How to Expand the Middle Class

March 29, 2007

Margy Waller

Shawn Fremstad & Margy Waller
Philadelphia Daily News
, March 29, 2007

See article on original website

The media and the pundits spend a lot of time focusing on the massive increase in compensation for top jobs.

But if we really care about strengthening the national economy, it’s time to focus on the other side of the story – what’s happening in the low-wage labor market. In a report we’ve written (with Heather Boushey and Rachel Gragg), Understanding the Low-Wage Labor Market in the United States, we find that more than 40 million jobs — about 1 in 3 — pay low wages.

What is low-wage work? Surprisingly, there’s no official definition. One commonly used formula defines a low-wage job using the federal poverty threshold: $20,444 or $9.83 an hour in 2006. But, plenty of people agree the federal poverty line is outdated and has limited appeal for describing low-wage work in today’s economy.

To avoid these problems, we adopted a new definition of low-wage work that uses what we call a social-inclusion approach and, importantly, takes inequality into account. Under this definition, a low-wage job is one that pays substantially less than the job held by a typical male worker – that’s any job paying less than $11.11. How many are like that? 44 million.

That’s worse than most people realize. Especially since most low-wage jobs don’t offer benefits like paid sick days, health insurance or retirement accounts, tend to have inflexible or unpredictable scheduling requirements, and provide little opportunity for career advancement.

And these jobs have been getting worse relative to others. Over the last quarter-century, the typical low-wage worker has seen an increase of a mere 6 cents an hour – to just $8.53 an hour. Meanwhile, higher wage workers got a raise of 22 percent.

While low-wage workers haven’t seen much of a raise since 1979, the economy and productivity have grown substantially. For several decades before 1980, productivity growth and wages rose together — in other words, workers shared in the gains. But over recent decades, workers continued to be increasingly productive, yet they haven’t seen any payoff in wages.

Obviously, it’s possible to combine economic growth with higher standards of living for more citizens. Most other countries with advanced economies have a much larger proportion of middle- and upper-wage jobs than the United States.

Inequality here is further compounded by limited economic mobility. Despite the strongly-held belief in the myth of Horatio Alger, most low-wage workers do not usually move up.

We have many more entry-level jobs than we have entry-level workers – that is, workers who are new to the labor market – and too few jobs that provide a middle-class standard of living. It turns out that in the U.S. labor market today, it’s not possible for everyone to be middle-class, no matter how hard they work.

These jobs can’t be “offshored” — it’s tough to clean hotel rooms or serve coffee from across the ocean.

Policymakers aren’t unaware of all this. They talk a lot about low-wage jobs — but increasing the minimum wage is just the first small step up because it won’t do much to turn low-wage jobs into better ones.

With so many jobs like that which aren’t going away, strengthening our economy has to mean answering the question: How do we make low-wage jobs into better jobs?

We developed our initiative – the Mobility Agenda – to address just this question. And

we’re coming up with some interesting new ideas and strategies.

At least three proposals in Congress can make a difference.

The Healthy Families Act would require paid sick days for workers.

The Employee Free Choice Act would restore workers’ ability to have some negotiating power regarding work conditions.

And following the lead of states and localities, we’re finally talking seriously about guaranteeing health care for all – disconnecting something so essential from the workplace would improve all jobs.

We approach this work with a theory:

It’s bad for our economy and democracy for the income gap to be so big. The only way to restore the middle class is to improve the labor market with a mix of new ideas and strategies for improving low-wage work.

Our economy and our nation will be stronger for us all when we do.

For more information about low-wage work and the Mobility Agenda, see Shawn Fremstad and Margy Waller co-founded Inclusion, a virtual think tank and home of the Mobility Agenda, with co-author Rachel Gragg.

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