Commentary | Jobs and Unemployment

Trends in the Low-Wage Labor Market and Welfare Reform: The Constraints on Making Work Pay

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One of the central goals of welfare reform is to move welfare recipients off the welfare rolls and into the labor market. Yet that segment of the labor market that is most accessible to former welfare recipients is presently characterized by low and falling wages and high and rising unemployment. The success of welfare reform–in particular, the viability of time limits–is in part predicated on the ability of labor markets to generate higher levels of employment at better wages, yet the trends we portray show this goal to be unrealistic in the current economic climate. The following tables and charts present the data that confirm this characterization.

Using data from the Current Population Survey (prepared by the Census Bureau for the Bureau of Labor Statistics), we track the wage and employment trends for young persons (age 16-35) with at most a high school education. We highlight the experience of women in these categories, since they are the most relevant group in the welfare reform debate.

Wage and Employment Trends of Young Women, High School Education or Less

Hourly wages declined steeply for all women between 1979 and 1989 ( Table 1). The most severe wage loss was for African-American women with less than a high school education, who saw their hourly wages fall by over 20 percent.

Most women have continued to lose ground since 1989. Of particular concern is the fact that, except for high school graduates age 26-35, each group experienced wage loss over the last year, 1992-93. Again, these declines have been most severe for African-American females.

Wage trends have generally been more negative for those women with less than 12 years of education. These women also have the lowest wage levels.

Those with the steepest wage declines have also had the highest levels of unemployment ( Table 2). African-American women age 26-35, for example, saw their unemployment rates rise over the full period. Drop-outs added over 8 points to their unemployment rates, so that by the end of the period over a quarter of this group was unemployed. High school graduates added 1.5 points, and also had high unemployment in 1993 (13.8 percent). This is the very same group of women that experienced the steepest wage declines in the sample. Younger members of the female workforce had even higher levels of unemployment in 1993, ranging from 9.4 percent for white high-school graduates to 41.8 percent for African-American drop-outs.

These trends portray a group of workers whose labor market status has deteriorated, despite the long period of economic growth over the 1980s and the recovery from the recent recession. Furthermore, there is clear evidence that the supply of workers in these categories already exceeds the demand for their services. In fact, these negative wage and employment trends have led to a decline in labor force participation among some of the groups described above. It is therefore almost a certainty that, absent significant policy shifts (e.g., raising the minimum wage, further increasing the Earned Income Tax Credit), the pursuit of a time limit strategy that forces more young women with at most a high school degree into the labor market will exacerbate these negative trends.

Wage and Employment Trends of Young Men, High School Education or Less

The wage and employment trends for young males are similar, but generally more negative than those for women. While male wages start from higher levels, their wage declines are steeper in every case than those for females ( Table 3). Unemployment has also risen more quickly for men than for women, and was particularly high in 1993 ( Table 4). The relevance of these trends in the context of the welfare reform debate is twofold. First, and most important, since men dominate the labor market, their trends provide vital information on the quality of overall employment. Second, to the extent that family formation presents a path off of welfare, negative trends for males make this form of exit less likely.

In every case, male hourly wages fell by more than one-fifth during the 1979-1993 period. The most current trends, however, are the most dramatic. For many groups, wages fell faster between 1989 and 1993 than over the 1979-1989 period. For example, the wages of African-American drop-outs fell 14.4 percent during the ten years between 1979 and 1989, and fell another 14.3 percent in the four year period 1989-1993. Older white high school graduates (age 26-35) lost ground at an annual rate of 1.6 percent over the 1980s; that rate accelerated to 1.9 percent between 1989 and 1993.

Increases in male unemployment are greater than those for females in almost every comparable category. Also, by 1993, male unemployment levels are about as high as those for females. Only white high school graduates age 26-35 have unemployment rates that are close to those for the full labor market in 1993.

Summary

For the “make work pay” component of welfare reform to be successful, the portion of the labor market accessible to young, non-college educated persons needs to be generating jobs that pay wages that at least keep pace with inflation. In fact, the above data portray a labor market characterized by weak demand and over-supply. Unless economic policies to ameliorate these trends are pursued, forcing welfare recipients into the labor market in this climate will further lower wages and increase unemployment.

Return to Idea Central’s Welfare and Families Page The Electronic Policy Network / Send us a message at welfare@epn.org © 1995 New Prospect, Inc.


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