Tides of Change in Low-Wage Labor Markets When Hours Decline: Tides of Change in Low-Wage Labor Markets

Context & Motivation: Eberstadt, Nicholas. 2016. Men Without Work: America’s Invisible Crisis. Neumark & Wascher. 2008 Minimum Wages. Belman, Dale and Paul J Wolfson. 2014. What Does the Minimum Wage Do? Hirsch, Kaufman and Zelenska. 2015. “Minimum Wage Channels of Adjustment.” Industrial Relations - Zuberi, Dan. 2006. Differences That Matter: Social Policy and the Working Poor in the United States and Canada. – Dynamics could be altered by different private and public labor policies.

Questions: What traits govern dynamics in low-wage labor markets? What are the implications for adjustments to economic shocks? Do reduced hours. . . consign workers to lasting low- or zero-wage (LZW) status? cause workers to permanently drop out of the labor force? lead to a loss of all annual work hours? Can longitudinal analysis provide insights into these markets that cross-section snapshots would miss?

Data, Variables for Wage & Economic Slack Sample: Approximately 7,000 adults, ages 19-64, surveyed by the Panel Study of Income Dynamics (PSID) in alternate years from 1997-2013 Wage Rates: For Wives & Heads of Households: PSID calculates a wage equal to the prior year’s total labor earnings divided by the prior year’s total hours of work. We express that wage in 2015 dollars. For All Other Workers: PSID requests a self-reported, survey-year wage rate for all workers paid by the hour. We use this variable when no other wage information is available. Definition of “Low Wage”: At or below the 30th percentile of the national wage distribution. Measure of Labor-Market Slack: State unemployment rates from the Local Area Unemployment Statistics.

Permanent vs. Temporary Low-Wage Status Most people defy categorization as low-wage workers. 50% of adults are low-wage at least once. They spend 45% of their earning years in higher-wage positions. Only 1.2% are low-wage in all years observed. (Table 1) Even if we expand the group to those with “low-or-zero-wage” (LZW) status 70% are LZW at least once during the sample years. Yet those LZW in all years make up less than 17% of the sample. Many pass through these low-wage markets; few stay put in such jobs.

Labor Force Transitions Table 2a: Higher-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 93.1% 0.6 2.9 3.4 68.0 7.2 9.1 15.7 66.9 1.2 20.3 11.6 48.9 0.7 7.5 42.9 Table 2b: Low-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 84.4% 0.9 6.3 8.4 58.6 4.1 12.6 24.6 57.4 1.5 26.9 14.2 42.3 1.3 7.9 48.5

Labor Force Transitions are Notably Less Successful for Low-wage Workers Employment to employment: Above the 30th Percentile: 93% make such moves Recent Low-wage Job: nearly 10 percentage points lower at 84% Recent Zero-wage Year: more than 10 percentage points lower at 82% Employment to unemployment or OLF status Above the 30th Percentile: 6.3% Recent Low-wage Job: such transitions are over twice as high, 15% Recent Zero-wage Year: nearly three times as high, 17% Unemployment to employment: 67%, 57%, 41% OLF to employment: 49%, 42%, 21%

Labor Force Transitions Table 2a: High-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 93.1 0.6 2.9 3.4 68.0 7.2 9.1 15.7 66.9 1.2 20.3 11.6 48.9 0.7 7.5 42.9 Table 2b: Low-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 84.4 0.9 6.3 8.4 58.6 4.1 12.6 24.6 57.4 1.5 26.9 14.2 42.3 1.3 7.9 48.5

Labor Force Transitions (continued) Table 2c: Zero-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 82.0 0.8 6.8 10.4 33.4 0.0 40.2 26.4 41.7 1.2 29.9 27.2 20.7 0.3 4.8 74.2 Women are more likely than men to move to OLF status from employment, unemployment, or temporary layoff and to remain OLF once there. (Appendix Table A3)

Labor Force Transitions Table 2a: High-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 93.1 0.6 2.9 3.4 68.0 7.2 9.1 15.7 66.9 1.2 20.3 11.6 48.9 0.7 7.5 42.9 Table 2b: Low-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 84.4 0.9 6.3 8.4 58.6 4.1 12.6 24.6 57.4 1.5 26.9 14.2 42.3 1.3 7.9 48.5

