CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

PAPER

DECEMBER 2006

Changes in

Low-Wage Labor 

Markets Between 

1979 and 2005

CBO

© Photodisc/GettyImages, Bananastock, Ltd., SUPERSTOCK, Inc.
Pub. No. 2745
Pub. No. 2745
The Congress of the United States O Congressional Budget Office

CBO

Changes in Low-Wage Labor Markets 

Between 1979 and 2005

December 2006

A

PAPER

Preface

This Congressional Budget Office (CBO) paper—prepared at the request of the Chairman of the Senate Budget Committee—uses data from several national surveys to examine the 

distribution of hourly wage rates over the past 25 years, focusing particularly on low-wage 

labor markets. It examines trends in the wages paid to workers at the bottom of the wage distribution and considers explanations for those trends. It also describes the characteristics of 

low-wage jobs and of workers in those jobs. In keeping with CBO’s mandate to provide objective, impartial analysis, this paper makes no recommendations.

Nabeel Alsalam, Molly Dahl, and Thomas DeLeire wrote the paper under the guidance of 

Ralph Smith and Bruce Vavrichek. The paper benefited from the comments of Robert

Dennis, Naomi Griffin, Noah Meyerson, and Roberton Williams, all of CBO, as well as 

Lawrence Katz of Harvard University and Marvin Kosters of the American Enterprise Institute. (The assistance of external reviewers implies no responsibility for the final product, 

which rests solely with CBO.) 

Cameron Fletcher edited the paper, with assistance from John Skeen, and Christine Bogusz 

proofread it. Maureen Costantino designed the cover and prepared the paper for publication. 

Lenny Skutnik produced the printed copies, and Simone Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

 Donald B. Marron

Acting Director

December 2006

Contents

Summary and Introduction 1

What Accounts for Changes in the Wage Distribution? 2

The Characteristics of Low-Wage Jobs and Workers 3

The Household Income of Workers in Low-Wage Jobs 4

The Distribution of Wages and How It Changed Between

1979 and 2005 4

The Level and Distribution of Hourly Wage Rates 4

What Accounts for the Changes in the Bottom 

Half of the Wage Distribution? 6

Review of the Research Literature on Changes in the

Wage Distribution 12

The Characteristics of Low-Wage Jobs and of Workers in

Those Jobs 13

Characteristics of Low-Wage Jobs 14

Characteristics of Workers in Low-Wage Jobs 15

The Household Income of Workers in Low-Wage Jobs 19

Appendix: Accounting for the Sources of Changes in the

Distribution of Wages 25

Tables

1. Distribution of Inflation-Adjusted Hourly Wages of

Workers Age 16 and Older, Selected Years from

1979 to 2005 5

2. Sources of Change in the Bottom Half of the Hourly

Wage Distribution, 1979 to 2005 7

3. Characteristics of Work, by Level of Hourly Wages, 2005 16

4. Distribution of Work Among Occupational Groups by

Level of Wages, Selected Years from 1983 to 2002 17

5. Share of Workers with Selected Characteristics by

Level of Hourly Wages, Selected Years from

1979 to 2005 18

6. Real Household Income and Its Sources for Workers

Age 16 and Older, by Level of Hourly Wages,

Selected Years from 1979 to 2005 21
VI CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Figures

1. Percentage Growth in Real Hourly Wages at the 10th and 

50th Percentiles, 1979 to 1990 2

2. Percentage Growth in Real Hourly Wages at the 10th and

50th Percentiles, 1990 to 2005 3

3. Ratio of the 90th to the 50th and the 50th to the 

10th Percentiles of Hourly Wages, 1979 to 2005 6

4. Hourly Wages at the 10th and the 20th Percentiles,

1979 to 2005 14

Boxes

1. Growth in the Wages of Individuals in Low-Wage Jobs 8

2. The Distribution of Workers’ Annual Earnings and

Household Income 10

3. The Recent Growth in the Number of Foreign-Born

Workers and the Distribution of Hourly Wage Rates 22
Changes in Low-Wage Labor Markets 

Between 1979 and 2005

Summary and Introduction 

In 2005, the typical hourly wage rate earned by U.S. 

workers was 10 percent higher in real (inflation-adjusted) 

terms than it was in 1979, with all of that increase occurring since 1990. Workers’ hourly wage rates near the bottom of the wage distribution fell by 10 percent during the 

1980s but rose by more than the typical wage rate between 1990 and 2005. The economic factors that led to 

an increase in the dispersion of wage rates in the lower 

half of the distribution during the 1980s have changed 

and reduced this dispersion since 1990.

Changes in the distribution of hourly wages are a useful 

barometer of changes in the skills possessed by workers 

and in the value that employers place on workers’ skills 

and activities. As employers pay college graduates more 

and high school dropouts less, for example, many workers 

have an incentive to acquire more education: since 1979, 

the percentage of workers with less than a high school education has dropped by half, and the percentage with a 

bachelor’s degree has risen by more than half.

This paper documents changes in the lower half of the 

hourly wage distribution between 1979 and 2005 and analyzes the reasons for those changes. It then describes the 

characteristics of low-wage jobs and of workers in those 

jobs, and it examines how the household income of such 

workers has changed over the past quarter century. The 

analysis focuses on two periods: before and after 1990. 

The year 1990 was chosen for expositional simplicity, not 

because it represented a specific turning point in the labor 

market. For example, the 10th percentile of real hourly 

wage rates grew rapidly beginning in about 1995, while 

the ratio of the median to the 10th percentile of wages 

peaked in 1988.

The major findings of the paper are these:

B Notwithstanding an overall widening in the distribution of wage rates over the past quarter century, all of 

the widening in the lower half of the hourly wage distribution occurred in the 1980s (see Figure 1). Since 

1990, real hourly wage rates at the bottom of the distribution have increased substantially—slightly more 

than the typical wage rate (see Figure 2).

B The changes in the distribution of wage rates since 

1979 appear to be the result of changes in the premiums paid by employers for skills and attributes beyond 

those associated with a worker’s education or experience. Those abilities may include motivation or 

problem-solving skills, for example––that is, traits that 

employers reward but that are not measured in survey 

data. A portion of the changes in the 1980s also may 

be accounted for by factors such as the decline in 

union coverage and the falling real value of the minimum wage. 

B Large percentages of workers in low-wage jobs have 

little education or are young. However, throughout 

the past quarter century, the education levels and ages 

of workers in low-wage jobs have been increasing, as 

have those of the workforce as a whole. 

B The median household income (pretax and including 

cash transfers such as welfare) of workers earning low 

hourly wage rates fell in real terms between 1979 and 

1990 but rose between 1990 and 2005. In both periods, decreases in the number of workers in the household reduced household income. But in the latter 

period, increases in the number of hours worked by 

low-wage earners along with increases in real hourly 

wage rates more than offset that decline. 
2 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Figure 1.

Percentage Growth in Real Hourly Wages at the 10th and 50th Percentiles,

1979 to 1990

(Percent)

Source: Congressional Budget Office based on the Census Bureau's Current Population Surveys from 1979 to 1990.

Note: Hourly wage rates were adjusted for inflation using the research series for the consumer price index for all urban consumers (CPI-URS). The 10th percentile and 50th percentile real hourly wage rates were $7.43 and $13.47, respectively, in 1979. 

While the data used for hourly wage rates are of high 

quality and come from a large nationally representative 

survey collected by the U.S. Census Bureau, they do not 

include other forms of compensation such as pensions 

and health insurance. Moreover, the measures of annual 

wage and salary earnings and of pretax household income 

used in this analysis do not include the value of Medicaid, 

food stamps, other in-kind transfers, nor payments 

through the state and federal tax systems such as the 

earned income tax credit.

What Accounts for Changes in the Wage

Distribution?

The analysis presented in this paper begins by examining 

two factors that are known to affect the distribution of 

hourly wage rates and that might explain why dispersion 

in the bottom half of the wage distribution increased in 

the 1980s but decreased slightly in the 1990s. First, 

workers’ characteristics such as age, education, and sex are 

associated with wages; therefore, one would expect that 

the significant changes since 1979 in those characteristics 

would affect the dispersion of wages. The increases in education levels during the period should have increased 

wage dispersion, as there tends to be more variation in 

wages among workers with a high level of education than 

among workers with a low level of education. Similarly, 

the increase in the percentage of the workforce who are 

women should have tended to narrow wage differences, 

as the variation in wages among women is smaller than 

that among men. Second, the typical wage premiums associated with those characteristics have changed over the 

past quarter century, and one would expect those changes 

also to have affected the distribution of wages. For example, it has been well documented that highly educated 

workers increasingly have been paid more by employers 

relative to less educated workers.1

Surprisingly, however, those two factors account for less 

than one-third of the increase in the dispersion in the 

bottom half of the hourly wage distribution in the 1980s 

and for none of the decrease afterward. In fact, on the basis of those two factors alone, one would have expected 

wage dispersion to have increased in the 1990s, instead of 

decreasing as it did.

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

-20

-15

-10

-5

0

5

10

15

20

50th Percentile

10th Percentile

1. See Lawrence F. Katz and David H. Autor, “Changes in the Wage 

Structure and Earnings Inequality,” in Orley Ashenfelter and 

David Card, eds., Handbook of Labor Economics, vol. 3A 

(Amsterdam: North-Holland, 1999).
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 3

Figure 2.

Percentage Growth in Real Hourly Wages at the 10th and 50th Percentiles, 

1990 to 2005

(Percent)

Source: Congressional Budget Office based on the Census Bureau's Current Population Surveys from 1990 to 2005.

Note: Hourly wage rates were adjusted for inflation using the research series for the consumer price index for all urban consumers (CPI-URS). The 10th percentile and 50th percentile real hourly wage rates were $6.60 and $13.46, respectively, in 1990. 

What, then, explains the changes in the bottom half of 

the wage distribution? They are accounted for by changes 

in the distribution of wages among workers who appear 

similar, on the basis of their level of education, age, and 

sex. That “within-group” dispersion accounted for more 

than two-thirds of the increased wage dispersion in the 

1980s. In the 1990s, by contrast, the within-group dispersion in wages decreased enough to offset the tendency 

toward greater dispersion that resulted from the continued increases both in workers’ education levels and in the 

premiums paid to educated and experienced workers. 

