The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Opportunities for Advancement and Job-Related Benefits in the Low-Wage Labor Market


As noted, many disadvantaged workers do not earn enough to support a family above the poverty level and their jobs will not secure the economic independence of families unless they are accompanied by employment stability and wage advancement. The final two papers in the volume move beyond initial job entry to job retention and wage growth. Peter Gottschalk looks at the opportunities for wage growth and job advancement among low-wage workers. Julia Lane examines the extent to which job turnover is associated with advancement to a better job versus employment instability and periods of joblessness.

What is the Potential for Wage Growth and Job-Related Benefits among Low-Wage Workers?  Low-wage workers, particularly women who previously received welfare, experience little wage growth, according to much of the evidence reviewed by Gottschalk. According to one study, former welfare recipients working 32 hours a week year-round for $5.14 an hour can expect wage growth of about 4.5 percent over the year. This seems quite significant, until several factors are taken into account to put it into perspective. First, given the low starting wage, 4.5 percent amounts to only about $400 a year. Second, other studies yield lower estimates, particularly for those working fewer than 32 hours a week. Third, even the lower rates are probably overestimates, given that they are based on former recipients who voluntarily left welfare and were able to find employment. Current recipients with more substantial employment barriers may fare considerably worse. Experimental evidence regarding the impact of employment services was particularly discouraging. However, this in part reflects the fact that such experiments yielded only small increases in initial work experience.

One likely factor depressing wage growth for disadvantaged workers is the lack of employer provided training. Many firms hiring disadvantaged workers tend to have less capital and provide less training to workers than firms hiring more skilled labor. Jobs in the service or clerical sector, for instance, provide substantially less training than jobs in the professional/technical or construction/maintenance fields (see Appendix Table 4.5). Not only do disadvantaged workers generally receive fewer hours of training, but the training they do receive is more often informal learning rather than formal instruction. This pattern holds true for female and minority workers, and for workers without a high school diploma. Job tenure influences the informal/formal mix. Workers having less than five years tenure with their current employer receive relatively more training overall than workers with over five years tenure but much less formal instruction.

For low-wage workers, the challenge of making ends meet is often compounded by lack of employer-provided benefits. Workers earning less than $8 per hour are much less likely than other workers to have benefits such as job-related health insurance for their families, paid leave, access to flexible schedule options or dependent care benefits (for information about access to benefits, see Appendix Tables 4.1 to 4.7). About 61 percent of low-wage workers have access to job-related health benefits for their families, for example, compared with 87 percent for other workers. For many workers, the combined lack of wage advancement and lack of benefits lead to increased job instability, which further hurt chances for future wage advancement and benefit receipt. Over one-quarter of employers surveyed said there was a waiting period of a year or longer before benefits were provided to new employees.

How Does Job Turnover Affect Low-Wage Workers? Job turnover is prevalent in today's labor market, notes Lane. Almost one in three jobs is created or destroyed each year. Turnover also occurs when workers churn in and out of existing jobs. Four in ten jobs are occupied by new workers each quarter.

Although some degree of job turnover is a positive sign of flexibility and adjustment in the labor market, turnover can have high costs for disadvantaged workers. Unskilled workers tend to suffer lower annual earnings, reduced opportunities for formal training, and longer periods of joblessness each time they change jobs. Findings reviewed by Lane indicate that workers who are displaced from their jobs may suffer earnings losses of 10 to 25 percent up to several years later. Women and minorities are at higher risk for unemployment following displacement than men. (For information about employment status, see Appendix Tables 2.1 to 2.3.)

Not surprisingly, Lane reports that turnover is higher in industries where disadvantaged workers tend to find employment. Retail trade and business services, for example, account for only one in five jobs but nearly half of worker-based turnover.