5 What are the low wage jobs?
We turn now to the demand-side of the low pay literature, in a brief look at which jobs or industries are the most likely to pay low wages.
We would expect low wage jobs to be found in places where workers are likely to have a relatively low productivity. These include jobs where workers are equipped with little physical capital and which require little scarce human capital. Such jobs are found relatively frequently in the services sector, especially in personal services and in retailing. Large numbers of earnings regressions run in many countries find that employment in small firms and in the private sector, other things equal, is associated with lower wages. This suggests that small private sector firms will be responsible for a disproportionate share of low wage jobs. The empirical evidence supports these suppositions.
Long (1999) and Smith and Vavricheck (1992) found that about 55% of minimum wage earners in the US in the first half of the 1990s worked in the retail trade industry—a large proportion being in hospitality. This is consistent with the Australian evidence cited earlier (although there, for men, labouring jobs were also important) and with other American evidence (Kim 2000). It is also consistent with the conclusion drawn by the OECD, that “A high proportion of all jobs in the wholesale, retail and catering sector are low paid, whereas such jobs are scarce in transportation and communications, and public administration.” (OECD, 1997:8).
In a detailed description of entry jobs, using data from 1997-98 Labour Force Survey in Britain, Gregg and Wadsworth (2000) find that low paid entry level jobs are often located in expanding or high-turnover sectors. These are mostly in retail (27% of entry jobs), “other” services- ie, other than retail, transport or finance - (27%) and manufacturing (18%) industries. They are most likely to be less-skilled manual (40%) and non-manual (30%) jobs. Eighty seven% of entry jobs are in the private sector. According to Gregg and Wadsworth, while three-quarters of all jobs are permanent full-time, the ratio is only one-third in entry jobs. While only 7% of all jobs are temporary contract jobs, the figure is one-third for entry jobs. Entry jobs are thus relatively insecure, as well as being low paid.
The above-cited literature on low-paid workers highlights the fact that certain industries and occupations pay low wages. These occupations are mostly in low-skills services such as retail, personal services, and are more likely to be in small private sector establishments. Also, the low-paid workers are often in part-time casual or contract jobs.
Many low wage jobs are part-time and/or casual. The extent of part-time work and its relation with low pay varies considerably around the OECD (ILO 1997). Australia and the UK, with about one quarter of their workers employed part-time, are at the high end of OECD countries (OECD, 1999). In most countries, part-time jobs are relatively low paid and have fewer fringe benefits than equivalent full-time jobs and are disproportionately taken by female workers. The main reason for the low pay is the type of job done: it is not usual to pay less per hour to a part-time worker than is paid to a full-time worker doing the same job (ILO, 1997). Indeed, the European Directive on Part-time Employment now requires countries to act to ensure that workers who are employed part-time are not thereby made worse off on a pro-rata basis. Part-time work tends to be in industries and occupations that have low pay. For example, it is unusual to have people in supervisory positions working part-time. In the European Union, in the mid-1990s only about 3% of men aged 24-49 were employed part-time (OECD, 1999). While part-time work and casual work are different categories, in practice they often overlap. In Australia, people who are employed on a casual basis are required to be paid about an additional 20% in order to compensate for the absence of benefits such as paid leave. This arrangement is unusual.
In a study of part-time work in the UK, Tam (1997: 243) concludes that, compared with full-time work, it has a number of disadvantages for future employment prospects.
Because of the low-skill nature of part-time work, it has a channelling effect on women's lifetime employment prospects. This study shows that while part-time work is not associated with job insecurity and unemployment, it constitutes a trap which lowers women's lifetime employment prospects and earnings.
The link between part-time work and low wages is complex. On the one hand, part-time work is frequently used by mothers as a way of reconciling the demands of home and paid employment. In Australia, most are happy to work part-time. Such jobs are often also taken by full-time students as a way of supplementing their incomes while studying. In many of these cases, part-time work is not problematic. On the other hand, increasing numbers of young people not in full-time education, and adult males, are accepting part-time work because they can find no better. In evidence given below, sole mothers in the US are quite unable to earn enough to provide an adequate standard of living if they work part-time: the combination of short hours and low pay leads to very low earnings.
Harley and Whitehouse (2001) use UK and Australian data to examine whether women employed part-time earn less and have poorer conditions of employment than their sisters in full-time jobs. They conclude that part-time workers in the UK are worse off than those in Australia. In both countries, part-time workers have some disadvantage in terms of relative earnings, autonomy on the job, and feelings of job insecurity. But the extent of the disadvantage, especially in Australia, is generally quite small.
To this point we have defined low wages and described who occupies low wage jobs and where these jobs are found. Before we go on to consider the central question of this review – the extent to which low wage workers are able to move on to better jobs – we consider briefly why firms pay low wages, and why workers accept them.