Research suggests that changes in within-group wage dispersion were driven by changes both in how employers 

valued workers’ skills (independently of differences captured by age, education, and sex) and in the supply of 

those skills.2 Factors such as the motivation, intelligence, 

or specific educational or vocational background of a 

worker are valued by employers but may not be easily observed. Although the research presented in this analysis 

does not indicate whether changes in employer demand 

or in worker supply were more important in contributing 

to changes in within-group wage dispersion, other research suggests that changes in demand (resulting from, 

for example, changes in information technologies) were 

more important. Furthermore, some research indicates 

that institutional factors such as the decline of the real 

value of the minimum wage increased hourly wage dispersion in the 1980s. 

The Characteristics of Low-Wage Jobs and Workers

The general features of jobs that pay low wages have not 

changed much over the past quarter century. Such jobs 

are still very likely to be compensated on an hourly basis 

as opposed to a salaried basis and are less likely to be on a 

full-time work schedule. While low-wage jobs exist in 

most occupations, they remain most prevalent in lowskill service occupations such as food service and preparation, building and grounds maintenance, and sales. 

By contrast, the characteristics of the overall workforce 

have changed substantially during the past 25 years. The 

share of workers who are young (ages 16 to 24) decreased. 

Women increased their participation in the labor force. 

Older cohorts of workers with low levels of education left 

the workforce and were replaced by younger generations 

with higher educational attainment. And many more 

immigrants came to the United States (both legally and 

illegally) to work. 

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-20

-15

-10

-5

0

5

10

15

20

50th Percentile

10th Percentile

2. Katz and Autor, “Changes in the Wage Structure and Earnings 

Inequality.”
4 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Those trends in the composition of the workforce as a 

whole are generally reflected in the composition of the 

workforce in low-wage jobs. Young people today account 

for a smaller share of low-wage work than in the past 

(although young workers are much more likely to find 

themselves in low-wage work today than their counterparts were in 1979). A similar pattern applies to workers 

who have not completed high school. In addition, since 

1994 (the first year for which data are available), the share 

of low-wage work done by the foreign born increased by 

50 percent, as did their share of all work. Women, however, now account for a smaller share of low-wage work, 

although they do a larger share of all work. 

The Household Income of Workers in 

Low-Wage Jobs

Hourly wage rates are only one of several factors that determine household income. Other factors are the number 

of hours worked by a worker, the number and earnings of 

other workers in the household, and other sources of cash 

income (such as cash assistance, unemployment insurance, and child support). 

Despite the fact that the 10th percentile of real hourly 

wage rates was about the same in 2005 as in 1979, the 

real annual earnings of workers earning low wages increased over the period because their number of hours 

worked increased. At the same time, the number of other 

workers in the households of workers earning low wages 

decreased. Among low-wage earners in 2005, approximately 1 in 4 was the only worker in the household, up 

from about 1 in 5 in 1979; and about 34 percent were responsible for the majority of household earnings, up from 

30 percent in 1979.

The net effect of those changes was that the median real 

household income of workers earning a low hourly wage 

fell between 1979 and 1990, primarily because the decline in the number of other workers in the household 

offset the increase in the annual earnings of workers in 

low-wage jobs (which was driven by increases in the 

hours worked since hourly wage rates at the bottom of 

the wage distribution declined between 1979 and 1990). 

However, between 1990 and 2005, that trend was reversed because the increase in the real annual earnings of 

the worker earning a low hourly wage (driven by both increases in the hours worked and increases in hourly wage 

rates) offset the decline both in the number of other 

workers in their households and in other sources of cash 

income.

The Distribution of Wages and How It 

Changed Between 1979 and 2005 

In 2005, hourly wage rates were higher at most points in 

the wage distribution than in 1979, in inflation-adjusted 

terms.3

 For example, the median wage was $14.82 in 

2005, up 10 percent from its value in 1979 after an adjustment for inflation (see Table 1).4 Wages at the 10th 

percentile, however, were essentially unchanged, in real 

terms, over that period.

The Level and Distribution of Hourly Wage Rates

Over the past 26 years, real hourly wage rates in the U.S. 

labor market grew substantially faster at the top than at 

the middle and faster at the middle than at the bottom of 

the wage distribution. Thus, both dispersion in the top 

half of the distribution (as measured by the ratio of the 

90th percentile of hourly wage rates to the median) and 

dispersion in the bottom half (as measured by the ratio of 

the median to the 10th percentile of hourly wage rates) 

increased between 1979 and 2005 (see Figure 3).

However, the entire widening of the bottom half of the 

wage distribution occurred during the 1980s. In 2005, 

the 10th percentile of hourly wage rates was $7.44, and 

the median wage was $14.82, almost exactly double that 

3. The year 1979 is the first year for which the data source used for 

the analysis, the Census Bureau’s Current Population Survey, Outgoing Rotation Groups, is available. The distribution of hourly 

wage rates in the analysis includes the wages earned by all workers 

age 16 and older, including hourly workers, salaried workers, and 

part-time workers (excluding self-employed workers) and is 

weighted by the number of hours worked per week. Generally, the 

latter number is defined as usual hours worked per week, but for 

between 5 percent and 7 percent of cases in the years after 1993, 

the number of actual hours worked during the preceding week 

was used instead. See the appendix for a complete description of 

how hourly wage rates are calculated.

4. The consumer price index research series using current methods 

(CPI-U-RS) was used to inflate past wages. That series modifies 

older values of the consumer price index for all urban consumers 

(CPI-U) to incorporate more recent changes in the methods used 

to calculate the inflation rate. See www.bls.gov/cpi/cpiurstx.htm. 

The CPI-U-RS grew at a somewhat slower rate than the CPI-U, 

which had the effect of increasing the growth rate of real wages 

compared with what would have been calculated with the other 

series. 
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 5

Table 1.

Distribution of Inflation-Adjusted Hourly Wages of Workers Age 16 and Older, 

Selected Years from 1979 to 2005

Source: Congressional Budget Office based on data from the Bureau of the Census’s Current Population Surveys.

Note: Hourly wages are weighted by the hours worked per week and shown in 2005 dollars based on the research series of the consumer 

price index for urban consumers, which grew at an average annual rate of 3.6 percent between 1979 and 2005.

a. Percentiles represent the percentage of hours paid at or less than the wage shown in each year. Thus, in 1979, 10 percent of hours worked 

were paid at a rate of $7.43 or less per hour.

of the 10th percentile (as shown in Table 1). The ratio of 

the median to the 10th percentile of hourly wage rates increased by 12.4 percent during the 1980s and declined by 

2.4 percent after 1990. The top half of the wage distribution widened over the entire 1979–2005 period. The 

ratio of the 90th percentile of hourly wage rates to the 

median wage increased by 9.3 percent during the 1980s 

and another 7.2 percent after 1990. The 90th percentile 

of hourly wage rates was $33.45 in 2005, about 2.3 times 

the median wage.

The slight narrowing of the bottom half of the wage distribution after 1990 occurred during a period in which 

both the 10th percentile and the median wage outpaced 

inflation. By contrast, the widening in the bottom half of 

the wage distribution between 1979 and 1990 occurred 

in a period of slow wage growth, when the 10th percentile wage declined in real terms by 1.1 percent per year 

and the real median wage remained essentially unchanged. Between 2000 and 2005, real wages increased at 

the 10th, 50th, and 90th percentiles. However, wages at 

the 10th percentile did not rise as fast as they had during 

the 1990s and did not rise as fast as the median real wage. 

Consequently, dispersion in the bottom half of the wage 

distribution increased slightly over the period, somewhat 

offsetting the narrowing that occurred during the 1990s. 

Two important caveats apply to this discussion of changes 

in the distribution of wage rates. First, changes in the 

10th percentile of the wage distribution over time, for example, should not be confused with changes in the 

hourly wage rates received by individual workers who 

were initially paid a wage equal to the 10th percentile because workers receiving an hourly wage at any given percentile of the wage distribution are not the same workers 

from year to year. Workers at the bottom of the wage distribution, particularly young workers, typically see their 

wages grow rapidly in real terms as they acquire job experience or skills (see Box 1 on page 8).

Second, trends in the distribution of hourly wage rates 

can—and do—differ from trends in the distribution of 

annual earnings of workers or the distribution of annual 

incomes of households. In fact, while the bottom half of 

the individual earnings distribution narrowed substantially between 1979 and 2005, the bottom half of the

1979- 1990- 1990- 2000- 1979-

1979 1990 1994 2000 2005 1990 2000 2005 2005 2005

Percentilesa (Wages in 2005 dollars) 

 10th 7.43 6.60 6.54 7.35 7.44 -11.1 11.3 12.8 1.3 0.2

 50th 13.47 13.46 13.19 14.38 14.82 -0.1 6.8 10.1 3.1 10.0

 90th 25.97 28.35 28.98 31.79 33.45 9.2 12.1 18.0 5.2 28.8

Ratios

50th to 10th percentile 1.81 2.04 2.02 1.96 1.99 12.4 -4.1 -2.4 1.8 9.8

90th to 50th percentile 1.93 2.11 2.20 2.21 2.26 9.3 5.0 7.2 2.1 17.1

90th to 10th percentile 3.50 4.30 4.43 4.33 4.49 22.8 0.7 4.6 3.9 28.5

Percentage Change
6 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Figure 3.

Ratio of the 90th to the 50th and the 50th to the 10th Percentiles of Hourly

Wages, 1979 to 2005

(Ratio)

Source: Congressional Budget Office based on data from the Bureau of the Census, Current Population Surveys, 1979 to 2005. 

household income distribution widened between 1979 

and 1983 but not afterward (see Box 2 on page 10).5

What Accounts for the Changes in the Bottom 

Half of the Wage Distribution?

As noted above, dispersion in the bottom half of the 

hourly wage distribution increased between 1979 and 

1990 and decreased between 1990 and 2005. The 

Congressional Budget Office (CBO) conducted an analysis to determine what part of those changes in dispersion 

was accounted for by changes in each of the following 

factors: the education, age, and sex composition of the 

workforce; the distribution of wages within each group of 

workers defined by their level of education, age, and sex; 

and differences in median wages among those groups (see 

Table 2). Age is used as it is a proxy for the labor market 

experience of workers. Although it is a good proxy for 

most workers, it is less good for workers who have spent 

time out of the labor force for reasons such as childrearing. The analysis separated the workforce into 32 groups 

based on four categories of educational attainment (less 

than 12 years of schooling, a high school diploma or the 

equivalent, some college, and a college degree), four age 

categories (ages 16 to 24, 25 to 44, 45 to 64, and 65 and 

older), and sex.6 The appendix provides more detail and 

an explanation of the methodology. 

