The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Defining and Characterizing the Low-Wage Labor Market . Defining the Low-Wage Labor Market


In the most basic economic model of the labor market, there are no identifiable characteristics that separate the low-wage sector from the rest of the market.  The labor market is one in which a worker's wage is determined solely by the value of that worker's marginal product — that is, how much his or her labor adds to the total product of the firm.  Consequently workers with lower productivity are paid less than those who contribute more to the firm's output.  However, more nuanced treatments of the labor market have evolved over time that provide both a theoretical justification and an empirical basis for studies focusing specifically on the low-wage sector of the market.  These can be grouped into two major categories:  job-based and worker-based (see table 1).

Table 1. Definitions and Concepts Used in Analysis of Low-Wage Labor Markets
Job-Based Worker-Based
Segmented Labor Markets Wages
  • low mobility
  • absolute wage levels
  • low wages with slower-than-average growth
  • no fringe benefits
  • high levels of turnover
  • little worker bargaining power
  • no internal labor markets
  • race- and gender-based discrimination
  • characteristics and shares of workers earning "poverty-level" wages
  • relative wages
  • characteristics of workers in (e.g.) the bottom 20 percent of the wage scale
  • trends in real wages by percentile
Wage Contours Employment
  • groups of jobs with "common wage-making characteristics"
  • wages in such jobs tend to move together and tend to be tied to the minimum wage
  • high levels of unemployment and underemployment among those with "low-wage profiles"
  • low rates of employment
  • marginal labor force attachment
  • frequent cycling in and out of labor market
  Education level
  • wage trends and workers' characteristics by education level, typically high school or less