Academic journal article Chicago Fed Letter

Strategies for Improving Economic Mobility of Workers-A Conference Preview

Academic journal article Chicago Fed Letter

Strategies for Improving Economic Mobility of Workers-A Conference Preview

Article excerpt

On November 15-16, 2007, the Federal Reserve Bank of Chicago's Economic Research Department and Consumer and Community Affairs Division, along with the W. E. Upjohn Institute for Employment Research, will cosponsor a conference to present research on policies, practices, and initiatives affecting low-wage workers.

By almost all measures, American workers overall have gained economic ground over time. However, it has also been well documented that inequality in economic outcomes has increased: Wages for those in the bottom (10th percentile) of the income distribution have not growth as quickly as those in the top (90th percentile). In fact, the wages for those at the bottom may even be stagnating. These trends imply that the economic mobility of some segments of the labor force is relatively limited. How can the economic opportunities for low-wage workers be improved? And how effective are existing policies at helping low-wage workers gain more skills or improve them? In this Chicago Fed Letter, I provide a brief review of key issues related to low-wage earners and policy prescriptions, as a preview to our conference, Strategies for Improving Economic Mobility of Workers.

Trends in poverty, wages, and income mobility

The adverse consequences of substandard wages and poverty on individuals, families, and communities are numerous and interconnected. Families with low to moderate income generally have little in savings to deal with unanticipated events, such as the loss of a job or a serious health problem. They are less likely to have a bank account or become homeowners, and they have much lower than average household wealth.1 Children in poor families receive lowerquality child care and health care, and they are exposed to a less stimulating learning environment in the home.2

Living in a poor family increases the chances of living in a poor neighborhood. As research by the Brookings Institution suggests, nationwide about one in ten individuals below the poverty line in 2000 lived in communities with geographically "concentrated poverty," where at least 40% of the population is poor.3 Forty-six of the nation's 50 largest cities contained at least one such neighborhood. Many of these neighborhoods lack adequate housing, jobs, business and financial services, and transportation infrastructure. As a result, residents tend to face higher local prices for goods and services. Living in distressed neighborhoods also increases one's exposure to health hazards and violence. Given these trends, how can economic opportunities be improved for workers and households in poor communities?

Researchers have focused on three important empirical questions in studying low-wage workers. They measure the size of the low-wage labor market, identify the characteristics of low-wage earners, and gauge the extent to which they experience income growth. They have used several different approaches to define the "low-wage" labor market and to evaluate the material well-being of the poor.4 One approach defines a low-wage worker as one who works at least 37 weeks per year, but whose total family annual income falls below the federal poverty level (an annual threshold based on U.S. Census data)-$15,735 in 2005 for a family of three. Using this definition, figure 1 depicts the poverty rate among individuals aged 18-64 years old for each year since 1980. The figure shows that the percentage of individuals with income below the poverty line has remained relatively stable over time, hovering around 11% and 12%. More than half of those individuals work during the whole year, and over one-quarter work full time the whole year.

Another approach is to consider the relative position of workers in different quartiles of the income distribution. This approach is illustrated by figure 2, which shows the average real hourly wages of workers by quartile from 1979 through 2006. Real hourly wages for workers at the 10th percentile and below have remained stable-at about $7. …

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