The analysis revealed that several factors explain the increased dispersion in wages in the bottom half of the distribution during the 1980s and the slight decrease afterward. The characteristics of the workforce changed 

significantly: education levels increased, women increased 

their share of work, and the workforce grew older. Those 

compositional changes alone would have somewhat increased dispersion in the bottom half of the wage distribution both during the period from 1979 to 1990 and 

the period from 1990 to 2005. Another contributing factor was demand- and supply-related changes in the median wages paid to different groups of workers: the median wages of groups of college graduates rose relative to

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

0.0

1.5

2.0

2.5

50th to 10th Percentile

90th to 50th Percentile

0

5. See also Peter Gottschalk and Sheldon Danziger, “Inequality of 

Wage Rates, Earnings, and Family Income in the United States, 

1975–2002,” Review of Income and Wealth, vol. 51, no. 2 (2005), 

pp. 231–254.

6. It would have been desirable to further subdivide the workforce 

by nativity. Foreign-born workers typically have poorer Englishlanguage skills than native-born workers, which may affect their 

wage rate. However, information on nativity did not become 

regularly available until 1994. Foreign-born workers are briefly 

discussed in the next section, on the characteristics of workers in 

low-wage jobs; see also Box 3 for a discussion of the effect of the 

increase in foreign-born workers since 1994 on changes in the distribution of wages.
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 7

Table 2.

Sources of Change in the Bottom

Half of the Hourly Wage Distribution, 

1979 to 2005

(Percentage change)

Source: Congressional Budget Office based on data from the 

Bureau of the Census’s Current Population Surveys, 1979, 

1990, and 2005.

Notes: Change is measured as the percentage change in the ratio of 

the 50th to the 10th percentiles of hourly wages. (The 

appendix describes the methods used to develop the estimates for this table.)

* = change of less than 0.1 percent.

a. Resulting from changes in the distribution of wages within each 

worker subgroup (defined by level of education, age, and sex).

b. Change in the ratio if the composition of the workforce had 

changed but the distribution of wages within each subgroup had 

stayed the same.

c. Change in the ratio if the median wages in each subgroup had 

changed but the distribution within each subgroup had stayed 

the same.

those of high school graduates, while the median wages of 

groups of high school dropouts fell relative to those of 

high school graduates. Those between-group changes 

alone also would have increased wage dispersion during 

both periods. 

By far, however, most of the increase in wage dispersion 

in the 1980s, and all of the subsequent decrease, occurred 

within groups of workers defined by education, age, and 

sex. For example, the dispersion in wages among men 

ages 45 to 64 with a high school education was larger in 

1990 than it was in either 1979 or 2005. The analysis 

showed that such “within-group” variations were more 

important in accounting for the changes in the bottom 

half of the wage distribution than were changes in the 

sizes of the various groups or in each group’s median 

wage. 

The variation in within-group dispersion probably stems 

from variation in how employers value workers’ skills and 

attributes distinct from those associated with measurable 

characteristics. Such abilities might include problemsolving skills, interpersonal skills, or persistence. The 

value of those abilities, which employers discern and reward but are not measured in survey data, might be based 

on employers’ demand for or in the supply of those abilities within groups of workers.7 The evidence that those 

skills are distinct from those related to education and age 

is further supported by the fact that, in contrast to trends 

in within-group dispersion, the returns to education and 

age increased over the entire 1979–2005 period. 

Changes in Within-Group Wage Dispersion. As with the 

overall dispersion of wages, changes in the dispersion 

within the 32 groups defined by education, age, and sex 

led to an increase in the overall dispersion of wages in the 

period up to 1990 and led to a decrease thereafter and accounted for most of the widening in the bottom half of 

the wage distribution during the 1980s. 

Between 1990 and 2005, as dispersion in the bottom half 

of the wage distribution narrowed slightly (by 2.4 percent), reductions in within-group wage dispersion alone 

would have narrowed it even more (by 4.1 percent) (see 

Table 2). The reversal after 1990 suggests that workers’ 

skills are multidimensional and cannot simply be explained by education and experience. Moreover, changing

1979- 1990-

1990 2005

8.6 -4.1

1.6 1.0

Education 3.5 1.0

Age * *

Sex -1.9 *

2.2 0.7

Total 12.4 -2.4

Within-Groupa

Compositionb

Between-Groupc

7. Similar explanations for variation in within-group wage dispersion 

have been made by Lawrence F. Katz and Kevin M. Murphy, 

“Change in Relative Wages: 1963–1987: Supply and Demand 

Factors,” Quarterly Journal of Economics, vol. 107, no. 1 (1992), 

pp. 35–78; and Chinhui Juhn, Kevin M. Murphy, and Brooks 

Pierce, “Wage Inequality and the Rise in Returns to Skill,” Journal 

of Political Economy, vol. 101, no. 3 (1993), pp. 410–442. Other 

researchers such as David Card and John DiNardo (“Skill-Biased 

Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics, vol. 20, no. 4 

[2002], pp. 733–783) argue that rising within-group wage dispersion was an episodic event better explained by changes in institutional factors such as the decline in the real value of the minimum 

wage. Thomas Lemieux (“Increased Residual Wage Inequality: 

Composition Effects, Noisy Data, or Rising Demand for Skill?” 

American Economic Review, vol. 96, no. 3 [2006], pp. 461–498) 

argues that growth in overall wage inequality was largely due to 

compositional effects linked to increases in experience and

education.
8 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Box 1.

Growth in the Wages of Individuals in Low-Wage Jobs

Most workers have their real (inflation-adjusted) 

hourly wage rate grow over time. For instance, over a 

36-month period beginning in late 2000, half of 

workers experienced real wage growth of 4.8 percent 

or more (see the table). In comparison, the median 

wage for all workers in 2003 was 3.6 percent higher 

than the median wage for all workers in 2000. Thus, 

changes in the distribution of hourly wage rates do 

not necessarily reflect the growth over time in the 

hourly wage rates received by any particular worker. 

The amount of individual wage growth can vary 

widely on the basis of a number of factors, including 

characteristics of the worker, such as age, experience, 

and education, and may vary over the business cycle. 

Younger workers tend to experience larger wage 

growth than older workers. Younger workers’ larger 

wage growth may be partially due to the fact that 

many of them are completing their education, potentially moving from low-wage work (often associated 

with the flexible schedule required to attend school) 

to full-time employment after graduation. Attaining 

a degree, in and of itself, is also likely to contribute to 

upward mobility in hourly wage rates. In addition, as 

young workers (regardless of educational attainment) 

age, they gain valuable experience quickly, resulting 

in relatively large wage increases for some. 

Growth in an individual’s wages can also vary by 

other characteristics of the worker or by characteristics of the firm. For example, an individual’s attitude 

toward work or the suitability of the job match can 

affect wage growth, as can the size of the firm or the 

nature of the industry.1

Wage Growth of Workers Age 16 and Older, by 

Age and Initial Position in the 

Wage Distribution,

1996 to 1999 and 2000 to 2003

Source: Congressional Budget Office based on data from the 

1996 and 2001 panels of the Bureau of the Census's 

Survey of Income and Program Participation.

Note: The sample comprises individuals age 16 or older in the 

first month of each panel for whom an hourly wage can 

be determined in both the 1st and 36th months of the 

panel. The hourly wage is the reported hourly wage 

associated with the job for which the individual reports 

the highest earnings in that month. If an hourly wage is 

not reported, one is calculated by dividing earnings at 

that job by the multiple of usual hours worked per week 

at that job and number of weeks in that month. Wages 

are inflated to 2005 dollars using the research series of 

the consumer price index for urban consumers.

a. Month 1 of observation is between December 1995 and 

March 1996, inclusive; month 36 is between November 

1998 and February 1999, inclusive.

b. Month 1 of observation is October 2000 to January 2001, 

inclusive; month 36 is September 2003 to December 2003, 

inclusive.

c. Individuals are ranked by their hourly wage in month 1 of 

the panel; wage growth is the percentage growth in hourly 

wages from month 1 to month 36. Increases are calculated 

at approximately the percentiles indicated.

1. For evidence on the earnings growth of individuals with low 

earnings (closely related to the wage growth of individuals in 

low-wage jobs), see Fredrik Andersson, Harry J. Holzer, and 

Julia I. Lane, Moving Up or Moving On: Who Advances in the 

Low-Wage Labor Market? (New York: Russell Sage Foundation, 2005).

(Percent)

All Workers 8.3 4.8

Age

16 to 24 25.7 14.9

25 to 44 8.3 4.9

45 to 64 3.6 2.3

65 and older 3.9 0.6

Wage Distribution Positionc

10th percentile 31.8 18.8

50th percentile 5.2 3.8

90th percentile 0.6 -1.9

2000 to

2003b

1996 to

1999a
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 9

employer demand for unmeasured skills can have a different pattern from changing demand for educated workers. 

One possibility, which requires more investigation by researchers, is that computerization has enhanced the demand for nonroutine cognitive work (which pays high 

wages), reduced the demand for routine cognitive work 

(which pays average wages), and had little effect on the 

demand for nonroutine manual work (which pays low 

wages). That explanation would be consistent with the 

continuation of increasing top-half dispersion and the 

slowing or decreasing of bottom-half dispersion in 

wages.8

Compositional Changes in the Workforce. As mentioned 

above, the changes in the composition of the workforce 

based solely on educational attainment, age, and sex 

would have increased the dispersion in wages during both 

the 1979–1990 period and the 1990–2005 period. Specifically, such changes can account for 1.6 percentage 

points of the 12.4 percent widening of the bottom half of 

the wage distribution between 1979 and 1990.9 That is, 

had the distribution of wages both within and among the 

32 education, age, and sex categories remained in 1990 

what they were in 1979, the ratio of the median to the 

10th percentile of real hourly wage rates would have increased by only 1.6 percent. 

That 1.6 percentage-point increase represents the net 

contribution of the changing education, age, and sex 

Box 1.

Continued

Wage growth also varies by position in the wage distribution. In both the late 1990s and early 2000s, individuals with low wages experienced substantially 

higher wage growth than those at the median or at 

the 90th percentile of wages. Across the distribution, 

hourly wages rates grew faster during the late 1990s 

than in the early 2000s. 

