Low-Income and Low-Skilled Workers Involvement in Nonstandard Employment. A First Look at How Alternative Work Arrangements Affect Low-Income and At-Risk Workers


In order to address this core research question, it is necessary to define low-income and at-risk workers. Unfortunately, there is no clear consensus on either definition. In defining low income or low wage, income from many different sources (e.g., wages, public assistance, child support), over many different time periods (e.g., hourly, weekly, annually), and many different units (e.g., individual, family, household) may be considered (see Theeuwes, Lane, and Stevens 2000; Brown 1999; Dickert-Conlin and Holtz-Eakin 1999; Hudson 1999). Different thresholds are often used as well: some absolute, such as a multiple of the minimum wage (see Brown 1999) or wages necessary to lift a family of four above the poverty threshold (see Hudson 1999)., and some relative, such as the relative position in the income distribution (e.g., lowest 20 percent of the income distribution) (See Theeuwes, Lane, and Stevens 2000; Dickert-Conlin and Holtz-Eakin 1999; and Hudson 1999). There is similarly no clear definition of at risk of welfare recipiency because of the wide variety of income eligibility rules for TANF in each state. Thirty-six of 50 states have a gross income test--income before deductions and disregards, resulting in an income variation ranging from $616 (Oregon) to $1,955 (Alaska) in monthly income,(36) (37) or if translated into poverty thresholds, a range of from 56 to 177 percent of the 1999 poverty threshold for a family of three. Similar variation occurs if we consider Medicaid income eligibility which translates into a range between 48 and 209 percent of the 1999 federal poverty threshold, although the national threshold for food stamps is 135 percent of poverty level. In any event, the gross monthly income limits for the three major public assistance programs range from 48 to 209 percent of the 1999 federal poverty threshold.

Can the terms low wage, low income, and at risk of welfare recipiency be used synonymously? Research by Dickert-Conlin and Holtz-Eakin (1999) suggests that low-wage workers and poor workers are not the same, and, in fact, only 15 percent of low-wage workers--with wages below $5.93--the lowest quintile of the wage distribution--are poor. They also find that poor workers are much more likely than low-wage workers to receive public assistance. Twenty percent of poor workers receive public assistance while only about 7 percent of low-wage workers receive some form of public assistance. This is not surprising given the lower incomes of households with poor workers ($9,431) compared to households with low-wage workers ($38,384). Thus, a definition of low income that is based on the poverty level is much more likely--although by no means certain--to include individuals at risk of welfare recipiency than a definition of low income that is based on wage rates.

No CPS-based study has focused exclusively on low-income workers in alternative work arrangements, possibly because of the small number of workers in alternative arrangements. As Table 2.10 shows, the number of public assistance recipients in alternative work arrangements nationwide is rather small. However, there is some evidence that workers in alternative work arrangements are over-represented among low-wage workers and workers with incomes below or near the poverty line.(38) In a recent study analyzing the 1999 February CPS,(39) GAO found that about 8 percent of standard full-time workers had annual family incomes below $15,000, as compared with 30 percent among agency temporaries. Likewise, GAO found that nearly every category of alternative workers--including agency temporaries, direct-hire temporaries, on-call workers, independent contractors, and part-time workers--had a greater percentage of workers with family incomes below $15,000. In fact, only self-employed and contract workers had a lower or similar percentage of workers with family incomes below $15,000 annually.(40)

Table 2.10
Nationwide Employment by Work Arrangement for Workers in Households Receiving Public Assistance, Medicaid, Food Stamps, or Supplemental Security Income, 1999

Work Arrangement

Total Number
Percent of All Workers
Agency Temporaries 198,460 2.2%
On-call Workers 290,840 3.6%
Contract Company Workers 60,054 0.7%
Self-employed 731,460 8.2%
Regular Workers 7,681,000 85.7%
Source:  Current Population Survey February Supplement, 1999.
Note:  Percentages may total to more than 100 due to rounding.

Houseman (1999) used the February Supplement to the 1997 CPS and matched files for the February and March 1995 CPS to analyze both hourly wages and poverty levels for workers in alternative arrangements compared to regular employees. This descriptive data analysis(41) uses the 1997 CPS data to calculate the percentage of workers earning at or near the minimum wage--between $4.25 and $5.15 in 1997. She finds that some workers in alternative arrangements do better than regular employees while others do worse.(42)

There is evidence from Unemployment Insurance (UI) wage record data that temporary help jobs for welfare recipients are not of high quality. Pawasarat (1997) examines over 42,000 jobs held between January 1996 through March 1997 by over 18,000 single parents who received Aid to Families with Dependent Children (AFDC) benefits in December 1995. In particular, Pawasarat found that temporary help jobs were often part time or short term: of those hired by a temporary agency over the five quarters, only 30 percent used that agency as the sole source of employment. Additionally, earnings were low. Between 48 and 52 percent of those employed by temporary employment agencies earned under $500 per quarter in wages. Only 9 to 13 percent of the temporary workers earned the equivalent of a full-time salary (at least $2500) in a temporary job in a given quarter.

However, he finds that temporary agencies provide an entry point into the labor market for AFDC recipients, and are important in a numerical sense. In particular, he finds that 30 percent of all jobs held by these workers were concentrated in temporary agencies compared to 23 percent in retail trade, and that over the five quarters studied, 42 percent of AFDC recipients who had a job were employed at least once by a temporary agency.

It is certainly clear that a greater percentage of agency temporaries, on-call workers, and other short-term direct hires earn near the minimum wage than do regular employees (Table 2.11). These low wages translate into low family incomes and thus a greater percentage of workers in alternative arrangements earn below or near the poverty line as compared with regular workers. Furthermore, since workers in alternative work arrangements are more likely to work intermittently or for fewer than full-time hours, it is not surprising that their overall incomes are lower than those of regular employees.

Table 2.11
Percent of Workers with Low Wages and Income by Work Arrangement
  Hourly Wage
Percent Below Poverty(b) Percent Near Poverty
(100%-125% of Poverty Line)(b)
Working Arrangement
Agency Temporaries 9.3% 14.2% 7.5%
On-call or Day Laborers 13.9% 12.0% 4.2%
Independent Contractors 4.3% 7.7% 3.1%
Contract Company Workers 5.5% 6.7% 4.8%
Other Short-term Direct Hires 17.9% 10.9% 4.2%
Other Self-employed 6.0% 7.5% 2.3%
Regular Employees 7.0% 4.8% 2.7%
Source:  Houseman 1999.
a.  Tabulations from the February 1997 CPS Supplement on Contingent and Alternative Work Arrangements.
b.  Tabulations from matched data from the February 1995 and March 1995 CPS.

These findings are reinforced by Houseman's (1997) analysis of the February 1995 CPS. She finds that workers in alternative work arrangements are much more likely to receive low wages, live in poverty, and have no benefits, than are workers in regular full-time jobs. Further evidence indicates that while workers in alternative work arrangements account for about 25 percent of wage and salary workers, they account for 57 percent of those in the bottom ten percent of the wage distribution, 56 percent of those not eligible to receive employer-provided health insurance, and 42 percent of the working poor.(43)

Despite the evidence that workers in alternative work arrangements are more likely to have earnings below the poverty line, it would be premature to conclude that low-income alternative workers are hurt by their alternative work arrangements. It is not clear that without these alternative work arrangements these workers would be better off since many might be unemployed or discouraged workers, particularly in view of the low levels of human capital held by these workers.