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July 2006, Vol. 129, No.7
Earnings mobility and low-wage workers in the United States
Brett Theodos and Robert Bednarzik
I s earnings mobility within the United States a way out of poverty? Much has been made of participation in the labor force as a means to escaping poverty, but the ability of low-wage individuals to move out of poverty through work is less clear than the debate suggests. Sociologists have argued for years about the existence and stagnation of an economic underclass—an extremely poor group with low educational attainment and few labor advancement opportunities. Economists, however, have published numerous studies documenting a significant ability of workers to leave poverty through higher wages. Which description is to be believed? Analysis suggests that, seemingly paradoxically, both views may be correct.
In this article, annual employment and earnings figures for a low-income cohort of individuals from 1995 until 2001, as recorded by the Panel Study of Income Dynamics (PSID), are examined.1 Tracking the employment and earnings experience of the same individuals over time contributes to our understanding of the debate, showing that mobility varies across groups in important ways. Upward earnings mobility is, encouragingly, evident for workers who remain employed full time. Significantly higher earnings growth also has been demonstrated for workers in good health and with more education. Earnings mobility, however, is largely absent for those individuals who were not employed or who were at the lowest end of the income scale at the beginning of the study. Race and gender are not significant factors in determining mobility for the low-income cohort.
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1 The Panel Study of Income Dynamics (PSID) is a nationally representative longitudinal study of the economic, health, and social behavior of nearly 8,000 U.S. families. The study, conducted by the University of Michigan’s Institute for Social Research, has followed the same families and individuals since its inception in 1968. For more information, visit the Institute’s Web site on the Internet at psidonline.isr.umich.edu.
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mobility and wage growth: evidence from the NLSY79.—Feb.
Job mobility and hourly wages: is there a relationship?—May 2004.
Exploring low-wage labor with the National Compensation Survey.—Nov./Dec. 2003.
Earnings mobility in the United States, 1967-91.—Sept. 1995.
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