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THE STORY OF LOW-WAGE WORK

Following World War II, economic growth in the United States meant a shared prosperity as tens of millions of American workers moved into an emerging middle class. Starting in the mid-1970s, however, real wages stopped growing and even declined for certain groups in the labor force. This was a marked reversal from the postwar economic boom. In fact, the fortunes of those in the bottom rungs of the labor market declined drastically. Between 1973 and 1993, the real income of the lowest 20th percent of workers fell nearly 12 percent.

Today, one out of four workers in the United States holds a job that pays less than $8.70 an hour (around $18,100 per year working full-time), which is the official poverty line for a family of four. Most experts estimate that it takes double that amount for families to make ends meet. Although the United States still leads the world in overall prosperity and productivity, the American way of organizing work and rewarding workers no longer provides many hardworking families a piece of the American dream.

Strong growth has usually been associated with rising wages and declining inequality. Yet most of the benefits of economic growth between 1973 and 2001 missed those who needed them most. The degree of inequality in wages between low-paid and high-paid U.S. workers grew by roughly 30 percent during the 1980s to levels of inequality not seen since the Great Depression.

What happened after the mid-1970s to produce these dramatic changes? The core feature of the past quarter century has been the long-term shift from a manufacturing to a service economy. Wal-Mart is now the largest creator of jobs. Less than 40 years ago, one out of every three nonfarm jobs was in the manufacturing sector.

And what of the future? The expanding service sector will remain the dominant source of employment in the first decade of the century and the dominant source of economic output in the U.S. economy. It is projected that virtually all of the twenty-two million new jobs expected to be added through 2010 will be in the non-manufacturing industries with retail trade and low-end services expected to account for the large majority.

Perhaps an even more important question, however, is what the growth in services means for upward mobility and employment stability. With extremely flat job hierarchies, jobs at the bottom of the service sector provide few means to move up, effectively trapping workers in low-wage careers. At the forefront of this industry, employing an ever larger number of workers, is Wal-Mart. In this business model, part-time work is the norm, schedules shift constantly, wages are low and turnover high, and health insurance is too costly for most workers to afford, even after long wait periods for eligibility.

The U.S. corporate relationship with its employees has changed dramatically in the last 30 years. Corporate responsibility no longer requires the balancing of the interests of employees, shareholders and other stakeholders, but merely maximizing shareholder wealth. Healthy companies laid off workers and gone was the rhetoric about treating employees like "family."

During this same time, the real value of the minimum wage plummeted from $7.18 (in 2001 dollars) to $5.15, a decline of 28 percent. The decreasing real value of the minimum wage over the last thirty years meant that there had effectively been a deregulation of the wage-setting process. It has allowed firms to respond to economic pressures by cutting the real wages of their lowest-paid workers

These economic, corporate and institutional changes created poorer quality jobs and worsened long-term wage growth for many workers. Median wage growth by mid-career fell by 21 percent in recent years, and the distribution of the remaining gains has become sharply more unequal. As a result, the heart of the middle class has been hollowed out. There are now 40 percent fewer workers in the central part of the wage growth distribution than there were three decades ago.

While most employers chose the low-road model of freezing wages, reducing benefits, firing workers, using temporary workers, or relocating jobs to another part of the country or abroad, some employers have developed other ways to improve their financial performance by innovating their services, improving quality and training, and empowering their workers.

Experience in other countries suggests that managers will be more inclined to choose the high road if there is a higher minimum wage, which sets a floor below which wages cannot be pushed and forces them to think more creatively about how to keep firms competitive. Perhaps most important of all, managers are more likely to choose the high road when a national culture treats driving down wages as unacceptable behavior, instead of rewarding such managers with ever more lucrative pay packages.

In the past 30 years our nation has made choices that resulted in declining economic opportunity for an increasing number of Americans. Although individual corporate decisions may make perfect sense for the individual actors, they may not be good for workers or our society, a classic problem in a political economy. Employers have wide discretion in how they respond to this changing economy. We can make better choices that will ensure the long-term economic future of our society and provide a fair share to working Americans and their families.

