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The Changing Face of the Low-Wage Labor Market

October 23, 2014
By Oren M. Levin-Waldman, Ph.D.

Over the last three decades along with the various structural changes that have taken place in the economy, we can say that the face of the low-wage labor market has also changed. It used to be that the low-wage labor market characterized by unskilled labor as perhaps reflected by the percentage of high-school dropouts was extremely high.

Three decades later, however, we find that increasingly the ranks of the low-wage labor market are filled with high school graduates, some college graduates and professional graduates.

Historically, we tended to define the low-wage market as those earning the minimum wage. At the same time, the minimum wage tended to be pegged at around 50% of average annual hourly earnings. A fair definition of the low-wage labor market, then, would be those earning between the statutory minimum wage and 50 percent of average annual earnings, or those we can say earn the effective minimum wage.

In 1982 the minimum wage was $3.35 an hour and 50 percent of average annual hourly earnings was $3.73. In 2013, the minimum wage was $7.25 and 50 percent of average annual hourly earnings was $12.70. In 1982 only 3.3 percent of full-time workers between 18 and 75 fell into the category of effective minimum wage earners. But by 2013, the number of workers who could be said to be effective minimum wage earners was 16.4 percent, an increase of 397 percent.

Many of the arguments against the minimum wage rest on the assumption that only a small fraction of the labor market earns it. But if close to a fifth of the adult labor market is earning an effective minimum wage, we as a society can no longer afford to write this labor market off as inconsequential.

Opponents also claim that most minimum wage earners are teenagers or secondary earners. Again, during this period we see some interesting changes. Consider that in 1982 the largest number of effective minimum wage earners, 27.3 percent, were between 18 and 24. By 2013, the number of effective minimum wage earners between 18 and 24 had dropped 49.5 percent to only 13,8 percent of the age distribution. Those between 35 and 44 increased 20.7 percent and those between 45-54 increased 40.1 percent from 18.4 and 15.0 percent in 1982 respectively to 22.2 and 21.1 percent in 2013 respectively.

Females still comprise a majority of the effective minimum wage labor market, but the number of men in the effective minimum wage population increased 33.3 percent from 35.7 percent in 1982 to 46.6 percent in 2013. The most significant change in the composition of the low-wage labor market, however, appears to have been in educational attainment. In 1982, 75 percent of effective minimum wage earners had not completed high school. By 2013, only 16.7 percent of effective minimum wage earners had not completed high school, a decrease of 77.7 percent. And in 1982 only 2.7 percent of effective minimum wage earners had a high school diploma, whereas 37.9 percent of them had a high school diploma in 2013, an increase of 1303.7 percent.

Actually, the percentage of high school graduates who were effective minimum wage earners was 44.6 percent in 1992, representing an increase of 1551.9 percent. In 1982, those with Associates, BA and Professional degrees didn’t even register among effective minimum wage earners. By 1992 they did and between 1992 and 2013, there were even significant increases among them as well. The largest increase was among those with Associates degrees from 4.9 percent to 10.6 percent, an increase of 116.3 percent. Effective minimum wage earners who were college graduates also increased 57.7 percent from 7.8 percent to 12 percent. There was even a 33.3 percent increase in effective minimum wage earners with professional degrees from 2.1 percent to 2.8 percent.

It is true that the largest number of effective minimum wage earners have no more than a high school diploma, which may say something about skills levels. At the same time the structural changes in the economy have also meant that those who previously might have gone from high school into middle class jobs in factories, were no longer able to do that. Effective minimum wage earners in Manufacturing decreased 41.9 percent from 20.3 percent in 1982 to 11.8 percent in 2013. The number of effective minimum wage earners working as service workers in private households increased 144.3 percent. Overall manufacturing decreased 48.3 percent and overall service workers increased by 200 percent.

Arguably the changes we are seeing are a function of larger global forces in which higher paying jobs have disappeared and been replaced by lower paying ones. But this might well be the point. When the issue of low-wage work can no longer be dismissed as a matter of workers either lacking skills or being "youth" workers, we as a society need to wake up and recognize that we have a serious problem. That high school graduates who once could go into middle class work in the factories now find that their only option is low-wage work speaks volumes to a breakdown in a public-private partnership that assumed if the private sector created jobs, the public sector would produced a prepared workforce for those jobs.

There is no question that we can blame the poor quality educational system for some of this. But the larger issue is that our priorities as a nation have also shifted in large part because the institutions that used to lobby for policies beneficial to the middle class, have all but disappeared. The biggest constituency for middle class policy was organized labor, but labor union membership has been in sharp decline. Some of the largest structural changes in the economy occurred during the 1980s, which is when the nation saw the largest decline in union membership along with stagnation of the minimum wage.

It should come as no surprise, then, that had the minimum wage kept up, the percentage of effective minimum wage earners would still be infinitesimal. Perhaps we need to recognize that it isn’t a matter of globalization on the one hand and institutions on the other. Rather the so-called natural processes which have been occurring under the guise of globalization have been exacerbated by the decline of institutions. The response to globalization, then, isn’t to eliminate so-called barriers to free markets like labor market institutions, but to strengthen them. It is time to end the blame game and work together to end low-wage work and restore the middle class.


 

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