Low-Income Workers and Their Employers

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Abstract

This paper finds that about one in four workers, ages 18 to 61, earned less than $7.73 an hour in 2003. Low-wage workers who reside in low-income families with children are substantially less educated than the average worker, are concentrated in industries with low wages, and have limited prospects for wage growth. Many policies aimed at low-wage workers are not well-targeted at workers in low-income families with children, in part because only one in four low-wage workers reside in such families. Nevertheless, policies targeted at low-wage workers may have broad benefits, including improving the lot of low-income families with children.

Introduction

The phrase “low-wage workforce” conjures an image of men and women struggling to support their families, toiling away at menial jobs for bosses who consider them expendable. To address the problem of “low-wage jobs,” advocates have called for the public sector to expand work-support programs, such as earned income tax credits, wage subsidies, and training programs, and to impose mandates to raise worker pay through minimum wage increases, provide benefits like health insurance and paid time off, and protect jobs (trade barriers, immigration restrictions)¹. In addition, some private-sector employers have implemented practices offering workers more flexibility in scheduling and time off because these employers find that these practices improve productivity and reduce the costs associated with high staff turnover².

This paper provides a solid empirical foundation for these discussions by defining and documenting the characteristics of low-wage workers and their employers. In particular, we focus on low-wage workers who reside in low-income families and support children. We use nationally representative data from the 2004 Annual Demographic Supplement to the Current Population Survey for our analysis.

We find that low-wage workers who reside in low-income families with children are substantially less educated and concentrated in industries with low wages and poor prospects for wage growth. Many policies targeted at low-wage workers are not well targeted at workers in low-income families with children, in part because they are a small subset of the low-wage workforce. Nevertheless, policies targeted at low-wage workers may have broad benefits, including improving the lot of low-income families with children. Further, other policies, such as child care policies, can address the needs of low-income families with children, and some policies, such as improving career-focused education, may have long-term benefits at relatively low cost.

¹ To pay for mandated benefits, employers may reduce their workers’ wage rates, restrict wage growth, or simply use less labor. Alternatively, they may accept smaller profit margins, reduce the compensation of more highly paid workers, or pass the costs on to consumers in the form of higher prices.
² For example, JetBlue and J.C. Penney now allow their workers to use the Internet to set their schedules and swap shifts (Levin-Epstein 2007).

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