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THE STORY OF LOW-WAGE WORK Following World War II, economic growth in the United States meant a shared prosperity as tens of millions of American workers moved into an emerging middle class. Starting in the mid-1970s, however, real wages stopped growing and even declined for certain groups in the labor force. This was a marked reversal from the postwar economic boom. In fact, the fortunes of those in the bottom rungs of the labor market declined drastically. Between 1973 and 1993, the real income of the lowest 20th percent of workers fell nearly 12 percent. Today, one out of four workers in the United States holds a job that pays less than $8.70 an hour (around $18,100 per year working full-time), which is the official poverty line for a family of four. Most experts estimate that it takes double that amount for families to make ends meet. Although the United States still leads the world in overall prosperity and productivity, the American way of organizing work and rewarding workers no longer provides many hardworking families a piece of the American dream. Strong growth has usually been associated with rising wages and declining inequality. Yet most of the benefits of economic growth between 1973 and 2001 missed those who needed them most. The degree of inequality in wages between low-paid and high-paid U.S. workers grew by roughly 30 percent during the 1980s to levels of inequality not seen since the Great Depression. What happened after the mid-1970s to produce these dramatic changes? The core feature of the past quarter century has been the long-term shift from a manufacturing to a service economy. Wal-Mart is now the largest creator of jobs. Less than 40 years ago, one out of every three nonfarm jobs was in the manufacturing sector. And what of the future? The expanding service sector will remain the dominant source of employment in the first decade of the century and the dominant source of economic output in the U.S. economy. It is projected that virtually all of the twenty-two million new jobs expected to be added through 2010 will be in the non-manufacturing industries with retail trade and low-end services expected to account for the large majority. Perhaps an even more important question, however, is what the growth in services means for upward mobility and employment stability. With extremely flat job hierarchies, jobs at the bottom of the service sector provide few means to move up, effectively trapping workers in low-wage careers. At the forefront of this industry, employing an ever larger number of workers, is Wal-Mart. In this business model, part-time work is the norm, schedules shift constantly, wages are low and turnover high, and health insurance is too costly for most workers to afford, even after long wait periods for eligibility. The U.S. corporate relationship with its employees has changed dramatically in the last 30 years. Corporate responsibility no longer requires the balancing of the interests of employees, shareholders and other stakeholders, but merely maximizing shareholder wealth. Healthy companies laid off workers and gone was the rhetoric about treating employees like "family." During this same time, the real value of the minimum wage plummeted from $7.18 (in 2001 dollars) to $5.15, a decline of 28 percent. The decreasing real value of the minimum wage over the last thirty years meant that there had effectively been a deregulation of the wage-setting process. It has allowed firms to respond to economic pressures by cutting the real wages of their lowest-paid workers These economic, corporate and institutional changes created poorer quality jobs and worsened long-term wage growth for many workers. Median wage growth by mid-career fell by 21 percent in recent years, and the distribution of the remaining gains has become sharply more unequal. As a result, the heart of the middle class has been hollowed out. There are now 40 percent fewer workers in the central part of the wage growth distribution than there were three decades ago. While most employers chose the low-road model of freezing wages, reducing benefits, firing workers, using temporary workers, or relocating jobs to another part of the country or abroad, some employers have developed other ways to improve their financial performance by innovating their services, improving quality and training, and empowering their workers. Experience in other countries suggests that managers will be more inclined to choose the high road if there is a higher minimum wage, which sets a floor below which wages cannot be pushed and forces them to think more creatively about how to keep firms competitive. Perhaps most important of all, managers are more likely to choose the high road when a national culture treats driving down wages as unacceptable behavior, instead of rewarding such managers with ever more lucrative pay packages. In the past 30 years our nation has made choices that resulted in declining economic opportunity for an increasing number of Americans. Although individual corporate decisions may make perfect sense for the individual actors, they may not be good for workers or our society, a classic problem in a political economy. Employers have wide discretion in how they respond to this changing economy. We can make better choices that will ensure the long-term economic future of our society and provide a fair share to working Americans and their families. Home