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


What are the patterns of wage growth among low-wage workers who start a job? What is the amount of increase in wages for those employed three years later? Are low-wage workers moving into better jobs over time? What factors are associated with wage growth in the low-wage labor market? Are those employed in certain occupations or industries more likely than others to experience wage growth? Do initial wages matter? Do those who keep the same job experience greater or lower wage growth than those who switch jobs?

This chapter addresses these and related questions using data on workers in the 1996 SIPP longitudinal panel file who started low-wage jobs during the first six months of the panel period (roughly, in the first half of 1996). We used the average wages over the initial six-month period after initial job start to classify individuals as low-wage workers. Low-wage workers are those whose average wages during this initial period were below $7.50 per hour (in 1996 dollars), which is the cutoff that would put them below the federal poverty level for a family of four if they worked full-time.(37) We then tracked their progress by examining the changes in their average wages over six-month intervals during the subsequent three-year period. Unless otherwise noted, all wages reported are real wages in 1999 dollars.

We conducted a descriptive analysis to answer the key analysis questions and a multivariate analysis to better understand factors related to wage growth. To place our findings in context, Appendix C presents selected descriptive statistics for workers who started medium- and high-wage jobs. All statistics were calculated using the longitudinal panel weight.

Before turning to the study findings, we discuss three important sample- and methodological-related issues that pertain to the analysis in this chapter. First, similar to the aggregate analysis described in chapter IV, the sample for this analysis includes those who started low-wage jobs during the first six months of the panel period.(38) Among those who started a job in the first six months of the panel period, just under half were low-wage workers, about 38 percent were medium-wage workers, and about 15 percent were high-wage workers.

The second issue relates to that of the classification of job starters as low-, medium-, or high-wage workers. As discussed in the Methodological Appendix A, we based our initial classification of workers into these three groups based on their average wages during the first six-month period after they started their jobs. Categorizing people into low-, medium-, or high-wage workers at any given point in time has two potential issues especially important for the wage growth analysis. First, if a worker misreports his or her wages at the time of job start, we may incorrectly classify an individual into a wage type that may not be their real wage type. Second, people sometimes obtain jobs that may not be related to their true ability levels and may soon move into a job that more closely matches their true human capital level. For example, if a worker with low productivity gets a high-wage job, he or she may not be able to sustain that job for long and may soon move into a low-wage one. Conversely, a high-productivity worker may have found a low-wage job and might soon move to a higher-wage job (defined as a medium- or high-wage job). Both these factors work in the direction of potentially large wage growth for low-wage workers (or lower wage growth for high-wage workers), especially in the early periods after job start. We were particularly concerned about minimizing the effects of any data errors, as these errors do not reflect true changes in wages. Thus, as described earlier, we smoothed wages and took the six-month average of wages after job start to classify workers into wage categories.(39) (We call this initial period to classify workers into wage categories "period 0.") While this smoothing is likely to reduce the noise due to data errors to a large extent, residual errors could still remain, and we may be overstating wages for low-wage workers. Consequently, in our analysis examining wage growth over time, we start with the average wage in the first six-month period after the period we used to define their initial worker type and examine their wage growth over the following three-year period (period 1 through period 6). For trends in wages over time, we present average wages of those employed in period 1, average wages of those employed in period 2, average wages of those employed in period 3, and so on. For the analysis of individual workers' wage growth over time, we compare wages and job characteristics of those workers who were employed in both the first and last periods (i.e., period 1 and period 6) regardless of their employment in other periods. We also examined the sensitivity of the wage growth findings to alternative definitions of low-wage workers, such as excluding those with very low wages and looking at longer time periods to classify low-wage workers, but we found that our main results were not sensitive to these alternative definitions.

The third issue relates to sample selection. Since we observe wages only for those who are employed, the wage growth analysis is limited to the sample of people who were working at different points in time. Those who remained employed at a later time may be different from those who did not remain employed. As demonstrated in the previous chapter, because of the strong economic conditions in the mid- to late-1990s, relatively large fractions of low-wage workers remained employed three and a half years after job start. The high fraction of low-wage workers who remained employedВ  88 percent of male workers and 80 percent of female workersВ  suggests to us that our sample for the wage growth analysis is similar to the sample of those who started low-wage jobs. However, we do observe some differences between those working and those not working three and a half years later, which mimic the subgroup results from the previous chapter. For example, those with health limitations were considerably less likely than those with no health limitations to be employed three and a half years later. In addition, older men, African American males, and males working part-time in their initial jobs were less likely to hold a job at the end of the three-year follow-up period. Females with less than a high school diploma and those whose initial wages were less than $5 (in 1996 dollars) were also less likely to be employed at the end of the follow-up period.

This chapter is in two sections. First, we present descriptive findings by gender for the full set of outcome measures; second, we present findings from the subgroup and multivariate analyses for selected outcomes.

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