Labor Force Transitions (continued) Table 2c: Zero-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 82.0 0.8 6.8 10.4 33.4 0.0 40.2 26.4 41.7 1.2 29.9 27.2 20.7 0.3 4.8 74.2 Women are more likely than men to move to OLF status from employment or unemployment and to remain OLF once there. (Appendix Table A3)

Labor Force Transitions Table 2a: High-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 93.1 0.6 2.9 3.4 68.0 7.2 9.1 15.7 66.9 1.2 20.3 11.6 48.9 0.7 7.5 42.9 Table 2b: Low-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 84.4 0.9 6.3 8.4 58.6 4.1 12.6 24.6 57.4 1.5 26.9 14.2 42.3 1.3 7.9 48.5

Labor Force Transitions (continued) Table 2c: Zero-Wage in Income Year t-3 Employment Status, Survey Year t Employment Status, t-2 Employed Temporarily Laid Off Unemployed Out of the Labor Force 82.0 0.8 6.8 10.4 33.4 0.0 40.2 26.4 41.7 1.2 29.9 27.2 20.7 0.3 4.8 74.2 If recently in a low-wage job, 20% of unemployed women vs. 7% of unemployed men leave the labor force after becoming unemployed. (Appendix Table A3)

Movement Up from Low-wage Status is Common Workers with wage rates below the 30th percentile often move up. (47% of men, 35% of women) The label “low-wage worker” distorts the reality. The job is “low-wage,” not necessarily the worker. This type of transition between wage groups is consistent with theories of cyclical labor-market mobility.

  Wage Status relative to 30th Percentile, Year t Wage Status, relative to 30th Percentile, Year t-2 At or below Above Women Low Wage 65.32 34.68 Wage over 30th percentile 12.55 87.45 Men 53.2 46.8 Wage over 30th 8.09 91.91 Single Women Household Heads 67.44 32.56 15.72 84.28 Wives 63.91 36.09 11.12 88.88 Not Wives or Household Heads 61.54 38.46 16.67 83.33

More Evidence of High Turnover in the Low-wage Workforce Tenure: 5.9 years for all persons. 3.3 years for those recently in low-wage jobs. 2.2 if observed in low-wage jobs at least 80% of the time For those observed all nine survey years, LF status changed 11% of the time if the worker came from a higher-wage job 18% of the time if the worker came from a low-wage job The figures are higher for women than for men and highest (20%) for single women who head households.

Long-run Sequences of Cyclical Exits and Re-entry Sequences of moves Low or Zero Wage in Previous Survey Above 30th Percentile 2007 2009 2011 2013 All Women Men   E U 19.2 17.1 22.3 24.5 D 0.9 0.6 1.2 1.3 29.6 23.9 38.3 31.3 10.8 6.7 17.0 5.6 H 1.8 0.5 0.7 S 4.4 2.5 7.3 5.8 1.4 2.3 1.1 1.5 0.4 0.3 R 1.6 1.9 1.0 0.8

Long-run Sequences of Cyclical Exits and Re-entry Sequences of moves Low or Zero Wage in Previous Survey Above 30th Percentile 2007 2009 2011 2013 All Women Men   E U 19.2 17.1 22.3 24.5 D 0.9 0.6 1.2 1.3 29.6 23.9 38.3 31.3 10.8 6.7 17.0 5.6 H 1.8 0.5 0.7 S 4.4 2.5 7.3 5.8 1.4 2.3 1.1 1.5 0.4 0.3 R 1.6 1.9 1.0 0.8

Long-run Sequences of Cyclical Exits and Re-entry during the Great Recession Unemployed in two survey years: Men from low-wage employment in 2007 were much more likely than others to report being unemployed in both 2009 and 2011 before returning to employment in 2013. Recession-timed Retirement Reversed: More women from low-wage jobs than men in all wage groups made recession-timed retirement/disability moves and then returned to employment. Recession-timed Education: More workers from low-wage jobs made recession-timed moves to student status in 2009-2011 before returning to employment in 2013.

Long-run Sequences Ending Without Employment Lags in Unemployment: Despite remaining employed in 2007-2009, many from low-wage jobs are unemployed in the final two survey years of 2011 and 2013. Keeping House: Women who recently held low-wage jobs often follow a report of unemployment in 2011 with a report of “keeping house” in 2013. Education: Ending student status but failing to become employed is much more typical of those recently in a low-wage job. Disability: Those from higher wage jobs often move from unemployment in 2011 to retirement in 2013. Those from lower-wage jobs frequently move from unemployment in 2011 to disability status in 2013.