Growth in hourly wage rates may appear higher 

among workers with initially low wage rates because 

of measurement error or transitory fluctuations in 

hourly wage rates, but analyses indicate that the issue 

is probably a small concern. First, wage growth 

among workers paid on an hourly basis (for whom 

hourly wage rates are less likely to be measured with 

error) was similar to that for all workers (as reported 

in the table). Second, categorizing workers' position 

in the wage distribution using a month other than 

those used to calculate the 36-month growth in 

hourly wage rates, moreover, leads to only a slight reduction in that growth.2

Increases in workers’ wages may be due to pay increases at the same job or transitions to different jobs 

with higher wages. Increases in wages at the same job 

are often associated with increases in experience and 

skills specific to that employer; increases in wages after a job transition are often associated with a new 

firm or position for which a worker is better suited. 

Of course, a worker might also experience declining 

real wages if, for instance, pay increases do not keep 

pace with increasing prices or if a job change is associated with a decrease in pay, perhaps due to the closing 

of a plant where the worker had job seniority.

2. In particular, workers' position in the wage distribution was 

determined in the fifth month, as opposed to in the first 

month (their initial hourly wage rate). That change eliminates any mechanical relationship between wage growth 

between the first and 36th month and initial wages that 

might be the result of measurement error in the hourly wage 

rate reported in the first month. However, those calculations 

also shorten the period over which a worker could move out 

of low-wage work, which also would tend to reduce the 

amount of observed wage growth.

8. David Autor, Lawrence Katz, and Melissa Kearney, Polarization of 

the U.S. Labor Market, Working Paper No. 11986 (Cambridge, 

Mass.: National Bureau of Economic Research, January, 2006).

9. Between 1979 and 2005, the percentage of workers who were 

women increased from 40 percent to 45 percent. The percentage 

of workers ages 16 to 24 declined from 22 percent to 13 percent. 

The percentage of workers with a bachelor’s degree increased from 

19 percent to 31 percent, and the percentage with less than a high 

school education declined from 22 percent to 11 percent.
10 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Box 2.

The Distribution of Workers’ Annual Earnings and

Household Income 

While hourly wage rates are a useful indicator of the 

supply and value of workers’ skills in the labor market, annual earnings and household income are 

arguably better indicators of overall economic wellbeing.1

 On the one hand, dispersion in the earnings 

distribution has narrowed since 1979 (with earnings 

at the 10th percentile increasing more quickly than 

earnings at the 50th or 90th percentiles); on the 

other, dispersion in the adjusted household income 

distribution has widened over the same time period.

A worker’s total annual earnings are determined by 

both the hourly wage rate and the number of hours 

worked per year. Therefore, it is generally not the case 

that a worker at the 10th percentile of wages, for instance, will also be at the 10th percentile of earnings.2

Low-wage workers can have relatively high earnings if 

they work many hours, and, conversely, high-wage 

workers can have relatively low earnings if they work 

very few hours. 

Between 1979 and 2005, earnings at the 10th percentile more than doubled, while those at the median 

increased by approximately 25 percent (see the top 

panel of the figure). The relative earnings growth of 

those at the 10th percentile as compared with those 

at the 50th percentile resulted primarily from large 

relative increases in the annual hours worked, driven 

by increases in the number of weeks worked (as opposed to the number of hours per week) for those at 

the 10th percentile. Thus, dispersion in the bottom 

half of the earnings distribution narrowed between 

1979 and 2005. 

Household income is a broader measure of the resources shared by members of a household than the 

individual worker’s earnings.3

 Household income implicitly distributes a worker’s earnings among members of the household. In addition, it includes a share 

of the earnings of other family members as well as unearned income. 

During the past 25 years, dispersion in the adjusted 

household income of workers increased in both the 

bottom and top halves of the distribution, as it increased more at the median than at the 10th percentile and more at the 90th percentile than at the median (see the bottom panel of the figure). Dispersion 

in the bottom half of the income distribution of 

workers has widened only slightly since 1983; most 

of the widening observed between 1979 and 2005 

occurred between 1979 and 1983.

1. Annual earnings, like the hourly wage rate, do not capture 

noncash benefits, such as health insurance (both public and 

private); in-kind transfers, such as food stamps; or income 

received through the tax system, such as that received from 

refunds through the earned income tax credit.

2. If all workers put in the same number of hours per year, the 

individual at the 10th percentile of wages would also be at 

the 10th percentile of earnings.

3. Household income is adjusted for household size using the 

poverty guidelines issued by the Department of Health and 

Human Services.
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 11

Box 2.

Continued

Percentage Growth in Annual Real Wage and 

Salary Earnings and in Real Household Income

(Percent)

Source: Congressional Budget Office based on the Bureau of the Census's Current Population Surveys from 1980 to 2006.

Note: Annual wage and salary earnings and annual household income are adjusted for inflation using the research series of the 

consumer price index for all urban consumers (CPI-U-RS). Annual household income is adjusted for household size using the 

poverty guidelines from the Department of Health and Human Services.

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

-20

-10

0

10

20

30

40

50

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

-20

0

20

40

60

80

100

120

50th Percentile

10th Percentile

Real Wage and Salary Earnings

50th Percentile

10th Percentile

Real Household Income

90th Percentile

90th Percentile
12 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

composition of the workforce; the individual effects of 

education and sex had somewhat offsetting effects on the 

wage distribution. On the one hand, the effect of an increase in the education level of the workforce alone would 

have led to a 3.5 percent widening of the bottom half of 

the wage distribution, mostly because there was more dispersion in the wages of more educated workers. On the 

other hand, the effect of an increasing female share of the 

workforce alone would have reduced the ratio of the median to the 10th percentile of real hourly wage rates by 

1.9 percent, primarily because there was less wage dispersion among women than among men. 

Between 1990 and 2005, compositional changes alone 

would have led to a slight (1.0 percent) widening of the 

bottom half of the wage distribution in contrast to the 

slight (2.4 percent) narrowing of the wage distribution 

that actually occurred.

Differences in Median Wages Paid to Groups of Workers. 

As with changes in the composition of the workforce, 

changes in the differences in the median wages among the 

32 groups of workers defined by education, age, and sex 

would have somewhat increased the dispersion in wages 

during both the 1979–1990 period and the 1990–2005 

period. In particular, changes in the differences in typical 

wages among the 32 groups can account for 2.2 percentage points of the 12.4 percent increase in wage dispersion 

between 1979 and 1990. During the period, there were 

growing differences in median wages between college 

graduates and workers with less education, although 

those differences were muted by a decrease in the difference in median wages between men and women. 

Differential changes in median wages among groups 

would have led to a 0.7 percent increase in the ratio of the 

median to the 10th percentile of real hourly wage rates 

between 1990 and 2005. The difference between the median wages of men and women continued to narrow during the period, while the differences between the median 

wages of college graduates and those with less education 

continued to widen. 

Researchers generally conclude that the rising wages of 

college graduates relative to high school graduates are due 

to increasing demand for skilled workers that more than 

offset the increasing share of workers with college degrees. 

Researchers have hypothesized that the increasing demand has been driven by new technologies that enhance 

the productivity of high-skill workers more than that of 

low-skill workers, an effect called skill-biased technological change (SBTC). Research indicates that steady SBTC 

moderated by growth in the number of college graduates 

in the labor force could largely account for differences in 

earnings between groups defined by educational attainment and labor market experience.10

Efforts to develop an empirical measure of SBTC have 

been less successful.11 Some research has used the association between the frequency of computer use at work and 

changes in wage distribution to support the idea that 

SBTC accounts for the changes.12 More-recent research 

provides evidence that as the ratio of physical to human 

capital increases, the return to skill increases, and that the 

increase in that ratio can explain the variation in the level 

of wages and the return to skill.13 The association between wages on the one hand and availability of physical 

and human capital on the other is consistent with the 

view that a major new technology, the personal computer, 

became available to employers in the late 1970s followed 

by its gradual, widespread adoption in workplaces. 

Review of the Research Literature on Changes in the 

Wage Distribution

Many researchers have sought to identify the causes of 

changes in the wage distribution. Some have focused on 

market forces, such as the demand for skill just discussed 

or increasing international trade; others have focused on 

institutional factors such as the decline of union member10. Those studies are surveyed in Lawrence F. Katz and Kevin M. 

Murphy, “Change in Relative Wages: 1963–1987: Supply and 

Demand Factors,” Quarterly Journal of Economics, vol. 107, no. 1 

(1992), pp. 35–78; and David F. Autor, Lawrence F. Katz, and 

Melissa Kearney, Trends in U.S. Wage Inequality: Reassessing the 

Revisionists, Working Paper No. 11627 (Cambridge, Mass.: 

National Bureau of Economic Research, September, 2005).

11. For a critique of the literature, see David Card and John DiNardo, 

“The Impact of Technological Change on Low-Wage Workers: A 

Review,” National Poverty Center Working Paper Series, No. 05-

28 (November 2005).

12. Alan Krueger, “How Computers Have Changed the Wage 

Structure: Evidence from Microdata, 1984–1989,” Quarterly 

Journal of Economics, vol. 108, no. 1 (1993), pp. 33–60; and 

Christopher H. Wheeler, “Evidence of Wage Inequality, Worker 

Education, and Technology,” Federal Reserve Bank of St. Louis 

Review, vol. 87, no. 3 (May–June 2005), pp. 375–393. 

13. Paul Beaudry and David A. Green, “Changes in U.S. Wages, 

1976–2000: Ongoing Skill Bias or Major Technological Change,” 

Journal of Labor Economics, vol. 23, no. 3 (2005), pp. 609–648.
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 13

ship and changes in the level of the real federal minimum 

wage.14

That body of research presents no single cause for the 

changes in the wage distribution—the patterns are too 

disparate. If increased employer demand for educated 

workers, perhaps due to technological change, were the 

sole explanation, one might have expected to observe increases in the differences between education groups and 

in the dispersion within groups in both the 1980s and the 

1990s. By contrast, within the 32 groups categorized by 

education, age, and sex, the dispersion in wages below 

the median increased during the 1980s and decreased 

somewhat afterward, while the differences in median 

wages widened between education groups and narrowed 

between gender groups over the entire 1979–2005 

period.15

Although most researchers interpret variations in withingroup wage dispersion as resulting from changes in employer demand for workers’ skills distinct from education 

or experience, they also acknowledge the possibility that 

such variations arise from changes in the supply of those 

skills.16

Institutional factors may also have influenced the distribution of wages but, if so, their effects were probably limited to the 1980s. For example, some research has linked 

the widening bottom half of the wage distribution to declines in the real value of the federal minimum wage in 

the early 1980s.17 High rates of inflation at that time effectively reduced the real level of the minimum wage and 

may have allowed real wages at the 10th percentile to fall, 

leading to greater differences between the 10th percentile 

and median wages.18 Moreover, a declining real value of 

the minimum wage may have led to increases in the 

number of low-wage jobs and thus widened the wage

distribution. 

