The advent of welfare reform, with its emphasis on welfare to work, has led to an increased interest in the low-wage labor market. Such interest is well-served by examining the ways in which labor market analysts have defined the low-wage labor market in prior literature. A typology has been applied in the previous sections, drawing both on the early work of segmented labor market theorists as well as that of more contemporary empirical analysts.
Then some of the wage-based definitions were applied, which showed that under each definition wages and earnings have fallen for these workers. Examining the characteristics of low-wage workers (defined using absolute wage levels) reveals few surprises: such workers are disproportionately female, minority, with at most a high school degree. Over time, the share of women in the low-wage workforce has declined, and low-wage workers are better educated now than in the past. In addition, the likelihood of low-wage work has increased over time, driven by an increase in the number of men in this segment of the workforce. The low-wage share of female workers would have grown significantly had women not upgraded their education, experience, and occupations. However, even after controlling for changes in both returns and characteristics, there has been a large, secular increase in the likelihood of work at low wages.
Explanations for the increase in low-wage work stress both a shift in labor demand against low-wage workers and the erosion of labor market institutions which, in prior years, served to increase the earnings of such workers, both in relative and absolute terms. Both of these explanations have some validity, but concerns regarding eroding institutions get too little attention relative to the demand-shift arguments. Policies can be designed to both increase demand for low-wage workers and reinvigorate key institutions.