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

04/30/2004

The share of all workers who were low-wage workers was 28 percent in March 1996 (or nearly 29 million workers, Figure III.2). It decreased slightly to 27 percent in March 1997 and to 25 percent in March 1998 and March 1999. These estimated shares are similar to those found in previous studies (discussed in Chapter II) that used a similar cutoff value to define low-wage workers. For example, using March CPS data, Bernstein and Hartmann (2000) found that 29 percent of all workers in 1997 were low-wage workers, and Mitnik et al. (2002) found a corresponding figure of 25 percent in 2001.

 

Figure III.2.
Percentage Of Workers Who Were Low-, Medium-, And
High-Wage Workers: March 1996 To March 1999
 
Figure III.2. U.S. Unemployment Rate, By Year
Source: SIPP March cross-sectional samples.
Note: All figures were calculated using the relevant calendar year weight and the absolute poverty low-wage cutoff definition.

The slight decrease in the size of the low-wage population after 1996 may be due to declines in the unemployment rate during that period, suggesting that some low-wage workers may have been able to find higher-paying jobs because of the tight labor market. This interpretation is consistent with findings in the literature that the real wages of low-skilled male and female workers increased starting in the mid-1990s as a result of the strong economy (Card and Blank 2000; and Mishel et al. 2001).

Most workers in the mid- to late 1990s were medium-wage workers (Figure III.2). These workers are defined as those whose hourly wages were between one and two times the low-wage cutoff (for example, those who earned between $7.50 and $15 per hour in 1996). Roughly equal numbers were low-wage and high-wage workers (Figure III.2). For example, in March 1996, 43 percent of all workers were medium-wage workers (about 44 million workers), 28 percent were low-wage workers (about 29 million workers), and 29 percent were high-wage workers (the 31 million workers who earned at least $15 per hour). Interestingly, the slight decrease in the share of low-wage workers between 1996 and 1999 was offset by small increases in both the medium- and high-wage sectors.

The size of the low-wage labor market differs substantially according to the definition used to identify low-wage workers (Table III.1). These definitions, described in greater detail in Chapter II, include identifying low-wage workers using the minimum wage, the 20th percentile of the wage distribution, annual earnings relative to the poverty level, and those with low education levels. The estimated fraction in the low-wage labor market according to these definitions range from 7 percent to 44 percent of workers. We briefly describe these findings below:

 

Table III.1.
Percentage Of All Workers In March 1996 Who Were Low-Wage Workers,
According To Alternative Definitions Of Low-Wage Workers
Wage Type Hourly Wage Cutoff Usedfor the Study($7.50) Hourly Wage Below MinimumWage($4.75) Hourly Wage Below 20th Percentile ($6.57) Annual Earnings Below PovertyCutoff ($15,150)(a) Low Education Level(b)
Percent of All Workers Who Are:
Low-Wage Workers 28 7 20 32 44
Medium-Wage Workers(c) 43 35 20 34 30
Higher-Wage Workers(c) 30 58 60 34 26
Sample Size 30,730 30,730 30,730 32,014 32,014
Source: 1996 SIPP files using a March 1996 cross-sectional sample.
Note: All figures are weighted using the 1996 calendar year weight.
a.  Annualized earnings are calculated as total monthly earnings from all jobs and businesses in March 1996 multiplied by 12.
b.  Low-wage workers are defined as those with a high school degree or less, medium-wage workers as those who had some college education, and higher-wage workers as those with a B.A. degree or more.
c.  Medium-wage workers are defined as those with wages/earnings that are between one and two times the level of the low-wage definition, and higher-wage workers are defined as those with wages/earnings that are greater than twice the level of the low-wage definition.
  • Only 7 percent of all workers were in the low-wage labor market if these workers are identified as those earning less than the minimum wage  $4.75 per hour. Using the minimum wage threshold, about 58 percent of those employed were high-wage workers (defined as those who earned more than twice the minimum wage). Thus, using the minimum wage sets the bar very low for defining low-wage workers.
  • As expected, 20 percent of workers are in the low-wage labor market using the 20th percentile cutoff value of the wage distribution ($6.57 per hour). Thus, using our benchmark $7.50 cutoff value generates a larger estimate of the size of low-wage population than using the 20th percentile of the wage distribution as the cutoff value (28 percent of all workers, compared to 20 percent; Table III.1, columns 2 and 4).(9)
  • About 32 percent were low-wage workers using an annual earnings below poverty cutoff. This measure defines a low-wage worker as one whose total monthly earned income from all jobs and businesses multiplied by 12 was below the annual poverty level for a family of four, and takes into account both hours worked and hourly wages.(10) Interestingly, while the 32 percent figure using the annual earnings measure is similar to our 28 percent benchmark measure, a significant number of workers are classified as low-wage workers using one definition but not the other. For example, of all those classified as low-wage workers using either definition, about 42 percent were classified as low-wage using one definition but not the other: 18 percent were classified as low-wage using only our benchmark definition, and 24 percent were classified as low-wage using only the annual earnings measure. These discrepancies suggest that there are (1) many workers with high wages who work only a limited number of hours, and (2) many workers with low wages who work a substantial number of hours. As discussed, we adopt the wage-based measure, because our study focuses on low-wage workers rather than low-income ones.
  • About 44 percent of workers were in the low-wage labor market if low-wage workers are defined as those with a high school diploma/GED or less. We believe, however, that the use of this education-based definition does not adequately characterize the low-wage population, because, according to our benchmark wage-based definition, nearly 60 percent of those with a high school credential or less were higher-wage workers. Similarly, under our benchmark definition, about 18 percent of those who attended college are classified as low-wage workers.

View full report

Preview
Download

"report.pdf" (pdf, 1.02Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®