Despite increasing polarization, many Americans believe that economic conditions of those earning the least have worsened in recent years. Former president Donald Trump blames worsening conditions on low-skill immigrants and the loss of manufacturing jobs to foreign competition from China and nations of the North American Free Trade Agreement. Senator Elizabeth Warren blames the erosion of unions and worker power and proposes policies that extend labor rights to all workers and increase the minimum wage to $15 per hour. These statements by high-profile political figures have led to a common perception of worsening job prospects for low-wage workers in the United States.

By contrast, our research shows that since the early 1980s, there has been a significant decline in the share of workers earning low wages. We classify a worker as “low-wage” if they earn a real hourly wage below $15 and compare wages over time using constant 2019 U.S. dollars. We find that at the start of 1985, there were 36.5 million low-wage workers out of a total of 88.2 million total workers (41 percent). At the end of 2019, there were 36.7 million low-wage workers out of a total of 132 million total workers (28 percent). Remarkably, there has been little to no increase in the number of low-wage workers since the mid-1990s despite a large increase in the total number of workers.

Alternative ways of defining the threshold for low wages include thresholds proportional to the poverty line or the median hourly wage. These alternatives show either a decrease or no noticeable change in the share of workers earning low wages. Comparing low-wage earners to the wages of top earners shows low-wage earners losing ground, but that worsening of conditions is not specific to low-wage workers: when compared to top earners, all other workers are losing ground.

One way to assess the economic condition of low-wage earners that does not depend on a particular income threshold is to compare wage growth at the bottom of the wage distribution to wage growth at the middle and at the top of the wage distribution. If the conditions of low-wage workers have worsened, then we should expect to see wage growth at the bottom of the wage distribution lagging behind. Instead, we find that wages have grown much faster at the bottom of the wage distribution than at the middle of the wage distribution and have grown fastest at the top of the wage distribution. Wages at the 30th percentile grew in line with those at the 70th percentile, and real wages below the 30th percentile grew even faster. Therefore, unless one argues that conditions have worsened at the 70th percentile (which translates into a 2019 annual income of just under $60,000 for a full-time employee), one should not assert that conditions have worsened at the 30th percentile.

Even though there has been a decline in the share of workers earning low wages, it is still possible that more people today are getting stuck in low-wage jobs than in the past. Perhaps in the past low-wage jobs were a temporary starting point for young workers and those re-entering the labor force, but today many more workers stay in these low-wage jobs for prolonged periods. To address this possibility, we use data from the Panel Study of Income Dynamics to track the same set of workers over time and measure the probability that a low-wage worker moves to a higher pay bracket. Across time horizons and subpopulations, we find that the persistence of low wages has not increased, and has likely decreased, over time.

A potential explanation for the decline in the share of workers earning low wages is the increase in educational attainment of U.S. workers. Since the 1980s, the share of workers with less than a high school education has declined and the share of workers that completed a college education (or more) has greatly risen. This increase in educational attainment should result in higher wages and a lower share of workers earning low wages. To assess the role of educational attainment, we provide two sets of results that hold fixed the distribution of demographic characteristics of U.S. workers, including education, at their 1985 values. These adjustments have the effect of greatly increasing the sample weights in recent years of less educated workers (since there are fewer today than in 1985) and greatly decreasing the sample weights of highly educated workers. We repeat our analysis with the adjusted weights and, not surprisingly, these adjustments shift down the level of the wage distribution in recent years and greatly reduce the downward trend in the share of workers earning low wages. However, even with these adjustments, we find a modest decline in the share of workers earning low wages.

More importantly, adjustments that hold fixed the distribution of demographic characteristics of U.S. workers since 1985 do not disproportionately reduce wages at the bottom of the wage distribution. The opposite is true: the adjustments disproportionately reduce wages at the top of the wage distribution. Real wage growth at the 30th percentile is reduced by 15 percentage points (from 15 percent to 0 percent). This is similar in magnitude to the decline in real wage growth in the middle of the wage distribution and is less than the decline at the top of the wage distribution. Even with the adjustments, real wage growth at the bottom of the wage distribution is higher than in the middle of the distribution and is in line with wage growth at the top.

Another potential explanation for the decline in the share of workers earning low wages is the expansion of state minimum wage laws. While the federal minimum wage in real terms is no higher today than in the early 1980s, many states have since set a minimum wage exceeding that floor. In 1985, only Alaska and Connecticut had a state minimum wage that exceeded the federal minimum wage, and the differences were modest. As of April 2023, 30 states had a state minimum wage that exceeds the federal minimum wage, and the differences are much greater. To assess the role of state minimum wages in the decline in the share of workers earning low wages, we provide separate calculations for different U.S. geographic areas. If high state minimum wages caused the decline, we would expect to see greater declines in geographic areas with higher minimum wages. We find significant declines in the share of low-wage earners in all regions, and the largest declines occurred in the South and Midwest, where state minimum wages are generally low. When we split states into high minimum wage states ($10 or higher) and low minimum wage states (below $10), we find that both groups of states show a significant decline in the share of low-wage earners, and low minimum wage states experience greater declines.

In summary, we find that since the early 1980s there has been a significant decline in the share of workers earning low wages and that worker-level persistence of low wages has not increased. This conclusion holds across several subpopulations and thresholds for determining low wages. We are not arguing for or against any policy, rather we are suggesting future proposals should not be justified on the grounds of worsening economic conditions for low-wage workers.

NOTE
This research brief is based on David Abraham and Simcha Barkai, “Low Wages Aren’t a Growing Problem,” Social Science Research Network, last revised October 5, 2022.