Is a Large Proportion of American Adults Stuck in Poverty-Level Jobs?

by Don Boudreaux on October 23, 2011

in Data, Inequality, Myths and Fallacies, Reality Is Not Optional, Work

In yesterday’s Wall Street Journal, MIT Professor Paul Osterman writes, in a letter-to-the-editor, that

Mr. [Bradley] Schiller claims that minimum-wage jobs are transitory, yet a great deal of research shows that a large proportion of adults in poverty-level jobs remain in those jobs over their careers.

Overlook the fact that “poverty-level jobs” is a category much less precise than “minimum-wage jobs”; let’s assume that, because Bradley Schiller’s argument was about minimum-wage jobs that Osterman means by “poverty-level jobs” pretty much the same thing as “minimum-wage jobs.”  Either way, Osterman’s argument is a non sequitur.  It is quite possible for nearly all minimum-wage jobs (or “poverty-level jobs”) to be transitory while, at the same time, “a large proportion of adults in poverty-level jobs remain in those jobs over their careers.”

Consider an extreme hypothetical.  Suppose that in 1971 only one person who had started off in the workforce a few years earlier as a teenager earning no more than the minimum-wage turned 25, continued working, and yet also continued – unlike everyone else in his or her cohort, whose wages rose above the legislated minimum – to earn no more than the minimum wage.  Suppose also that no other worker since, once turning 25, has earned as little as the minimum wage.  Finally, also suppose that this worker, from 1971 until today, has never earned wages higher than the minimum.

Because by assumption our worker is the only such adult since 1971 in a “poverty-level job” and he remained in that job throughout his career, “a large proportion of adults in poverty-level jobs remain in those jobs over their careers.”  Indeed, in this hypothetical the percentage of adults in “poverty-level jobs” who “remain in those jobs over their careers” is 100!

Sounds awful!  But, of course, such an ominous-sounding statistic for my constructed hypothetical is entirely misleading.

So what do the available data say?  Is the real world closer to the one that Osterman quite clearly suggests (namely, a world in which lots of adults are stuck in “poverty-level jobs”) or to my hypothetical?  Answer: it’s closer to my hypothetical.

As workers age and, hence, gain experience, they are more and more likely to earn wages higher than the minimum.  For example, in 2010 24.9 percent of workers aged 16-19 earned no more than the minimum-wage.  But in that same year only 11.3 percent of workers aged 20-24 earned so little.  The figure for workers aged 25-29 earning these meager hourly rates was lower still, at 5.5.  This falling trend continues as workers age, so that the percentage of workers aged 60-64 earning wages no higher than the federal minimum was a mere 1.7.  Check out these data here.

A similar pattern holds for each year back at least to 2002 (the last year for which this consistent data set seems to be available).  You can check out, at the “Characteristics of Minimum Wage Workers” section of the BLS’s website, Table 7, entitled “Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal minimum wage by age and sex, 200X annual averages.”  (I’m confident that this pattern holds for years earlier than 2002, and confident also that good data are available to show it.  I’m just too busy now to spend time finding those earlier data.  Cafe patrons feel free to assist!)

The data, therefore, (at least for 2002 through 2010) show that minimum-wage jobs are indeed transitory.  Because so few workers – even in recent recession years – still earn no more than the minimum wage by the time they reach 25, the proportion of adults in “poverty-level jobs” is very low!  So even if every worker who still earned no more than the minimum upon turning 25 continued for the rest of his or her career to earn such paltry wages, Osterman’s suggestion that lots of adults are stuck in “poverty-level jobs” is highly questionable.

But the proportion of workers who earn no more than the minimum wage continues to fall as we move to older and older five-year-span age cohorts (e.g., 50-54).  Once workers become adults (assumed here to be 25 and older), the figure is already quite low.  By the time workers are in their prime earning years, it’s very, very low – e.g., from 2002-2010, an average of only 1.3 percent of workers aged 55-59 earned no more than the minimum wage.  Compare this figure with the average figure, over the same years, for workers aged 25-29 who earned no more than the minimum wage (3.2 percent) and, especially, with the figure for workers 16-19, over these same years, who earned no more than Uncle Sam’s legislated minimum wage (11.9 percent).

So unless Osterman regards (let’s be generous to him) about 2 in every 100 adult workers being stuck in “poverty-level jobs” as “a large proportion,” then his claim is utterly wrong.


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