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


Are low-wage jobs a stepping-stone to higher-paying jobs, or are people in low-wage jobs stuck in them? Despite the policy importance of this issue, little research has been conducted on it. Furthermore, the studies that have examined this issue have focused largely on the period through the early 1990s.

The literature on this topic uses longitudinal data on the same people over time, primarily from the PSID, SIPP, or the National Longitudinal Survey of Youth (NLSY). The Longitudinal Employer Household Dynamics (LEHD) data, which combines administrative data on quarterly employment and earnings for individuals with data on employers, is another good source for examining labor market dynamics over time (see Holzer 2001). Most studies identify low-wage workers or low earners in a base period and examine their labor market outcomes over subsequent periods, ranging anywhere from 1 year to more than 15 years. For example, Carnevale and Rose (2001) used the PSID to identify prime-age workers with earnings less than $15,000 in 1988 and followed them until 1992. Similarly, Gottschalk (1997) used the PSID to categorize workers in 1974 into quintiles of the earnings distribution and examined their earnings quintiles in 1975 and 1991. As another example, Smith and Vavrichek (1992) used the SIPP data to examine the labor market outcomes of minimum-wage workers in 1985 one year later. Another approach taken in the literature to measure the extent of wage growth for low-skilled workers is to use regression methods to estimate the relationship between work experience and hourly wages (Gladden and Taber 2000a, and 2000b).

The evidence in the literature about the extent of wage progression for low-wage workers consistently suggests that some low-wage workers experience wage growth, while others do not. Studies also find that movement out of the low-wage labor market into the higher-wage one increases with time spent in the labor market. Two patterns, however, are noteworthy. First, although there is some increase out of the low-wage labor market with time, the movements are not large. Second, a considerable number of low-wage workers drop out of the labor force over time, so that the group that remains is a somewhat select sample.

Several studies examining the employment experiences of the welfare population also send a mixed message about the extent of wage progression for those in lower-end jobs. Using the NLSY, Rangarajan et al. (1998) show that job retention is a problem for most welfare recipients who find jobs (75 percent of the sample left their jobs within a year). However, on average, welfare recipients who worked steadily experienced considerable increases in earnings over time, primarily as a result of increases in hours and weeks worked; however, wages improved only modestly.(6) Studies by Bartik (1997), Burtless (1995), and Corcoran and Loeb (1999), which focus on the economic returns to work experience, also find modest returns to work for welfare recipients.

An important policy question is the extent to which success in the labor market differs across key subgroups of the low-wage population. The literature on this topic is sparse. The few studies that address this question find that wage progression is lower for females, minorities, and people with low education (Carnevale and Rose 2001; Smith and Vavrichek 1992; and Holtzer et al. 2001). Only limited information exists on the extent of wage progression for low-wage workers by age. The study by Smith and Vavrichek (1992), the only one we found that addresses this matter, finds that wage progression among minimum-wage workers was greater for people ages 25 to 54 than those in other age ranges. Those age 55 or older had the lowest wage gains, followed by teenagers.

In addition, limited information exists on wage growth for subgroups of the low-wage population defined by their initial job characteristics. Rangarajan et al. (1998) examine this matter using NLSY data, but only for the population of welfare recipients who find jobs. They find that initial job characteristics are closely related to employment spell lengths and wage growth, even after controlling for numerous individual characteristics. In particular, wage growth was substantially greater for people in jobs with higher initial wages and with fringe benefits than for people in other jobs. Holzer and Lalonde (2000) use low-skilled youths in the NLSY to study job turnover rates  the extent to which workers change jobs  by initial job characteristics, although they do not examine wage growth directly. Their results, however, corroborate those of Rangarajan et al. (1998). Specifically, they find that the characteristics of the jobs to which less-educated workers have access, including their starting wages, occupations, and industries, affect their job turnover rates. For example, jobs in construction and service occupations have higher turnover rates than other jobs, whereas jobs in manufacturing (and to a lesser extent, in transportation and utility sectors) have lower turnover rates. Similarly, the starting wage of the job has strong negative effects on job transition rates.

Has it become increasingly difficult for low-wage workers to move out of poverty? Duncan et al. (1995) suggest that the answer to this question is yes, at least during the 1970s and 1980s. Using the 1968-1992 waves of the PSID data, they found that, for all subgroups of 21-year-old men, classified by race, ethnicity, and education level, the time it took them to earn twice the poverty level increased throughout the 1970s and 1980s. Importantly, the worsening of mobility prospects has been particularly severe for workers with low levels of education.

Another salient issue is the role of job retention in achieving wage growth for low-wage workers. Job turnover is common among low-skilled workers (Holzer and Lalonde 2000; Light and Ureta 1992; Royalty 1998; and Topel and Ward 1992). Furthermore, evidence exists that recent declines in employment rates among less-educated people largely reflect increasingly lengthy durations of nonemployment for those who leave their jobs. Consequently, an important policy issue is the labor market consequences of these high job turnover rates. Changing jobs, even with intermittent unemployment spells, might help low-wage workers progress in the labor market. However, it is also possible that workers progress more by staying in the same job.

The evidence on the effect of job turnover on wage progression for low-wage workers is limited. However, the detailed study by Gladden and Taber (2000a) suggests that there is a positive return to some voluntary mobility for those with low levels of education, although the story is complex. Using the NLSY, they show that a voluntary job change was associated with a three percent increase in wage growth for low-skilled workers, although frequent job changes led to earnings losses. In contrast, an involuntary job change led to a five percent decrease in wages. They also find the intuitive result that, when workers moved directly between jobs or were unemployed for a short time, their wages tended to rise with turnover, but when the unemployment spell was longer, their wages fell. They conclude that a substantial amount of wage growth for low-skilled workers comes with job changes.

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