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

04/30/2004

Our analysis provides a complex picture of the characteristics of low-wage workers and their jobs, as well as their labor market dynamics. During the mid- to late 1990s, the share of all workers at a point in time who were low-wage workers  defined as those earning less than the hourly wage at which a full-time worker would have annual earnings below the poverty level for a family of four  was about 28 percent. Low-wage workers were disproportionately young, female, nonwhite, with a high school credential or less, in single-adult households with children, and in households with incomes below the poverty level. At the same time, however, they are a relatively diverse group  they exist in a wide range of subgroups defined by individual and household characteristics.

We find that many low-wage workers receive hourly wages substantially below the low-wage cutoff value used in this study, and hold jobs that are markedly less stable and that provide fewer benefits than jobs held by higher-wage workers. Interestingly, however, most report that they usually work full-time. Low-wage workers are represented in all occupations and industries, but they are disproportionately found in retail trade industries, service occupations, and nonunion jobs.

Low-wage workers in our sample were employed for most of the three-and-one-half year follow-up period, and the majority held higher-paying jobs at some point. Low-wage workers were employed about 79 percent of weeks, which may reflect the strong economic conditions during the mid- to late 1990s. About 70 percent of male and 50 percent of female workers held higher-wage jobs at some point during the follow-up period. Overall, males spent an average of about 30 percent of the time in higher paying jobs, and the corresponding figure for females was about 20 percent. While these figures are less than the total time spent in low-wage jobs (55 percent of months for males and 58 percent of months for females), employment rates in higher-wage jobs increased over time for both males and females. For instance, during the second half of the follow-up period, males spent roughly equal amounts of time in low-wage and higher-wage jobs.

We find also, that during the mid- to late 1990s, low-wage workers moved frequently into and out of the low-wage labor market. Most held multiple jobs (an average of 3 jobs during the three-and-one-half-year follow-up period), and low-wage job spells were typically short  about three-quarters ended within a year. Low-wage workers often exited their low-wage jobs directly into higher-wage jobs, although many also exited into other low-wage jobs or into nonemployment. Many exiters, however, also returned to the low-wage labor market.

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 three-quarters 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 several interesting results about the association between overall employment experiences during the follow-up period and 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.

At the same time, however, 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.

In sum, 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. These findings are inevitable in a study such as this, and the extent to which the findings are interpreted as positive or negative depends on whether one views the glass as half empty or half full. 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 for the employment prospects of low-wage workers may be different under a weaker economy.

 

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