When Hours Decline: Tides of Change in Low-wage Labor Markets

Using data from the Panel Study of Income Dynamics for 1997 through 2013, we explore adjustment strategies used in low-wage labor markets when hours decline, and we document the features that characterize flows of workers through these markets over time. We find that half of the population moves through these markets at some point in their lives. Yet only one percent of workers are permanently in low-wage jobs. The 17 percent who are permanently in “low-or-zero-wage” status show high rates of cycling in and out of unemployment, temporary layoff, education, disability status, temporary retirement and keeping house, thus demonstrating a labor force that is in constant motion. Yet, for over 45 percent of men and over 30 percent of women, some of that mobility is upward into higher-wage positions, suggesting that much of the movement reflects low rewards and poor work conditions. We identify 35 possible paths during the Great Recession from employment to loss of employment and back to employment by 2013, and we explore several less successful sequences ending with no job by 2013. The investigation shows that certain sequences are much more common for recent holders of low-wage jobs than for others. Workers recently in higher-wage jobs show more success in returning to employment whether coming from temporary layoff, unemployment or a stint out of the labor force, regardless of the type of non-wage activity. Men starting from low-wage jobs are more likely than others to report being unemployed in two consecutive survey years and to end up still unemployed by 2013. However, we show that recession-induced declines in hours stem largely from decreased weeks worked or lower average weekly hours rather than from a drop in the probability of working in a given year. We also find evidence of some offsetting, recession-induced increases in overtime hours for low-wage single women who head households. These findings suggest that recessionary losses are distributed in multiple ways, very few of which culminate in a worker losing all annual hours of work, even for those in low-wage jobs. However, for those starting from higher-wage positions, average job tenure rises during recessions. In contrast, the lack of security in low-wage markets shows up not only as fewer years of tenure, but also as tenure that declines by about a quarter of a year for each percentage point rise in state unemployment rates. Many of the traits that we document can be masked by cross-section snapshots. With longitudinal analysis, the picture takes new shape, showing a constant churning of the labor force and multiple strategies for adjusting to shocks. In such a world, higher-wages might help transform secondary work into jobs that promote attachment, bring lower turnover, and yield gains in productivity. This potential for improving the performance of low-wage markets suggests new ways to think about the possible consequences of minimum-wage hikes.