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The plight of U.S. low-wage workers

Wed, Jan 29, 2014

After reaching a peak of 10 percent in October 2009, the good news is that the U.S. unemployment rate, while still relatively high more than 4½ years after the official end of the Great Recession in June 2009, has been slowly inching downward from 7.8 percent in November 2012 to 7 percent in November 2013. The bad news is the types of jobs added during the last four years leaves much to be desired. Although 4.5 million new jobs were created from 2009 to 2013, 1.7 million were low-wage while 1.1 million were high-wage. According to the National Employment Law Project (NELP), low-wage jobs are those with median hourly wages to $13.83 while high-wage jobs have hourly wage rates exceeding $21.14 per hour. According to an analysis by EMSI, an economic-data modeling company, low-wage jobs comprised only 19 percent of total employment in 2009 although, from 2009 through 2013, they consisted of 39 percent of new U.S. job growth. While total employment grew by 3.1 percent, low-wage jobs increased nearly twice as fast (6 percent). Using a slightly different classification than NELP, the Organization for Economic Cooperation and Development (OECD) defines low-wage jobs as those which make under two-thirds of a country’s median hourly pay. Based on this definition, the OECD estimated that almost one-quarter of U.S. workers (24.8 percent) occupied low-wage jobs in 2009, the highest among the world’s “rich” nations. The United Kingdom, with 20.6 percent in low-wage positions, was in second place.

Many myths surround low-wage employment. While people believe that low-wage workers include primarily fast-food employees, such workers comprise only 5 percent of the low-wage work force. These poorly-paid jobs are found in many service industries and include positions such as nurse’s aides, security guards, call-center workers and bank tellers, among others. Moreover teenagers make up only 7 percent of all low-wage employees with nearly two-thirds of such workers being white, female high school graduates. Finally, 45.7 percent of all low-wage workers have at least some college, or have earned either an Associate’s, Bachelor’s or graduate degree.

Another myth is that inadequate pay is the only problem facing U.S. low-wage workers. Nearly half of these employees receive no paid vacations while more than two-thirds possess no paid sick days. Additionally, in 2008, two researchers estimated that 54 percent lacked employer-provided health insurance while 37 percent had no health insurance whatsoever.

One argument that has been made in defense of low-wage jobs is that they offer labor market participants a stepping stone by providing them with the necessary experience and skills to acquire better-paying employment. Studies have found that this seldom is the case; such workers are more likely to remain stuck in low-wage jobs. Compared with high-wage workers, low-wage employees are also more likely to experience spells of unemployment or are forced out of the labor force altogether.

Others contend that low-wage work is merely a temporary phenomenon since future jobs will require higher skills, that increasing low-wage workers’ education levels by providing training will ameliorate the problem. But according to an Economic Policy Institute report, jobs in 2020 will necessitate neither higher educational levels nor more advanced skills. For example, U.S. employers are predicted to hire the same number of cashiers as computer-support specialists and twice as many food service employees as software engineers in the coming years.

So can anything be done to improve low-wage workers’ fortunes? Raising the minimum wage and indexing it to inflation is a start. The current federal minimum wage of $7.25 per hour falls far behind the peak purchasing power of the 1968 minimum wage. which paid $1.60 per hour ($10.42 in 2012 dollars). Moreover, economic studies dating to the 1990s have demonstrated that moderate minimum wage increases do not result in significant employment reductions.

But this alone is hardly enough. The tremendous growth of trade unionization and collective bargaining from 1935 to 1945 in the U.S. dramatically increased the wages of millions of low-paid manufacturing and blue-collar workers by the middle of the 20th century. A similar surge in unionization in low-wage service industries in the 21st century’s second decade would spur wage growth and result in the acquisition of benefits that many high-wage workers take for granted such as paid vacations, paid sick days and employer-provided health insurance.

The nation’s current conservative politics — the common belief that austerity is necessary for shrinking the budgetary debt combined with recent attacks on both private-sector and public-sector unions — do not bode well for low-wage workers. A modest minimum wage increase may or may not materialize in the near future. Labor’s resources that can be used for widespread organizing efforts have instead been devoted to defensive political campaigns to retain whatever remains of the unions’ limited power. If nothing is done, however, to reverse the nation’s fiscal course, the U.S. could very well end up becoming a low-wage economy.

Dr. Victor G. Devinatz is Distinguished Professor of Management, specializing in labor relations, and the Hobart and Marian Gardner Hinderliter Endowed Professor (2014-2015) at Illinois State University. He can be contacted at vgdevin@ilstu.edu.

Victor Devinatz
StreetWise Contributor

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