However, the declining real value of the minimum wage 

works less well in explaining movements in the 10th percentile of wages between the mid-1980s and 2005, as the 

federal minimum wage had declined to real levels well below the 10th percentile. 

Research has found that labor unions tend to increase the 

hourly wage rates of low-skill and less-educated workers, 

though that tendency alone may or may not lead to reduced dispersion in hourly wage rates depending upon 

the extent to which unionization shifts employment toward sectors not covered by union contracts and the extent to which unionization reduces overall employment.19 Many economic studies have found that unions 

have in fact reduced wage dispersion, and, in particular, 

some have suggested that the decline in unionization during the 1980s may have contributed to increased wage 

dispersion then.20

The Characteristics of Low-Wage

Jobs and of Workers in Those Jobs 

Thus far, this paper has documented the variation in the 

bottom half of the wage distribution and determined that 

only a small amount of it can be explained by changes in 

the education, age, and sex composition of the workforce. 

Most of the variation is instead the result of changes in 

the within-group distribution of wages.

14. Those studies are surveyed in Katz and Autor, “Changes in the 

Wage Structure and Earnings Inequality.”

15. Autor, Katz, and Kearney, “Trends in U.S. Wage Inequality.”

16. See Katz and Murphy, “Change in Relative Wages: 1963–1987”; 

and Juhn, Murphy, and Pierce, “Wage Inequality and the Rise in 

Returns to Skill.”

17. David Lee, “Wage Inequality in the United States During the 

1980s: Rising Dispersion or Falling Minimum Wage,” Quarterly 

Journal of Economics, vol. 114, no. 3 (1999), pp. 977–1023; and 

Card and DiNardo, “Skill-Biased Technological Change and Rising Wage Inequality.”

18. In 1979, the real value of the minimum wage was $7.20, less than 

$0.25 below the 10th percentile of hourly wage rates that year. By 

1990, the real value of the minimum wage had fallen to $5.07, 

well below the 10th percentile of hourly wage rates, which was 

$6.60.

19. H. Gregg Lewis, Union Relative Wage Effects (Chicago: University 

of Chicago Press, 1986); David Card, “The Effect of Unions on 

the Structure of Wages,” Econometrica, vol. 64, no. 4 (1996), pp. 

957–979; and David Blanchflower and Alex Bryson, “What 

Effects Do Unions Have on Wages Now and Would Freeman and 

Medoff Be Surprised?” Journal of Labor Research, vol. 25, no. 3 

(2004), pp. 383–414.

20. See, for example, David Card, “The Effect of Unions on Wage 

Inequality in the U.S. Labor Market,” Industrial and Labor Relations Review, vol. 54, no. 2 (2001), pp. 296–315; and John 

DiNardo, Nicole Fortin, and Thomas Lemieux, “Labor Market 

Institutions and the Distribution of Wages, 1973–1992: A Semiparametric Approach,” Econometrica, vol. 63, no. 5 (1996), pp. 

1001–1044.
14 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Figure 4.

Hourly Wages at the 10th and the 20th Percentiles, 1979 to 2005

(2005 dollars)

Source: Congressional Budget Office based on the Census Bureau’s Current Population Surveys from 1979 to 2005.

Note: Hourly wages were adjusted for inflation using the research series for the consumer price index for all urban consumers (CPI-U-RS).

If changes in the composition of the workforce provide 

little explanation for the changing wage distribution, 

what other changes in the low-wage labor market might 

be responsible? The answer to that question may lie in 

changes in the characteristics of both low-wage jobs and 

the workers in those jobs during the period under consideration.

For this portion of the analysis, low-wage jobs are identified as those paying wages in the bottom 20 percent of 

the wage distribution. In 2005, the 20th percentile of 

hourly wages was roughly $9.00 and the 10th percentile 

was about $7.50 (see Figure 4).

Characteristics of Low-Wage Jobs

An understanding of the characteristics of low-wage jobs 

can help explain why they generally pay low wages. The 

level of compensation in a job is determined by a combination of factors, including, most importantly, the market value of the additional products and services firms can 

sell through the employment of an additional worker, 

and the number of people available and able to take the 

job. Other factors can matter as well. They include how 

difficult it is for firms to pass on higher wage costs to the 

consumers of their products, how large a share of total 

production costs workers represent, and how easy it is to 

substitute a worker with either machinery or a different 

type of worker. Institutional factors such as occupational 

certification and perhaps labor unions that limit the supply of workers to an occupation can lead to higher wage 

levels in that occupation. Finally, in addition to those extrinsic factors, jobs that pay low wages typically entail 

manual or other routine work and little supervisory or 

decisionmaking authority. 

A substantial fraction of jobs characterized by those criteria are found in a small number of sectors and in a small 

number of occupations. In 2005, 42 percent of low-wage 

work was with employers in six sectors: food service and 

drinking places, agriculture, private households, personal 

and laundry services, accommodation, and retail trade.21

By contrast, only 10 percent of work paying above-median wages was in those six sectors. Jobs in food preparation and serving occupations accounted for 16 percent of 

low-wage work in 2005, compared with 4 percent of 

work compensated at wages between the 20th and 50th 

percentiles and less than 1 percent of work paying above1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

0

5

6

7

8

9

10

20th Percentile

10th Percentile

21. Those sector designations are from the Census Bureau’s 2002 

occupational and industry classification systems, which the 

Current Population Survey adopted in January 2003. Information 

about the sectors and the occupations they covered is available at 

www.census.gov. 
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 15

median wages (see Table 3).22 Jobs in building and 

grounds cleaning and maintenance; personal care and service;23 health care support; farming, fishing, and forestry; 

and sales and related occupations also accounted for a 

substantial portion of low-wage work. In 2005, those six 

occupational groups made up 51 percent of low-wage 

work, compared to 25 percent of work paying wages between the 20th and 50th percentiles. 

While some occupations saw increases and others decreases, the overall share of work in occupations with

a large share of low-wage work remained relatively unchanged between 1983 and 2002 (see Table 4).24 Lowwage jobs among administrative support staff, personal 

service providers, and motor vehicle operators gained 

shares, while low-wage jobs among machine operators 

and farm workers lost shares. Overall, the share of lowwage work in the 10 occupations that employed the largest shares of low-wage work was 64.3 percent in 2002, 

down only slightly from 65.6 percent in 1983. 

Low-wage work is relatively more likely to be part time 

(defined by the Bureau of Labor Statistics as less than 35 

hours per week). In 2005, 24 percent of low-wage work 

was part time compared with 8 percent of work paying 

slightly higher wages (see Table 3).25 Some part-time jobs 

may pay lower wages because they impose greater perhour costs on employers. For example, fixed costs, such as 

training costs, will be spread out over fewer hours for 

part-time work, which may lead employers to compensate by paying part-time workers less per hour.26

Survey data indicate that most part-time work is selected 

by the employee for noneconomic reasons rather than because of a lack of full-time employment opportunities.27

And workers who prefer part-time jobs or jobs with flexible hours are more likely to be willing to accept lower 

wages in exchange for that flexibility.

Almost 80 percent of low-wage jobs are paid on an hourly 

basis, compared with less than 40 percent of jobs paying 

above-median wages.28 One explanation for that relationship is that less well compensated workers may require more monitoring, and paying employees on an 

hourly basis is one way employers monitor them.29

Characteristics of Workers in Low-Wage Jobs

The characteristics, including skill levels, of workers in 

low-wage jobs can help explain why some workers receive 

low wages. Three observable characteristics of workers are 

often used as an indication of their skills: educational attainment, age, and nativity, while another, sex, is associated with wage levels. 

B Educational attainment is associated both with the 

ability to learn job skills and with specialized knowledge acquired in school, and workers with little education are often in low-wage jobs. For example, in 2005, 

51 percent of those with less than a high school degree 

were in low-wage work (see Table 5). 

B Age is associated with work experience and the skills 

that come with that experience; thus, young workers, 

who are likely to have less experience, tend to earn 

lower wages. In 2005, 53 percent of all workers between the ages of 16 and 24 earned low wages. 

22. Some workers paid wages in the bottom 20 percent of the wage 

distribution may receive tip income in addition to their base 

hourly wage. In the Current Population Survey, tip income is not 

included in the hourly wage rates of hourly workers but is 

included in the hourly wage rates of nonhourly workers. But the 

analysis is unlikely to be affected by missing tip income. In particular, if all subminimum wages were raised to the minimum wage 

or if the hourly wage rates of workers in food service reporting a 

wage below the federal minimum were doubled, neither the 10th 

percentile nor the median hourly wage rates would change. 

23. Personal care and service occupations include barbers, hairdressers, child care workers, and recreation and fitness workers.

24. Those are the first and last years for which a consistent definition 

of occupations is available. Noncomparable occupation classifications were used before and after those years.

25. All statistics are weighted by weekly hours. The percentage of lowwage jobs that are part time, weighted by workers, is 35 percent, 

compared with 17 percent of all jobs.

26. See Yorem Barzel, “The Determination of Daily Hours and 

Wages,” Quarterly Journal of Economics, vol. 87, no. 2 (1973), 

pp. 220–238.

27. In 2005, 86 percent of part-time work was selected for noneconomic reasons.

28. The percentage of low-wage jobs paid on an hourly basis is 

weighted by weekly hours. The figure is 83 percent when 

weighted by the number of workers.

29. See James B. Rebitzer, “Is There a Trade-Off Between Supervision 

and Wages?” Journal of Economic Behavior and Organization, vol. 

28, no. 1 (1995), pp. 107–129.
16 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Table 3.

