Politics of Poverty

The pernicious economic trap of low wages

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A worker carries shoe boxes on opening day of the new Nordstrom Rack store May 11, 2010 in New York City. The 32,000-square-foot basement discount store in Manhattan's Union Square is Nordstrom's first store in New York City. Photo: Mario Tama/Getty Images

Upward mobility in the US is threatened by a vicious circle of meager salaries.

Do low wages doom millions of workers to a lifetime of low wages, and would higher wages give workers a better chance to earn yet higher wages?

In short: Yes.

It once may have been true that, for most Americans, low-wage jobs were just a first step on an ascending arc of ever-greater economic and professional success. Today, a large proportion of “prime-age” workers between 25 and 54 earning $8 to $12 per hour are likely to stay in such jobs. Millions of workers now face a vicious cycle in which low wages are more likely to consign them to low wages later in their lives. The promise of what economists call “intra-generational social mobility”—of individuals getting better jobs, increasing their pay, and moving up the socioeconomic ladder during their lifetimes—appears to be harder and harder to attain.

“The likelihood of leaving low pay decreases dramatically as tenure in a low-paying job increases,” as “the characteristics associated with low-wage employment lead to greater rates of permanently low earnings,” concluded researchers Brett Theodos of the Urban Institute and Robert Bednarzlk at the Georgetown Public Policy Institute.

Leaders across the political spectrum talk about the need to expand “opportunity” for workers to be able to earn more in better jobs and for their children to be able to do better than their parents, the traditional “American Dream” of upward social mobility. This concern stems from the reality that mobility has become “sticky,” with more low-income Americans stuck throughout their lifetimes on the lower rungs of that ladder and their children likely to be stuck there as well. In fact, more than 4 in 10 children who start life at the bottom stay at the bottom in adulthood in the US, compared to 1 in 4 in Scandinavia and 3 in 10 in Britain.

So how do low wages hinder intra-generational upward mobility? Can higher wages increase an individual’s chances of moving up the income ladder in his or her lifetime? Here’s what we know:

  1. Low wages limit the ability of workers to invest in themselves. For those being paid $9 or $10 per hour, especially if they are supporting a family, there is rarely any money or time to devote to post-secondary education and training that could lead to better jobs. An Urban Institute study found that low-wage workers who were able to complete college were 37 percentage points more likely to move to higher-wages jobs than those who were unable to get additional education.
  1. Low wages make it harder to own a car, meaning that these workers have access to fewer job openings over a larger geographical area. This is exacerbated by the fact that the typical commuting distance to jobs in metropolitan areas has been rising, according to a new Brookings Institution study. Nearly every US household with annual income above $50,000 owns a car, but only 28 percent of households with incomes less than $20,000 do so. Higher wages to afford a car increase the likelihood of low-wage workers finding better-paying jobs and easing family tensions, according to the cleverly-titled study, “A Driving Factor in Mobility.”
  1. Low-wage workers are more likely to quit or be fired than those who are better paid, substantially increasing the odds that they will be trapped in a lifetime of low-wage jobs. Raising the minimum wage significantly reduces turnover by increasing job satisfaction and loyalty to employers, according to a study by the Institute for Research on Labor and Employment at the University of California-Berkeley. Job stability and fewer spells of unemployment increase workers’ incomes, which consequently enable workers to have more money to spend on mobility-enhancing investments in education, cars, health care, and child care.

“Low wages aren’t just bad because they limit the income that workers need to pay for necessities. They also limit the incomes that workers have to make investments in goods and services that lead to increased mobility over time,” concludes Shawn Fremstad, a Senior Fellow at the Center for American Progress, in an examination of existing research conducted for Oxfam America.

Leaders across the political spectrum are looking at ways to increase economic mobility, from investing in early childhood education to reducing government red tape in job training programs. But it’s clear that improving the wages and incomes of low wage workers directly can be an important part of the solution.

As the research suggests, higher wages themselves increase the chances for upward mobility and one barrier to mobility is the government’s failure to raise the federal minimum wage.


Stay tuned for my next blog that will discuss other ways in which low wages create a vicious cycle, leading many workers to be stuck in low-wage jobs.

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