Want to Expand the Middle Class? Improve Low-Wage Jobs

By Shawn Fremstad and Margy Waller

This article was published in the following news outlets: 

March 19, 2007, Policy Innovations
March 29, 2007, Philadelphia Daily News

Progressives aren't alone in worrying about the widening income gap these days. Even Federal Reserve Chief Ben Bernanke expresses concern. Much of the focus has been on the massive increase in compensation for jobs at the very top of the income distribution. The flip side of this story—the growth of the low-wage labor market and the deteriorating conditions of those jobs—often gets less attention.

It's time to give it a lot more. In "Understanding the Low-Wage Labor Market in the United States," our new report co-authored with Heather Boushey and Rachel Gragg, we find that more than 40 million jobs pay low wages—about one in three.

We approach this work with a theory: A big income gap is bad for our economy and our democracy.

What is low-wage work? There is no universally accepted definition. One commonly used formula defines a low-wage job as one in which a full-time, year-round worker earns less than the federal poverty threshold ($20,444 in 2006 for a family of four, or $9.83 an hour).

Plenty of people agree that the federal poverty line is outdated and has limited appeal for describing low-wage work in today's economy. Moreover, using a measure of basic needs to define low-wage work quickly turns into a dispiriting debate about "how minimum the minimum should be."

To avoid these problems, we adopt a new definition of low-wage work—one that takes inequality into account and uses what we dub a social-inclusion approach. Under this definition, a low-wage job is one that pays substantially less than a job held by a typical male worker. The median wage for men in the United States in 2006 was $16.66 an hour; jobs paying less than two-thirds of the median wage for men paid $11.11 or less per hour.

Some 44 million workers—about one of every three—hold low-wage jobs paying less than $11.11.

That is bad news, and worse than most people realize. Clouding the picture further, most low-wage jobs don't offer employment benefits like paid sick days, health insurance, or retirement accounts. They also tend to have inflexible or unpredictable scheduling requirements, and provide little opportunity for career advancement.

Compensation for these jobs has been getting worse relative to other jobs. Over the last quarter century (1979 to 2005), wages of workers in the top third increased by 22 percent, while low-wage workers ended up at roughly the same place where they began. In 1979, the typical low-wage worker earned $8.47 per hour—26 years later, that worker earned a mere six cents more in real dollars.

While low-wage workers haven't seen much of a raise since 1979, the economy and worker productivity have grown substantially. For several decades before 1980, productivity growth and wages rose together—in other words, U.S. workers were productive and shared in the gains from their productivity. In the last few decades, workers have continued to be increasingly productive, but they have seen little payoff in wages for their hard work. Between 1973 and 2006, productivity increased by 83 percent, while the median wage increased by only 13 percent.

Obviously, it's possible to combine economic growth with higher standards of living for more citizens. Most other countries with advanced economies have a much larger proportion of middle- and upper-wage jobs than we have in the United States.

Inequality in the United States is further compounded by limited economic mobility. Despite the strongly held belief in the myth of Horatio Alger, most low-wage workers do not usually move up.

We have many more entry-level jobs than we have entry-level workers—that is, workers who are new to the labor market—and too few jobs that provide a middle-class standard of living. It turns out that in the U.S. labor market today it's not possible for everyone to be middle class, no matter how hard they work. Plus, it is getting harder to climb that ladder.

Policymakers are aware of all this. They talk a lot about low-wage jobs, but the pending legislation to increase the federal minimum wage is just the first small step. Yet, the federal legislation doesn't do what minimum wage laws in eight states do already—increase the minimum wage each year based on the cost of living.

Low-wage jobs can't be "offshored"—it's hard to clean hotel rooms or serve coffee from across the ocean. With these jobs as a permanent feature, strengthening the U.S. economy means answering this question: How do we make low-wage jobs into better jobs? We developed The Mobility Agenda to address precisely this question.

At least three proposals in Congress can make a difference. The Healthy Families Act would offer paid sick days for workers. The Employee Free Choice Act would restore workers' ability to have some negotiating power regarding work conditions. And, following the lead of states and localities, Congress is finally talking seriously about guaranteeing health care for all. Disconnecting this essential service from the workplace would improve all jobs.

The only way to restore the middle class is to improve the labor market with a mix of new ideas and strategies for improving low-wage work. Our economy and our nation will be stronger for us all when we do.

Shawn Fremstad and Margy Waller co-founded the virtual think tank Inclusion with Rachel Gragg. Inclusion is home to The Mobility Agenda and affiliated with the Center for Economic and Policy Research, where "Understanding the Low-Wage Labor Market in the United States" co-author Heather Boushey is a senior economist. For more information about low-wage work and The Mobility Agenda, please see the Inclusion website: www.inclusionist.org.