Characteristics of Work, by Level of Hourly Wages, 2005

(Percent)

Source: Congressional Budget Office based on data from the Bureau of the Census’s Current Population Survey, 2005.

Note: n.a. = not applicable.

a. Jobs that require union membership or are covered by union contracts.

b. Of the jobs in this category, 40 percent are in food preparation and serving, and workers may receive additional tip income. Forty-four percent are not paid on an hourly basis, and the low rate of pay may stem from jobholders’ working a large number of hours.

c. These occupations and sectors have the highest concentration of low-wage work. That is, they rank highest in terms of the percentage of 

their workers who are paid low wages.

24.2 8.0 3.7

78.8 71.9 38.0

9.5 13.9 20.4

6.4 11.4 19.1

Low Hourly Wages

10.0 n.a. n.a.

11.7 n.a. n.a.

22.0 n.a. n.a.

29.9 n.a. n.a.

26.3 n.a. n.a. _____ ___ ___

Total, Low Hourly Wages 100.0 n.a. n.a.

Selected Occupationsc

15.9 4.1 0.7

7.5 4.1 1.1

5.6 2.5 0.8

4.0 3.5 0.6

2.4 0.7 0.1

15.2 9.6 8.9

____ ____ ____

 Total, Selected Occupations 50.6 24.5 12.2

Selected Sectorsc

15.5 3.9 1.3

2.3 0.8 0.2

1.3 0.5 0.1

2.1 1.1 0.5

2.4 1.3 0.6

18.6 12.7 7.4

____ ____ ____

Total, Selected Sectors 42.2 20.3 10.1

Paid Hourly

Less Than the 20th 

(Between $9.07 and $14.82) ($14.82)

Part-Time

Percentile ($9.07)

Level of Hourly Wages

Between the 20th Percentile

$7.15 to $8.14

$8.15 to $9.07

Food preparation and serving

Uniona

 and the Median More than the Median

Government Agency

Less than $5.15b

$5.15 to $6.14

$6.15 to $7.14

Building and grounds cleaning and maintenance

Personal care and service

Health care support

Farming, fishing, and forestry

Sales and related occupations

Food services and drinking places

Agriculture

Private households

Personal and laundry services

Accommodation

Retail trade
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 17

Table 4.

Distribution of Work Among Occupational Groups by Level of Wages, 

Selected Years from 1983 to 2002

Source: Congressional Budget Office based on the Bureau of the Census’s Current Population Surveys.

Notes: Occupational groups are listed in descending order of the percentage of low-wage work in the occupation in 1983, 1990, 1992, 1994, 

1997, and 2002 combined. The years 1983 and 2002 are the first and last years that the 1980 occupational classification was used in 

the Current Population Survey. (This occupational classification system differs from that in Table 3.)

n.a. = not applicable.

a. Paid less than the 20th percentile hourly wage.

b. Rank among 45 occupational groups.

B Some people, especially women and students, may 

prefer jobs that offer the greater flexibility of a parttime schedule or are close to home. In 2005, 24 percent of work by women was low-wage work (which by 

the definition adopted in this analysis is 20 percent of 

all work), while 68 percent of work by students between the ages of 16 and 24 was low-wage work.30

B In 2005, 30 percent of work by people born outside 

the United States was low-wage work. However, 44 

percent of work by people born in Mexico or Central 

America was low-wage work. Two factors directly affect foreign-born workers’ wage levels: those workers 

are less likely to speak English fluently, and the education they received in their home country may be less 

relevant in the U.S. labor market. In addition, foreignborn workers’ employment opportunities are likely to 

be limited if they are not legally authorized to work.31

However, the number of years in the United States is

1983 1992 2002 1983 1992 2002

14.6 1 14.4 1 15.0 1 4.2 4.2 4.3 70 70 69

12.5 2 12.4 2 12.0 2 4.5 4.4 4.4 55 57 55

 7.0 4 7.7 3 8.1 3 7.4 8.6 8.4 19 18 19

7.4 3 6.7 4 4.5 5 6.1 4.8 3.4 24 28 26

5.4 6 5.4 5 5.0 4 2.6 2.5 2.2 41 44 44

5.4 5 5.0 6 4.2 7 1.8 1.7 1.5 60 60 55

Helpers, and Laborers 3.8 9 3.8 7 3.9 8 2.2 2.0 1.9 34 39 42

3.8 8 3.6 9 4.3 6 1.8 1.9 2.1 42 40 41

3.0 10 3.7 8 3.9 9 1.1 1.4 1.5 55 54 51

2.8 13 3.5 10 3.4 10 3.3 3.5 3.5 17 20 19 ____ ____ ____ ____ ____ ____

Total 65.6 n.a. 66.2 n.a. 64.3 n.a. 34.9 34.9 33.2 n.a. n.a. n.a.

Food Service

Sales Workers, Retail and Personal Service

Machine Operators and Tenders, 

Personal Service

Motor Vehicle Operators

Excluding Precision

Health Service

Other Handlers, Equipment Cleaners, 

That Is Paid Low

All Work

Percentage of

Hourly Wagesa

Percentage of

All Work in Group

Percentage of Work Paid Low Hourly Wagesa

Occupational Group

Cleaning and Building Service

Farm Workers and Related Occupations

Clerical

Other Administrative Support, Including

Percent Percent Percent Rankb

1992 2002

Rankb Rankb

1983

30. See June O’Neill, “The Gender Gap in Wages Circa 2000,” American Economic Review, vol. 93, no. 2 (May 2003), pp. 309–314; 

June O’Neill, “The Trend in the Male-Female Wage Gap in the 

United States,” Journal of Labor Economics, vol. 3, no. 1 (1985), 

pp. 91–116; Mark Montgomery and James Cosgrove, “Are PartTime Women Paid Less? A Model with Firm-Specific Effects,” 

Economic Inquiry, vol. 33, no. 1 (1995), pp. 119–133; and Christy 

Spivey, “Time Off at What Price? The Effects of Career Interruptions on Earnings,” Industrial and Labor Relations Review, vol. 59, 

no. 1 (2005), pp. 119–140. 

31. While the legal status of foreign-born workers is not available in 

the data, their citizenship is. In 2005, 34 percent of noncitizens 

were paid low wages compared with 16 percent of naturalized citizens. The median wage among noncitizens in the United States 

for more than five years was $10.92, compared with $15.27 

among naturalized citizens. 
18 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Table 5.

Share of Workers with Selected Characteristics by Level of Hourly Wages, 

Selected Years from 1979 to 2005

(Percent)

Source: Congressional Budget Office based on data from the Bureau of the Census’s Current Population Surveys for selected years from 

1979 to 2005.

Note: n.a. = not applicable.

a. Paid less than the 20th percentile hourly wage. 

1979 1985 1990 1994 2000 2005

Educational Attainment

Less than high school 38 31 31 28 30 27

14 11 11 9 10 9

High school diploma or equivalent only 38 40 40 38 37 36

Age and School Status

Ages 16 to 24 44 42 38 36 33 33

n.a. 10 10 11 11 11

62 59 57 55 56 54

Nativity

Foreign born n.a. n.a. n.a. 15 21 23

n.a. n.a. n.a. 9 12 13

Educational Attainment

Less than high school 22 16 14 12 12 11

865343

High school diploma or equivalent only 38 38 36 33 31 30

Age and School Status

Ages 16 to 24 22 18 16 14 14 13

n.a. 3 3 3 3 3

40 42 44 44 45 45

Nativity

Foreign born n.a. n.a. n.a. 10 14 15

n.a. n.a. n.a. 4 5 6

Educational Attainment

Less than high school 35 39 44 48 51 51

34 38 45 50 53 51

High school diploma or equivalent only 20 22 22 23 23 24

Age and School Status

Ages 16 to 24 39 46 47 51 49 53

n.a. 67 67 70 66 68

32 28 26 25 25 24

Nativity

Foreign born n.a. n.a. n.a. 31 31 30

Born in Mexico or Central America n.a. n.a. n.a. 49 48 44

Share of Workers Who Are Paid Low Hourly Wagesa

Share of All Workers

Share of All Workers with Characteristic Who Are Paid Low Hourly Wagesa 

Born in Mexico or Central America

Sex—Female

Enrolled in school

Born in Mexico or Central America

Less than 9th grade

Enrolled in school

Less than 9th grade

Sex—Female

Sex—Female

Less than 9th grade

Enrolled in school
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 19

also strongly associated with wage levels for foreignborn workers: those who have been in the United 

States for five years or less are much more likely to be 

in low-wage jobs than those who have been in the 

United States longer.

The composition of the low-wage workforce changed between 1979 and 2005 but not always in proportion to the 

changes in the workforce as a whole. For example, the 

percentage of low-wage work done by individuals who 

had not completed high school declined by almost onethird (from 38 percent in 1979 to 27 percent in 2005). 

However, over the same period, the percentage of all 

work by that group fell by one-half (from 22 percent in 

1979 to 11 percent in 2005). Thus, in 2005 a worker 

who had not completed high school was more likely to be 

in a low-wage job than a comparable worker in 1979. 

Similarly, the percentage of low-wage work conducted by 

young workers declined substantially as the workforce 

aged but by less than their share of the workforce as a 

whole: while the percentage of low-wage work for such 

workers declined by only about 25 percent, the percentage of all work done by 16- to 24-year-olds declined by 

almost 50 percent between 1979 and 2005. The share of 

low-wage work conducted by young students did not 

change over the period, while the share conducted by 

young nonstudents fell by half.32

Among women, the pattern has been different from the 

patterns among the young and the less educated. Between 

1979 and 2005, the share of all work conducted by 

women increased by 13 percent (from 40 percent in 1979 

to 45 percent in 2005), but women’s share of low-wage 

work decreased by 13 percent (from 62 percent in 1979 

to 54 percent in 2005). Thus, a woman in 2005 was substantially less likely to be in a low-wage job than a woman 

in 1979.

Foreign-born workers’ share of low-wage jobs also increased (see Box 3 on page 22). Since 1994, the first year 

for which data for such workers are available, the percentage of low-wage work conducted by foreign-born workers 

increased by 50 percent, the same as the increase in their 

share of all work. Foreign-born workers as a whole are 

now no more likely to be in low-wage jobs than they were 

in 1994. 

