Stuck on the Bottom Rung of the Wage Ladder

Authors: 
Stephen Herzenberg
Publication Date: 
February 6, 2006
Attachment: 

Summary

Pennsylvania lawmakers are currently considering whether to increase the state’s minimum hourly wage. In this debate, one question concerns whether the earnings of workers at the low end of the job market will increase even without a higher minimum wage. The National Federation of Independent Business claims, for example, that 63% of minimum-wage workers receive wage increases after one year, and therefore a minimum wage increase is unnecessary. (See Box 1 for a discussion of this claim.)

While previous studies of the upward mobility of low-wage workers have relied on economic data for the United States as a whole, this Briefing Paper uses official government data for Pennsylvania alone. The dataset examined includes annual (not hourly) earnings for individuals in 1998 and again in 2004. In the starting year of 1998, earners are grouped into three categories: below-poverty-level earners, earners from the poverty level up to 1.5 times the poverty level, and earners from 1.5 up to 2 times the poverty level.

We focus most attention in the text on below-poverty level earners because this group consists most heavily of near-minimum wage workers. In this below-poverty level group, a full-time, full-year worker earned less than $5.40 per hour in 1998 and less than $6.26 per hour in 2004. We also discuss in the text the group earning at least the poverty level but less than 1.5 times the poverty level. (Full-time, full-year workers in this second group earned at least $5.40 per hour in 1998 but less than $8.10 per hour; they earned at least $6.26 per hour in 2004 but less than $9.39.)

Our analysis shows that mobility out of low-earning jobs is limited. Among the 670,000 individuals who started out with below-poverty-level earnings in 1998 and worked substantially in Pennsylvania in 2004, we find that

  • 261,000 – about two in five – still had below-poverty-level earnings in 2004 (i.e., $6.26 per hour for a full-time, full-year worker);
  • 245,000, another nearly two in five, had earnings of at least one but less than two times the poverty level and thus below what economists consider a “self-sufficiency” income – i.e., an income high enough to pay for a basic needs budget without public assistance.

We find, further, that, of 1.8 million Pennsylvania workers with annual earnings of less than 150% of poverty in 1998, nearly three-quarters (72%) were either still earning less than 150% of the poverty line in 2004 or were out of the sample (i.e., they worked very little in 2004 or had left Pennsylvania).

These statistics paint a less rosy picture than the reassuring anecdotes about upward mobility told by opponents of a minimum wage increase. For large numbers of Pennsylvania’s low-wage earners, substantially higher earnings will not result quickly or automatically from the workings of the job market.