Low-or-zero wage ≥50% of years Impact of Changes in State Unemployment Rates Dependent Variable All persons Low wage ≥50% of years Low-or-zero wage ≥50% of years Annual Hours -23.4 *** -14.4** -37.5 *** ln(Annual hours) -8.1%*** -5.3%*** -17%*** Average Hours per Week -0.44 *** -0.40 *** -0.93 *** ln(Avg. hours per week) -4.4%*** -3.3%*** -9.6%*** Weeks per Year -0.48*** -0.17 -0.81*** ln(Weeks per Year) -2.6%** -9.1%*** Tenure in Years 0.69 *** 0.54 *** 0.46 *** ln(tenure) 11%*** 12% *** 12%*** Annual Overtime Hours 4.8 *** 6.3* 6 ln(Overtime Hours) 0.7% 2.6% Annual $ from Extra Jobs $68.70 $70.90 $70.00 Ln(Pay from extra jobs) 6.47% -1.48% -1.47% Probability of Working -0.0096*** -0.00668*** -0.02137*** Prob. of Losing All Hours 0.00374*** 0.00609*** 0.000937

Low-or-zero wage ≥50% of years Impact of Changes in State Unemployment Rates Dependent Variable All persons Low wage ≥50% of years Low-or-zero wage ≥50% of years Annual Hours -23.4 *** -14.4** -37.5 *** ln(Annual hours) -8.1%*** -5.3%*** -17%*** Average Hours per Week -0.44 *** -0.40 *** -0.93 *** ln(Avg. hours per week) -4.4%*** -3.3%*** -9.6%*** Weeks per Year -0.48*** -0.17 -0.81*** ln(Weeks per Year) -2.6%** -9.1%*** Tenure in Years 0.69 *** 0.54 *** 0.46 *** ln(tenure) 11%*** 12% *** 12%*** Annual Overtime Hours 4.8 *** 6.3* 6 ln(Overtime Hours) 0.7% 2.6% Annual $ from Extra Jobs $68.70 $70.90 $70.00 Ln(Pay from extra jobs) 6.47% -1.48% -1.47% Probability of Working -0.0096*** -0.00668*** -0.02137*** Prob. of Losing All Hours 0.00374*** 0.00609*** 0.000937

Low-or-zero wage ≥50% of years Impact of Changes in State Unemployment Rates Dependent Variable All persons Low wage ≥50% of years Low-or-zero wage ≥50% of years Annual Hours -23.4 *** -14.4** -37.5 *** ln(Annual hours) -8.1%*** -5.3%*** -17%*** Average Hours per Week -0.44 *** -0.40 *** -0.93 *** ln(Avg. hours per week) -4.4%*** -3.3%*** -9.6%*** Weeks per Year -0.48*** -0.17 -0.81*** ln(Weeks per Year) -2.6%** -9.1%*** Tenure in Years 0.69 *** 0.54 *** 0.46 *** ln(tenure) 11%*** 12% *** 12%*** Annual Overtime Hours 4.8 *** 6.3* 6 ln(Overtime Hours) 0.7% 2.6% Annual $ from Extra Jobs $68.70 $70.90 $70.00 Ln(Pay from extra jobs) 6.47% -1.48% -1.47% Probability of Working -0.0096*** -0.00668*** -0.02137*** Prob. of Losing All Hours 0.00374*** 0.00609*** 0.000937

Low-or-zero wage ≥50% of years Impact of Changes in State Unemployment Rates Dependent Variable All persons Low wage ≥50% of years Low-or-zero wage ≥50% of years Annual Hours -23.4 *** -14.4** -37.5 *** ln(Annual hours) -8.1%*** -5.3%*** -17%*** Average Hours per Week -0.44 *** -0.40 *** -0.93 *** ln(Avg. hours per week) -4.4%*** -3.3%*** -9.6%*** Weeks per Year -0.48*** -0.17 -0.81*** ln(Weeks per Year) -2.6%** -9.1%*** Tenure in Years 0.69 *** 0.54 *** 0.46 *** ln(tenure) 11%*** 12% *** 12%*** Annual Overtime Hours 4.8 *** 6.3* 6 ln(Overtime Hours) 0.7% 2.6% Annual $ from Extra Jobs $68.70 $70.90 $70.00 Ln(Pay from extra jobs) 6.47% -1.48% -1.47% Probability of Working -0.0096*** -0.00668*** -0.02137*** Prob. of Losing All Hours 0.00374*** 0.00609*** 0.000937

