The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Low-Wage Labor Markets: The Business Cycle and Regional Differences . The Economy and the Prospects of Low-Skilled Workers

12/01/1999

How did low-skilled workers fare over the last business cycle?  What have been the general trends in the low-skilled labor market since the late 1980s?  These questions are addressed by examining the unemployment rates for workers with different levels of education, focusing especially on workers with high school or less.

Less Education, More Unemployment

In good times and recession alike, workers with less education fare worse than those with more education.  Moreover, things appear to have gotten worse for less-skilled workers (that is, workers with high school or less) during the 1990s.  Figure 1 shows the unemployment rates for women (figure 1a) and men (figure 1b) by educational attainment in 1988, 1992, and 1997.  Five groups of workers are broken out as follows:

  • those who have not completed high school ("less than high school");
  • those with a high school diploma but no further formal schooling ("high school");
  • those with some schooling beyond high school — including vocational training and associates degrees — but less than a four-year college degree ("some college");
  • those with a four-year college degree ("college"); and
  • those with education beyond college ("college plus").

Figure 1a.  Unemployment rate for women by education, 1988, 1992, 1997.

Figure 1a. Unemployment rate for women by education, 1988, 1992, 1997.

Figure 1b.  Unemployment rate for men by education, 1988, 1992, 1997.

Figure 1b. Unemployment rate for men by education, 1988, 1992, and 1997.

Figure 1 illustrates three points.  First, in recession and economic expansion alike, the unemployment rate is higher for workers with lower educational attainment.  In 1997, women and men with less than high school faced an unemployment rate of 13 to 14 percent.  In contrast, the unemployment rate was 5.5 to 6 percent for high school graduates, 4 to 5 percent for men and women with some college, about 2.2 percent for college graduates, and less than 2 percent for those with more than four years of college.  Even in good times, then, the labor market prospects of workers who have not completed high school are relatively bleak.

Second, for all groups except the most highly educated women, the unemployment rate rose sharply in the last recession (as shown by the increases between 1988 and 1992).

Third, although by 1997 the unemployment rate had returned to its pre-recession level (or nearly so) for other groups of workers, the unemployment rate for women with less than high school actually increased in the post-recession period.  That is, the unemployment rate for women with less than a high school education remained high (and even increased somewhat) as the economic upswing of the 1990s progressed.  This is the main finding in figure 1 that needs to be explained, since it raises an important concern for efforts to move former welfare recipients into the labor force.

Explanations

Why did the unemployment rate for women with less than high school not fall during the current recovery?  Three factors appear to be at work.

Declining Demand for Low-Skilled Labor.  First, it is widely believed that the demand for low-skilled workers in the United States has been falling over time, mainly as a result of skill-biased technological change (see, for example, Mark 1987; Bound and Johnson 1992, 1995).  By itself, the decrease in demand for low-skilled women would reduce employment and put downward pressure on the wages.  In the presence of an effective minimum wage, such a drop in demand would lead to increased unemployment.

Rising Labor Force Participation.  An important trend on the supply side of the labor market for low-skilled women is apparent in figure 2:  The number of women with less than high school who are seeking jobs has been on the rise.  In particular, the labor force participation rate for women with less than high school increased between 1992 and 1997 from about 31.5 percent to 34 percent.  [The labor force participation rate is defined as the sum of employment and unemployment (the labor force) as a percentage of all noninstitutionalized workers ages 16 and over (the population that is eligible to participate in the labor force).]

Figure 2a.  Labor force participation rate for women by education, 1988, 1992, 1997.

Figure 2a. Labor force participation rate for women by education, 1988, 1992, 1997.

Figure 2b.  Labor force participation rate for men by education, 1988, 1992, 1997.

Figure 2b. Labor force participation rate for men by education, 1988, 1992, 1997.

