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

02/16/2000

Reform of the nation's welfare system, particularly its welfare-to-work component, has focused the attention of policy makers, advocates, and the poor themselves on the low-wage labor market.  Indeed, the success of welfare reform is largely dependent on moving recipients off the welfare rolls and into market work, which, given the education and skill levels of the typical welfare recipients, will be work at low wages.1  This focus requires a realistic understanding of the low-wage sector: Can it successfully absorb those coming off the welfare rolls? What are their hours of work and earnings likely to be? What impact will welfare-to-work have on the living standards of former welfare recipients? What will be the impact on their children?

These questions can only be addressed, however, when the low-wage labor market has been adequately defined, a task that depends on the answers to a different set of questions: How does the low-wage sector differ from the rest of the labor market? Who works there? What is the industry/occupation structure of this sector? Are these characteristics changing? Is it becoming more or less likely that someone will be a low-wage worker? What policy initiatives might help low-wage workers? This paper defines and characterizes the low-wage labor market by addressing such questions.

The main findings of the paper are:

  • Definitions of the low-wage labor market fall into two basic groups.  Job-based definitions identify a set of jobs characterized by low wages, few benefits, and little upward mobility.  Worker-based definitions are typically based on a worker's absolute or relative hourly wage, earnings (wages times hours worked), or educational level.  Job-based definitions provide the theoretical foundation and worker-based definitions, the empirical basis for study of the low-wage labor market.
  • Irrespective of definition, there is a strong empirical consensus that there has been a long-term decline in the real earnings of low-wage workers and/or an increase in their numbers as a share of the workforce.
  • Low-wage workers are disproportionately female, minority, noncollege-educated, nonunion, and concentrated in retail trade.
  • These characteristics notwithstanding, the low-wage workforce is becoming more male and more highly educated, which is to be expected given widespread educational upgrading and the long-term wage decline among noncollege graduates.
  • The likelihood of being a low-wage worker has increased, even when the wage impacts of changes in education, experience, occupation, and industry are taken into account.
  • Rising education and experience levels and occupational upgrading have combined to prevent the share of female workers in low-wage jobs from rising.  This has not been the case for men, even though their total share of the low-wage workforce is still below that of women.
  • Supply-side interventions, such as worker training, are clearly important.  Increasing labor demand through policies that keep aggregate unemployment low — combined with policies that shore up labor market institutions such as the minimum wage and labor unions — can also help improve the economic prospects of those in the low-wage sector.