Low-or-zero wage ≥50% of years Impact of Changes in State Unemployment Rates Dependent Variable All persons Low wage ≥50% of years Low-or-zero wage ≥50% of years Annual Hours -23.4 *** -14.4** -37.5 *** ln(Annual hours) -8.1%*** -5.3%*** -17%*** Average Hours per Week -0.44 *** -0.40 *** -0.93 *** ln(Avg. hours per week) -4.4%*** -3.3%*** -9.6%*** Weeks per Year -0.48*** -0.17 -0.81*** ln(Weeks per Year) -2.6%** -9.1%*** Tenure in Years 0.69 *** 0.54 *** 0.46 *** ln(tenure) 11%*** 12% *** 12%*** Annual Overtime Hours 4.8 *** 6.3* 6 ln(Overtime Hours) 0.7% 2.6% Annual $ from Extra Jobs $68.70 $70.90 $70.00 Ln(Pay from extra jobs) 6.47% -1.48% -1.47% Probability of Working -0.0096*** -0.00668*** -0.02137*** Prob. of Losing All Hours 0.00374*** 0.00609*** 0.000937

Interactions: Low-wage Status & State Unemployment Rates anHR Male HH Single Female HH Wives   model a model b UR -11.3*** -13.1*** -12.2* -18.3*** -6.9* -10.7*** LW*UR -20.9*** -12.1** -19.4** -7.8 -8.1 3.9 LW 25.1 20.8 35.6 10.7 -119.2*** -129.4*** Age 98.7*** 73.5*** 94.8*** 73.9*** 82.2*** 52.0*** Age2 -1.4*** -1.1*** -1.2*** -0.8*** HS -78.3 -75.0 229.9*** 216.7*** 3.1 -9.4 Col 89.9** 156.5** 131.8** 96.3*** 77.9** #Kids -17.8** -6.6 -55.5*** -44.5** -196.8*** -176.5*** Yngst 0.3 -0.9 1.1 1.9 12.6*** 12.9*** White 35.3 20.9 -64.1 -62.1 12.0 23.1 Tenure 25.9*** 37.8*** 37.0***

Impact of Unemployment & Low-wage Status on Job Tenure Dep. Var.= Tenure Male Heads of Households Single-Female Heads of Households Wives UR 0.08 ** 0.17 *** 0.10 LW * UR -0.33 -0.30 -0.32 LW 0.09 0.57 0.23 Age 0.95 0.56 0.83 Age2 -0.01 0.00 HS 0.13 0.07 0.29 Col 0.06 0.65 0.58 #Kids -0.43 -0.55 Yngst 0.05 -0.03 White 0.73 * -0.42 -0.24

Lessons From the Descriptive Analysis: Panel data reveals traits of low-wage markets that cross-section snapshots can miss. Rather than completely withdrawing from the labor force, people are cycling in and out. Continuous low-wage status is rare. A flow of workers from low-wage to higher-wage jobs, from wage to no-wage activities and back again seems the more typical pattern. Labor force transitions are notably less successful for workers recently in a low-wage job. To ride out recessions, low-wage workers use recession-timed moves into retirement, disability, and student status followed by a return to the labor force. Movement up from low-wage status is not unusual.

Increased overtime partially offsets hours lost elsewhere. Lessons from the Regression Analysis: Adjustments to shocks take multiple forms, leaving the probability of losing all annual hours quite low. Significant changes occur in hours per week, weeks per year, job tenure, and overtime hours. Increased overtime partially offsets hours lost elsewhere. For most, tenure increases as unemployment rates rise. In low-wage markets, tenure drops by about 3 months per percentage point rise in state unemployment rates. Tenure under 3 months means higher risk of job loss. The probability of losing all annual hours remains small after a percentage point rise in unemployment rates

The Larger Context High turnover may be a rational response to the poor pay and uncertain futures associated with these jobs. The continual cycling in and out of these markets justifies interest in a higher-wage strategy, one designed to transform secondary work into jobs that promote attachment, lead to lower turnover, and yield gains in productivity. That interest is reinforced by our estimates which find little response in the probability of working and significant use of alternatives for absorbing shocks. Together these results suggest scope for wage reform and provide reason to reconsider the possible consequences of hikes in the minimum wage.