Monday, April 16, 2012

US: leading the OECD in low-wage workers

John Schmitt has a new paper entitled "Low Wage Lessons" [pdf] in which he says ": The United States is a Poor Model for Combating Low-wage Work," as illustrated by this chart:

"The United States has the highest share of low-wage work in the OECD countries analyzed here.  Moreover, the incidence of low-wage work in the United States has been rising for at least three decades, from just over 20 percent in 1979 to just under 30 percent in 2010."
Schmitt thinks the reason is the minimum wage level is too low and the EITC isn't structured properly.  He says "the EITC and minimum wage in the United States have been set too low to limit the
incidence of low pay, and the minimum wage has been set too low to prevent employers from
reaping windfalls from the eligibility structure of the EITC."  He continues with the observation that the low wages themselves are "among the least of the problems facing low wage workers':

"U.S. labor law offers workers remarkably few protections. U.S. workers, for example, have the lowest level of employment security in the OECD and no legal right to paid vacations, paid sick days, or paid parental leave.  The low level of union coverage in the United States means that contractual obligations generally don’t make up for the lack of legal guarantees. 
In the absence of legal or contractual rights, low-wage workers are the least likely to have access to core benefits. ... probably the most critical problem facing low-wage workers is the lack of access  to health care.  Rho and Schmitt estimate that in 2008, more than half (54 percent) of workers in the bottom wage quintile did not have employer-provided health insurance and more than one-third (37 percent) had no health insurance of any kind, private or public. 
The 37 percent non-coverage rate for the bottom quintile of wage earners in 2008 was up from 15 percent in 1979.

Tim Taylor comments
"Define 'low-wage jobs' as those that involve earning two-thirds or less of the median hourly wage: that is, those earning less than about $10/hour. As Schmitt notes: 'If low-wage work were a short-term state that helped connect labor-market entrants or re-entrants to longer-term, well-paid employment, high shares of low-wage work would be less of a social concern. Indeed, if low-wage work facilitated transitions from unemployment to well-paid jobs, countries might want to encourage the creation of a low-wage sector to improve workers’ welfare in the long term.' On the other side, if low-wage jobs are a near-permanent state of affairs for a substantial group of workers, or if such jobs even send a negative signal to potential future employers that this worker is going to have low productivity, then the prevalence of low-wage jobs may be of real policy concern."

In other words, he's saying that if low wage work is a stepping stone to a better future, then no worries, but in the U.S., it's generally not.  This ties in to ideas about social mobility in the US, ideas that are enduring yet mostly not borne out by the evidence; ideas that seem to explain the tendency of lower wage workers to vote against their economic self-interest in the U.S.

Taylor concludes "If we wish to build a society and an economy on rewarding work, it is a harsh fact of U.S. labor markets that such a reward is currently not apparent for many."

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