Note: Also issued as Working Paper Numbers: SEHSD-WP1993-04 and SIPP-WP-178.
A number of studies have pointed to recent increases in earnings inequality and in the number of workers with low earnings. To cite a few of the studies, Danziger and Acs (1990) found that the percentage of male workers between the ages of 25 and 54 with earnings less than $12,000 (in 1987 CPI-X1 constant dollars) was higher in 1987 than in 1973. The 1973 rates for Whites, Blacks, and Hispanic origin males were 8.4, 24.9, and 19.6, respectively. The comparable 1987 rates were 13.2, 33.0, and 33. 9. Bluestone and Harrison (1990) examined trends in low and high wages among year-round, full-time workers between 1963 and 1986 and found a sharp decline in the proportion of workers with low wages between 1963 and 1970, a period of relative stability between 1970 and 1979, and a rapid increase between 1979 and 1986. Finally, Ryscavage and Henle (1990) found that earnings inequality during the 1980's had "accelerated among male and female full-time, year-round workers and had increased among Whites, Black men, Hispanics, and workers in various occupations and industries." This report brings together data from the March supplements to the Current Population Surveys (CPS) of 1965, 1970, 1975, 1980, 1985, 1990 and 1991, to provide information on the number of workers with low earnings, on changes over time in the prevalence of low earnings, and on the characteristics of workers with low earnings.
The economic well-being of most persons in the U.S. economy depends on their own earnings or on the earnings of other family members. In 1990, based on data from the March 1991 CPS, earnings accounted for 79.4 percent of aggregate income.
Several studies of low wages and earnings inequality were cited above, but both the Bureau of Labor Statistics and the Bureau of the Census regularly produce data on average earnings. These data show declines in average earnings during the past decade. Data from the Bureau of the Census (the most recent data are published in Money Income of Hoμseholds, Families, and Persons in the United States: 1990, Series P-60, No. 174) show that the median earnings of civilian male year-round, full-time workers declined from $29,558 in 1980 to $27,866 in 1990 (in 1990 CPI-U-X1 dollars). Data from the Bureau of Labor Statistics (the most recent data are published in the January 1991 issue of Employment and Earnings) show that the average weekly earnings in private nonagricultural industries declined from $373 in 1980 to $346 in 1990 (in 1990 CPI-U-X1 dollars).
The level of wages has important implications for living standards and labor force participation and may have important effects on social behavior. At some point, low wages can result in poverty for the worker and the worker's family. But even if the income of the worker remains above the poverty threshold, low wages may make it difficult to pay for basic services like housing, education, and medical care. Low wages and the prospect of low wages can affect labor force behavior and social behavior. The exact response to low wages depends on the values and preferences of the worker. For some workers, the prospect of low wages may lead to a decision to stay out of the labor force if other sources of income (e.g., assistance payments) are available. For others, low wages may lead to increased hours of work. Finally, low wages affect social behavior in terms of the affordability of marrying, having children, and establishing an independent household.
In this report, workers have low earnings if their annual earnings are less than the poverty level for a four-person family. The choice of a low earnings threshold is necessarily subjective, but it might be argued that it would be a desirable goal to reach a point at which every full-time worker (with the possible exception of those just starting their work careers) had an earnings level sufficient to maintain a family above the poverty level.
The low earnings thresholds that are used in this report are shown in table A, expressed both as an annual level and as the hourly rate that would have to be earned by someone who worked 40 hours a week for 50 weeks. The changes over time in the thresholds reflect price movements. The 1990 threshold of $12,195 and the 1964 threshold of $3,144 are actually equal in constant dollars. The price index used to adjust the thresholds is CPI-U-X1, the experimental series that shows a slower price rise than the CPI-U index. Use of the latter index would make the thresholds higher for later years and would increase the number of lowearner workers. For additional information about the price indexes, see appendix A.
This report presents data for all workers, for workers with a year-round, full-time attachment to the labor force, for workers who actually worked year-round, full-time, and for year-round, full-time wage and salary workers. Within each of these work experience categories, persons are classified as having low earnings if their annual earnings are less than the threshold. The concept of low annual earnings has little value for classifying workers who are not strongly attached to the labor force, and the focus of this report will be on those who are strongly attached.
The concept of year-round, full-time attachment was developed especially for this study. The category includes persons who spent at least 50 weeks during the year at work or looking for work and who either worked 35 hours a week or more or worked fewer hours for nonvoluntary reasons.
The earnings concept used in the March supplement to the CPS is money compensation before any deductions. The data in this report, therefore, do not reflect the value of noncash benefits, nor do they reflect deductions for income and payroll taxes. Nonwage compensation in the form of "other labor income" has grown considerably over the years, from 4.7 percent of total compensation in 1964 to 10.0 percent in 1990. Not all of other labor income is immediately available to the worker. Some (about 13.5 percent of other labor income in 1990) is in the form of employer contributions to unemployment compensation and workers' compensation plans, and some is employer contributions to pension and retirement plans (19.2 percent of other labor income in 1990).1 Note also that nonwage compensation varies by wage level. In 1987, for example, the percent of workers who received subsidized health insurance was 32.3 percent among year-round, full-time workers with earnings below $10,000 and 83.9 percent among those with earnings between $25,000 and $34,999.2
1 Data from the Survey of Current Business, Bureau of Economic Analysis.
2 Unpublished data from the Bureau of the Census.