The increase in labor force participation of women with less than high school may have occurred in part because of anticipated changes in Aid to Families with Dependent Children (AFDC).  Anecdotal reports from welfare caseworkers suggest that many welfare recipients reentered the labor force even before Temporary Assistance for Needy Families (TANF) became law.(1)  In any case, increased labor force participation is exactly what can be expected as a result of TANF.(2)  If what occurred between 1992 and 1997 is a precursor to what can be expected as TANF proceeds, then we can expect further increases in the labor force participation rate for women with less than high-school.  If such a trend does develop, then the supply of low-skilled workers competing for jobs would increase, and the employment prospects for low-skilled former welfare recipients would worsen at least in the short run.

Fewer Women with High School or Less.  A third trend is acting to blunt the two factors just discussed and to improve the labor market for low-skilled women.  Specifically, the population of women with high school only or less than high school has fallen sharply since 1988.  This can be seen in figure 3, which shows the population of women and men in each of the five educational categories examined for 1988, 1992, and 1997.  (Population is defined as the sum of employed workers, unemployed workers, and noninstitutionalized individuals over age 16.)  Whereas the number of women with some college and college degrees has risen rapidly since 1988, the number of women with less than high school has fallen by nearly 13 percent, and the number of women with only high school has fallen by 10 percent.  This shift in the composition of the population from less to more education and skill should reduce the supply of low-skilled labor and put upward pressure on the wages of low-skilled women.  In other words, the reduced supply of women with less than high school and high school only should, by itself, improve the labor market situation of the women who remain in the low-skilled labor market.

Figure 3a.  Population of women by education, 1988, 1992, 1997.

Figure 3a. Population of women by education, 1988, 1992, 1997.

Figure 3b.  Population of men by education, 1988, 1992, 1997.

Figure 3b. Population of men by education, 1988, 1992, 1997.

Clearly, though, the first two factors — declining demand for low-skilled labor and increasing labor force participation rates of low-skilled women — have dominated the labor market for low-skilled women. As a result, the unemployment rate of low-skilled women has been on the rise.

All three factors apply to men as well, but men's unemployment rates fell after the recession.  The difference probably reflects the fact that women's opportunities are more restricted than men's and that opportunities for women are segregated from those for men.

Long-Term Trends versus the Business Cycle

The failure of the unemployment rate for women with less than high school to fall during the current recovery suggests that long-term or secular factors (such as technological change and trends in labor force participation) are more important than the business cycle in determining the employment status of low-skilled women.  This suggestion is supported by what happened to the unemployment rate for low-skilled women during the recession of the early 1990s.  As with most groups of workers, the unemployment rates for women with less than high school and high school only increased during the last recession.  But in percentage terms, the increase in the unemployment rate for women who had a high school education or less was actually less severe than for women with more than high school (except for those with schooling beyond a college degree).(3)  This does not imply that the last recession was in any sense kind to workers with high school or less, but it does suggest that, in relative terms, the recession of the early 1990s was not as hard on workers with less education (and was harder on workers with greater education) than earlier recessions had been.  A likely explanation is that the secularly falling population of women with high school or less blunted what would otherwise have been a more substantial increase in the unemployment of low-skilled women.  Whether this scenario — in which the employment of women with high school or less turns out to be less volatile than the employment of women with more education — would repeat itself in a future recession is an open question.

Summary

The labor market prospects for former welfare recipients are far less promising than for more-skilled groups of workers.  First, in both good times and bad, workers with high school or less face substantially worse labor market prospects than workers with more schooling.  Second, there is a consensus among labor economists that the demand for low-skilled labor is in long-run decline, mainly as a result of technological change.  This falling demand can be expected to increase the unemployment of low-skilled labor relative to other workers.  Third, it appears that the labor force participation rate for women with less than high school has been rising and can be expected to continue rising as TANF proceeds.  This rising labor force participation rate implies a growing number of low-skilled job seekers.  Both the second and third factors push in the direction of a higher unemployment rate for low-skilled workers.  The one bright spot for former welfare recipients is that the population of women with high school or less than high school is falling, as the composition of the labor force shifts toward more educated workers.  As a result, a smaller population of workers will be available to compete for the low-skilled jobs that workers with only high school or less typically occupy.  Clearly, this does not eliminate the need to anticipate the next recession and to contemplate measures to create jobs for these workers, but it may make the problem less severe than it might otherwise be.