The Household Income of Workers in 

Low-Wage Jobs

The fact that the 10th percentile of inflation-adjusted 

hourly wage rates is roughly the same today as it was in 

1979—about $7.50 per hour—raises the question of 

whether the economic resources available to workers 

earning low wages have changed over time. This section 

addresses the question by examining trends in the household income of low-wage earners (those earning wages in 

the bottom 20 percent of the wage distribution), the 

sources of that income, and how the income has changed 

over the past 25 years.

Household income depends not only on a worker’s 

hourly wage rate but also on the number of hours 

worked, the number and earnings of other workers in the 

household, and other sources of cash income.33

The median pretax household income of workers who 

earned an hourly wage below the 20th percentile remained relatively stable, declining by only about 2 percent (from $41,166 in 1979 to $40,156 in 2005) (see 

Table 6). By contrast, the household income of workers 

who earned wages between the 20th and 50th percentiles 

increased by 6 percent (from $48,191 in 1979 to 

$51,032 in 2005).

There are countervailing factors behind the virtually unchanged level of household income among workers who 

earn low hourly wage rates. On the one hand, real annual 

earnings among low-wage earners increased substantially 

(by 64 percent) between 1979 and 2005, primarily because the number of hours worked in 2005 was much 

higher than in 1979. The median number of hours 

worked by low-wage earners in 2005 was roughly 1,600, 

up from about 1,000 in 1979.34 On the other hand, 

32. See Congressional Budget Office, What Is Happening to Youth 

Employment Rates? (November 2004).

33. The measure of cash income considered here is pretax cash income 

(including cash transfers such as welfare benefits). Noncash benefits, such as employer-sponsored health insurance; in-kind government assistance (such as food stamps); and the treatment of 

income in the tax system, including benefits derived from the 

earned income tax credit, are not considered. 

34. One reason the hours worked per year were so much higher 

among low-wage earners in 2005 than in 1979 is that there were 

fewer young people among those workers in 2005. Young people 

typically do not work as many hours per year as older workers 

earning low wages (roughly 1,020 versus 1,920 in 2005). Nevertheless, the number of hours worked among both young and older 

workers in low-wage jobs was higher in 2005 than in 1979 

(among older workers it was up from 1,400, for example). 
20 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

earnings from other workers in the household declined. 

The median total real earnings of other adult workers in 

the household were $23,000 in 2005, down 8 percent 

from $24,900 in 1979.35

Other changes further offset the income gains that resulted from the increased hours worked. The number of 

other workers in the households of low-wage earners was 

substantially lower in 2005 than it had been for their 

counterparts in 1979; in 2005, that number averaged 1.2, 

down 11 percent from 1979.36 Furthermore, an increasing percentage of low-wage earners were either the sole or 

primary wage earner in their household. In 2005, 

26 percent of those workers were the only earner in their 

household, up from 22 percent in 1979, and 34 percent 

accounted for the majority of the earnings in the household, up from 30 percent in 1979. 

Not only were total household earnings among low-wage 

earners slightly lower in 2005 than they had been in 

1979, but other “unearned” sources of household cash income, such as cash assistance and unemployment insurance, were also lower. The median amount of unearned 

household income in 2005 was about $900 among workers in low-wage jobs—less than half of what it was in 

1979 after adjusting for inflation. 

Thus, although, on average, low-wage earners worked 

many more hours in 2005 than their counterparts did in 

1979, the median income in their households was somewhat lower. Decreases in both the number of other earners in the household and in other unearned income contributed to that decline.

35. The average earnings from other workers increased, but the 

increase in the average was due to a relatively small percentage of 

households with a high level of earnings from other workers. The 

90th percentile of earnings from other workers was $92,000 in 

2005, up from $81,000 in 1979. Other percentiles in 2005—the 

25th, 50th, and 75th—were either down from their levels in 1979 

or up only slightly. 

36. The decline in the number of adult workers did not correspond to 

an increase in the number of nonworking adults in the household; 

rather, the total number of adults in those households declined.
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 21

Table 6.

Real Household Income and Its Sources for Workers Age 16 and

Older, by Level of Hourly Wages, Selected Years from 1979 to 2005

Source: Congressional Budget Office based on data from the Bureau of the Census’s March Current Population Surveys for selected years 

from 1980 to 2006.

Notes: Wages and income are expressed in 2005 dollars based on the research series of the consumer price index for urban consumers.

The wage rate is calculated as earnings last year divided by hours worked last year. Hours worked last year is the product of weeks 

worked last year and usual hours worked per week. These measures differ from those used in Tables 1 through 5. This table is based 

on people surveyed in March 2006 and who worked at some point in the previous calendar year. The March survey is the source of

data on household income and work during the previous calendar year. Tables 1 through 5 are based on people surveyed each month 

and who worked in the previous week. This March survey is more likely to capture people who work very little over the course of a 

year.

a. The medians of the components of household income do not add up to the median of household income. At the individual worker level, 

the components of income do add up to household income. Self-employment and farm income is a component of household income but 

has a median level of zero and so is not shown.

b. "Other nonearned sources of income" include cash benefits (such as welfare and capital income) but not in-kind benefits (for example, 

food stamps) or cash transfers through the federal tax system (such as the earned income tax credit).

 37,436 41,166 40,156 

 5,659 4,887 8,011 

 1,225 1,040 1,560 

Sole earner 22 24 26 

Majority earner 30 33 34 

Average number 1.35 1.26 1.20 

Median total earnings (Dollars) 24,947 20,750 23,032 

 0.46 0.50 0.48 

 2,076 2,383 861 

 47,907 48,191 51,032 

 17,848 17,463 22,031 

 2,080 1,900 2,080 

Sole earner 24 25 30 

Majority earner 42 45 48 

Average number 1.21 1.14 1.02 

Median total earnings (Dollars) 23,700 21,765 22,682 

 0.37 0.42 0.42 

 1,413 1,260 320 

Median Pretax Household Incomea

 (Dollars)

Other Workers in Household

Average Number of Nonworking Adults in Household

Workers Whose Hourly Wages Are Between the 20th Percentile and the

Median (Between $8.18 and $14.46 in 2005)

Median Total Nonearned Incomeb (Dollars)

Earning Status in Household (Percent)

Average Number of Nonworking Adults in Household

Median Total Nonearned Incomeb

 (Dollars)

Median Annual Earnings (Dollars)

Other Workers in Household

Median Annual Hours Worked

1990 2005

Workers Whose Hourly Wages Are Below the

Median Pretax Household Incomea (Dollars)

1979

20th Percentile ($8.18 in 2005)

Median Annual Earnings (Dollars)

Median Annual Hours Worked

Earning Status in Household (Percent)
22 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

Box 3.

The Recent Growth in the Number of Foreign-Born Workers and the 

Distribution of Hourly Wage Rates

The percentage of workers in the U.S. labor force 

who are foreign born has significantly increased over 

the past 25 years. In particular, between 1980 and 

2005 the percentage from Mexico and Central America quadrupled from roughly 1.5 percent to 6 percent. Workers from those regions tend to have low 

levels of educational attainment—in 2005, half had 

not finished high school. Even after an adjustment 

for their low level of educational attainment, workers 

from those regions earn relatively low wages.1 That 

wage difference may derive, in part, from their poorer 

English language skills. In 2005, half of workers from 

Mexico and Central America indicated that they did 

not speak English or did not speak English well.2

Logically, the influx of immigrants with poor job 

skills who earn low wages could have contributed to 

the widening of the wage distribution during the 

1980s and reduced the amount of narrowing afterward. But, the Congressional Budget Office’s analysis 

suggests that, since 1994, the first year that data on 

the nativity of workers are available from the surveys 

used for this paper, the increases in the percentage of 

workers who are foreign born had little effect on the 

bottom half of the hourly wage distribution.

About 6 percent of workers in 2005 were foreign 

born and indicated that they immigrated to the 

United States in 1994 or later. Those workers tend to 

earn lower wages than those of foreign-born workers 

who have been in the United States longer and 

native-born workers. For example, in 2005 the median hourly wage of recent immigrants was $10.13, 

compared with $15.05 for native-born workers and 

foreign-born workers who came to the United States 

before 1994 (see the table to the right). Also, there 

was less dispersion in the bottom half of the distribution in the wages of recent immigrants: in 2005, the 

ratio of the 50th to 10th percentile wages was 1.53 

compared with 2.00 for natives and earlier immigrants. Adding the new arrivals to those who were already here in 1994 had virtually no effect on bottomhalf dispersion in the group. In 2005, the ratio of the 

50th to 10th percentiles was 2.00 with recent immigrants excluded, compared with 1.99 with them

included.

1. See Congressional Budget Office, The Role of Immigrants in 

the U.S. Labor Market (November 2005).

2. Foreign born workers who are not authorized to work but do 

so illegally are also likely to earn low wages.
CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005 23

Box 3.

Continued

Distribution of Hourly Wage Rates Among Workers, by Nativity and Year of Immigration, 2005

Source: Congressional Budget Office based on data from the Bureau of the Census's Current Population Survey, 2005.

Notes: Respondents' year of immigration is the one they indicated as the time they first came to the United States to stay.

However, the presence of recent immigrants in the 

labor market might affect the wages of native-born 

workers and earlier immigrants, and the preceding 

comparison makes no allowance for that possibility. 

Some studies find a negligible effect of immigration 

on the wage distribution of workers already in the 

United States. On the basis of those findings, no allowance is necessary, and one would conclude that 

the arrival of immigrants since 1994 has had no effect 

on the dispersion of wages in the bottom half of the 

distribution. 

Other studies, however, find that recent immigration 

has reduced the wages of low-wage workers significantly, particularly those who have not finished high 

school, and has had very small positive effects on the 

wages of existing workers paid higher wages. On the 

basis of those findings, one would conclude that the 

arrival of immigrants since 1994 widened the distribution of wages among earlier immigrants and 

native-born workers and, consequently, among all 

workers. The uncertainty about the impact of recent 

immigrants on the wages of other workers makes it 

difficult to conclude what the effect of the influx of 

immigrants has been on dispersion in the lower half 

of the wage distribution.

