaluations
than workertargeted credits. Most workers hired through such
programs would have been hired in the absence of the credit.
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Tax credits paid to employers developing economically distressed areas, such
as those associated with Empowerment Zone/Enterprise Community programs,
have been similarly ineffective in generating new jobs. More recent
programs, which place greater emphasis on community building, may yield more
positive results.
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Major potential barriers facing workers entering the lowwage market
include: skills mismatch (including lack of transportation),
discrimination, spatial mismatch, and lack of access to informal information
networks.
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Skills mismatch is a serious difficulty for many disadvantaged workers, with
at least 30 percent of longterm welfare recipients not meeting the
basic job readiness requirements of employers.
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Discrimination negatively affects employment rates of African Americans,
even when differences in skills have been taken into account.
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While there has been disagreement as to whether there is a spatial mismatch
of jobs and workers, the majority of evidence does support the conclusions
that the disadvantaged workers from central cities do have trouble getting
to jobs located in the suburbs.
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Informal hiring networks account for between 25 and 60 percent of hires,
and are a particularly important hiring mechanism for entry level employment,
jobs that do not require college education, blue collar jobs, and jobs with
small employers. Such networks tend to be tightly knit and ethnically
homogeneous. African American workers, in particular, tend to be excluded
from them.
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Job turnover is higher in industries where disadvantaged workers tend to
find employment than in the primary labor market. Job turnover tends
to have high costs for disadvantaged workers, leading to more periods of
joblessness, reduced earnings, and reduced opportunities for formal training.
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Lowwage workers leaving welfare for work in the wake of welfare reform
are likely to experience little wage growth. Although some studies
suggest wage growth of about 4.5 percent over a year (which translates into
only about $400 per year for a lowwage worker), other studies yield
lower estimates. Even these may be on the high side, since they are
based mainly on the experience of women who have left welfare voluntarily
and found jobs.
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The nation’s labor market will be able to absorb the influx of persons
leaving the welfare rolls if the economy retains its current strength.
There are a number of concerns, however, particularly in areas of the country
with fewer opportunities for lowwage work, such as large urban areas
and the South and West regions of the country.
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The jobs for which most welfare recipients can qualify, given their low skills
and education, are concentrated in the secondary labor market —
with low wages, few fringe benefits, little opportunity for advancement,
and subject to high job turnover.
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The nine expert reviews of the literature on the lowwage labor market
highlight several policy options for improving the wage, employment, and
economic selfsufficiency outcomes of lowwage workers:
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Policies to improve labor market access and job retention.
These include continued funding and support for programs that provide labor
market information, job networking, job retention counseling, and career
planning. Services such as child care and transportation also are important.
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Policies to encourage or support occupational mobility/job
advancement. These include developing information networks and
policies to encourage businesses to delineate skill requirements and career
ladders for entrylevel jobs, as well as onthejob training
for such career ladders.
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Policies to raise the incomes of lowwage workers and enhance employment
security. These include the Earned Income Tax Credit, targeted
public and community service jobs strategies, and minimum wage policies.
Where to?
[ Main Page and Contents |
Preface | Chapter
Authors ]
Executive Summary
Introduction & Overview
Defining & Characterizing the Low-Wage Labor
Market
Low-Wage Labor Markets: The Business Cycle and Regional
Differences
Can the Labor Market Absorb Three Million Welfare
Recipients?
Does the Minimum Wage Help or Hurt Low-Wage
Workers?
Job Creation for Low-Wage Workers
Matching & Mismatch in the Low-wage Labor Market:
Hiring Perspective
Matching & Mismatch in the Low-wage Labor Market:
Job Search Perspective
Work as a Stepping Stone for Low-Skilled
Workers
Job Turnover in the Low-Wage Labor Market
Appendix: Statistical Data and Background
Information
Home Pages:
Human Services Policy (HSP)
Assistant Secretary for Planning and Evaluation
(ASPE)
U.S. Department of Health and Human Services
(HHS)
Last modified on 1/14/00