117.7 7.7 125.4

Percentiles (Wages in 2005 dollars)

10th 7.53 6.62 7.44

20th 9.34 7.46 9.07

50th 15.05 10.13 14.82

Ratio of 50th to 10th Percentile Wages 2.00 1.53 1.99

All Workers

Native-Born Workers and Foreign-Born Workers 

Foreign-Born Workers 

Number of Workers (Millions)

Who Arrived Before 1994

Who Arrived in 

 1994 or Later

Appendix: Accounting for the Sources of

Changes in the Distribution of Wages

The Congressional Budget Office’s (CBO’s) analysis 

breaks down the sources of variation in wage dispersion 

in the bottom half of the wage distribution into three 

parts: (1) changes in the education, age, and sex of workers, or the compositional effect; (2) changes in the differences between the typical wages paid to groups of workers 

defined by education, age, and sex, or the between-group 

effect; and (3) changes in wage dispersion within groups 

of workers defined by education, age, and sex, or the 

within-group effect.1

The sample is made up of workers age 16 or older. Education in 1979 is measured as a categorical variable with 

four values: having completed less than 12 years of 

school, 12 years exactly, 13 to 15 years, and 16 years or 

more. Those categories are defined slightly differently in 

1990 and 2005 because of changes in the survey: not having a high school diploma; having a high school diploma 

or the equivalent but not having attended college; having 

attended college but not having received a degree; and 

having at least a college degree. Age is also measured categorically: 16 to 24; 25 to 44; 45 to 64; and 65 and older. 

Observations are weighted by a person-weight variable 

and by the hours worked in the preceding week. 

The workers in the sample were placed in one of 32 categories, defined by the four age and four education categories described above and by sex. For example, one of the 

32 demographic categories is males, age 16 to 24, with 

less than a high school degree. For that category of 

worker, the analysis determines how much of the change 

in the overall wage distribution results from (1) the observed changes in the percentage of workers who are 

males, age 16 to 24, with less than a high school degree; 

(2) the changes in wages paid to those workers, relative to 

those for workers in other demographic groups; and (3) 

the changes in the dispersion of wages paid to workers in 

the group over time. The discussion in this paper is based 

on the aggregated contribution for all of the 32 demographic groups.

The data used for this analysis come from the Bureau of 

the Census, Current Population Survey, Outgoing Rotation Groups from 1979, 1990, and 2005. The years are 

chosen to match the analysis in the rest of the paper. 

Wages are inflated to 2005 dollars using the research series of the consumer price index for all urban consumers.

Workers’ calculated hourly wage rates are either the reported hourly wage (for the 60 percent of workers paid 

on that basis) or weekly earnings divided by weekly hours 

(for the other 40 percent of workers). For the latter 

group, the usual earnings per week divided by the usual 

hours per week was generally used. When information on 

the usual hours per week was missing (in 2005, for example, the figures were missing for 5 percent of workers not 

paid on an hourly basis), the analysis used the number of 

actual hours worked in the previous week. While that 

procedure minimizes the number of workers excluded 

1. The analysis implements a procedure that closely resembles that of 

David H. Autor, Lawrence F. Katz, and Melissa S. Kearney, Rising 

Wage Inequality: The Role of Composition and Prices, Working 

Paper No. 11628 (Cambridge, Mass.: National Bureau of Economic Research, September 2005). It extends the methods developed in Jose A.F. Machado and Jose Mata, “Counterfactual 

Decomposition of Changes in Wage Distributions Using Quantile 

Regression,” Journal of Applied Econometrics, vol. 20, no. 4 (2005), 

pp. 445–465, to more closely resemble the decompositions developed by Chinhui Juhn, Kevin M. Murphy, and Brooks Pierce, 

“Wage Inequality and the Rise in Returns to Skill,” Journal of 

Political Economy, vol. 101, no. 3 (1993), pp. 410–442. Other 

papers that conduct similar decompositions include Amanda 

Gosling, Stephen Machin, and Costas Meghir, “The Changing 

Distribution of Male Wages in the U.K.,” Review of Economic 

Studies, vol. 67, no. 4 (2000), pp. 635–666.
26 CHANGES IN LOW-WAGE LABOR MARKETS BETWEEN 1979 AND 2005

from the analysis, it introduces some noise into the calculated hourly rate of pay because the actual hours worked 

last week may differ from usual hours worked per week. 

For 14 percent to 19 percent of workers not paid on an 

hourly basis, the number of actual hours worked the previous week was different from the usual hours per week. 

Most often, those workers indicated that they worked 

part time in the previous week for various reasons but 

usually worked full time. 

Imputed data on hourly wage rates, usual weekly earnings, and usual hours worked per week were used in the 

analysis. In cases in which individuals did not provide 

complete responses to the Census Bureau interviewers, 

the bureau imputed the missing data using the information provided by a different respondent with some of the 

same characteristics, when those characteristics were 

likely to be associated with the missing data. For example, 

the earnings of a respondent with the same education, 

age, and occupation may have been used to fill in the 

missing information for a respondent who did not provide it. Over the years, the percentage of workers not providing earnings information has increased and was 31 

percent in 2005. 

For each year—1979, 1990, and 2005—CBO created a 

predicted hourly wage distribution by estimating quantile 

regressions at every other percentile from the second to 

the 98th percentiles (inclusive), where the natural logarithm of the hourly wage was the dependent variable and 

indicators for the 32 categories of workers (defined by 

age, education, and sex) were the controls.2 That approach was used because parameterized distributions of 

wages for each year, which are functions of age, education, and sex, are needed to conduct a decomposition 

analysis. Using the estimates from each of the 49 models 

in each year, 49 predicted log wages were created for each 

observation in that year, resulting in 49 predicted log 

wages for each observation in the sample. The distribution of the set of predicted wages closely resembled the 

distribution of hourly wage rates in each year. Those predicted wage distributions were then used as the base 

against which to measure the effects of observed changes 

in the composition of the workforce. 

The next step in the analysis was to determine how 

changes in the workforce composition, in the relative 

wages paid to the different demographic groups of workers, and in the wages within each demographic group of 

workers contributed to the changing wage distribution in 

the 1979–1990 and 1990–2005 periods.

To calculate the first part of the decomposition, the effect 

of the changing composition of the workforce on wage 

dispersion in the bottom half of the wage distribution, a 

counterfactual hourly wage distribution was created. In 

that counterfactual distribution, the age, education, and 

sex composition of the workforce was made identical to 

the composition in 1990 (for instance), but the 1979 

models used to estimate each group’s wages were used to 

generate predicted wages. That calculation captured what 

the wage distribution in 1979 would have been had the 

composition of the workforce in 1979 mimicked that in 

1990, keeping the relative wages paid to each demographic group and the dispersion of wages within each 

demographic group as they were in 1979. Specifically, to 

create that counterfactual distribution, the analysis predicted 49 wages for each observation from 1990 using the 

estimates from the 49 models in 1979. The difference between the counterfactual 1979 distribution (with 1990 

characteristics) and the actual 1979 distribution provided 

an estimate of how much of the change in the bottom 

half of the wage distribution between 1979 and 1990 resulted from changes in the composition of the workforce. 

Three additional counterfactual wage distributions were 

created to further analyze changes in the composition of 

the workforce in terms of workers’ education alone, age 

alone, and sex alone. (Those results are also reported in 

Table 2.) To create those distributions, the 1990 data 

were reweighted so that the distribution of education, for 

example, equaled the distribution of education in 1990 

while the distributions of age and sex equaled the distributions in 1979.3

 That is, in the reweighted data, the 

probability that a worker has less than a high school edu2. For a discussion of the application of quantile regressions to conditional wage distributions, see Moshe Buchinsky, “Changes in 

the U.S. Wage Structure, 1963–1987: Application of Quantile 

Regression,” Econometrica, vol. 62, no. 2 (March 1994), pp. 405–

458.

3. The reweighting procedure used is “raking” or “iterative proportional fitting.” See W. Edwards Deming and Frederick F. Stephan, 

“On a Least Squares Adjustment of a Sampled Frequency Table 

When the Expected Marginal Totals Are Known,” Annals of Mathematical Statistics, vol. 11 (1940), pp. 427–444; W. Edwards 

Deming, Statistical Adjustment of Data (New York: John Wiley, 

1943); or Jean-Claude Deville, Carl-Erik Sarndal, and Olivier 

Sautory, “Generalized Raking Procedures in Survey Sampling,” 

Journal of the American Statistical Association, vol. 88, no. 423 

(1993), pp. 1013–1019. 
APPENDIX ACCOUNTING FOR THE SOURCES OF CHANGES IN THE DISTRIBUTION OF WAGES 27

cation is equal to that in 1990, but the probability that a 

worker is male or is age 16 to 24 is equal to that in 1979. 

Those data were then used to predict 49 wages for each 

observation using the estimates from the 49 models in 

1979. Again, the change between that counterfactual 

1979 distribution (with 1990 characteristics in terms of 

education and a 1979 composition in terms of age and 

sex) and the actual 1979 distribution provided an estimate of how much of the change in the bottom half of 

the wage distribution between 1979 and 1990 resulted 

from changes in the educational attainment of the workforce alone. Note that the portion of the changes in dispersion in the bottom half of the wage distribution that 

are due to education alone, sex alone, and age alone necessarily sum to the portion of the changes in dispersion in 

the bottom half of the wage distribution that result from 

the combination of changes in the characteristics in terms 

of age, education, and sex.

To calculate the second part of the decomposition, the effect on dispersion from changes in relative wages among 

age-education-sex groups, another counterfactual distribution was created. That distribution reflected both the 

changing composition of the workforce by incorporating 

the age-education-sex characteristics of the workforce in 

1990 and the differences in the typical wages received by 

each group of workers (defined by age, education, and 

sex). To create that distribution, the analysis adjusted the 

wage of every observation in the counterfactual 1979 distribution discussed above (with 1990 characteristics) by 

the percentage difference between the median wage of 

that observation’s group in 1979 and 1990. Thus, that 

counterfactual distribution reflected the 1990 composition and 1990 between-group differences in median 

wages but retained the 1979 within-group wage dispersion. The difference between the counterfactual 1979 distribution (with 1990 between-group differences in typical 

wages and 1990 characteristics) and the counterfactual 

1979 distribution (with 1990 characteristics) provided an 

estimate of how much of the change in the bottom half of 

the wage distribution between 1979 and 1990 resulted 

from changes in the between-group differences in median 

wages among groups of workers. 

The third and final piece of the decomposition, that is, 

the portion of the change in wage dispersion resulting 

from changes in wage dispersion within each of the 32 

demographic groups, was simply the remainder. The 

analysis shows that the results are not highly sensitive to 

the order of the decomposition (as has been the case with 

that done by other researchers).