Monthly Labor Review November/December 2003 3

A number of studies have examined the

characteristics of low-wage workers

and their wage trends.1 Most of these

studies analyze the earnings and characteristics

of low-wage workers themselves, in large part

because such data are readily available. Less

work has focused on the characteristics and, in

particular, the skill demands of low-wage jobs.2

This article uses a relatively new data set to

examine the skill content of low-wage jobs. The

data set is from the National Compensation

Survey of Occupational Wages (NCS), a survey

conducted by the Bureau of Labor Statistics and

one in which the unit of observation is the job, not

the worker.3 That is, information in the NCS relates

to narrowly defined occupations and provides

data on wages, industries, unionization, full- or

part-time status, and other useful characteristics

associated with those occupations.

A major advantage of the NCS is the assignment of so-called leveling factors to each job.

The factors, described in detail in the next

section, are designed to explain the content of

the job on a number of dimensions, including

knowledge required, complexity, and supervisory responsibilities, among others. The

factors provide unique information about the

skill demands, job responsibilities, and working

conditions of jobs in the current economy.

After describing the low-wage labor market

in terms of leveling factors, the article goes on

to examine the relationship between job content

and wages, focusing on jobs at the bottom of

Exploring low-wage labor with

the National Compensation Survey

An analysis based on the National Compensation Survey

of Occupational Wages indicates that low-wage work

is concentrated in jobs that require low-level skills

Jared Bernstein

and

Maury Gittleman

the wage distribution. Of particular interest is

explaining why the wages in such jobs are so

low. Certainly, one explanation is that

productivity is low in these jobs, but other

explanations are possible as well—for example, that workers in low-wage jobs have limited

bargaining power. The NCS data on each job’s

skill requirements and responsibilities, which

will be seen to serve as proxies for the level of

productivity, provide an opportunity to

address this issue. From the data, a low-skill

profile is created that groups jobs together

wherein only low levels of each of the factors

are required. Regression analysis then examines the question of whether the low pay of

such jobs can be explained by the job content

or whether, after controlling for job content,

there remains a negative wage premium. The

latter turns out to be the case, for which various

interpretations are offered.

The NCS

The data for the analysis that follows come

from the 2001 NCS. With the use of appropriate

weights, the survey is designed to be representative of private establishments with 1 or

more workers (with the exception of agriculture

and private households) and State and local

governments with 50 or more workers. The

Federal Government is excluded from the scope

of the survey. The Bureau of Labor Statistics

uses the survey to produce statistics on mean

Jared Bernstein is an

economist at the Economic Policy Institute,

Washington, DC; Maury

Gittleman is a research

economist in the Office

of Compensation and

Working Conditions, Bureau of Labor Statistics.E-mail: jbernstein

@epinet.org or gittleman.maury@bls.gov

Low-Wage Labor

/
4 Monthly Labor Review November/December 2003

Low-Wage Labor

wages by occupation, for the United States as a whole and for

roughly 80 metropolitan areas.

The sample of the NCS is selected in three stages. First,

geographic areas are chosen for study, and then, within each

area, a representative sample of establishments is drawn.

Within each establishment, information is collected on a

sample of jobs, with the number of jobs depending on the size

of the establishment. The Bureau then collects data on the

hourly wage for a given job, which is an average of the wages

of all workers in the job. Defined as the organization’s most

narrow occupational classification, the job is thus the unit of

observation used in this study.

The survey contains information on establishment characteristics, as well as on attributes of the job. Of the latter, the

most important for the purposes of this article are the variables

that measure job content. The survey contains 10 such

measures, referred to as leveling factors.

4

 All but one of the

factors are drawn from the U.S. Office of Personnel Management’s Factor Evaluation System, which is used to provide a grade level—and thus establish a pay range—for U.S.

Federal Government positions. For each factor, an integer score

is given, ranging from 1 up to the highest level possible.5 The

scores are based on job descriptions and interviews with

company representatives. The factors do not give information

directly on the amount of education, training, and experience

needed for the job, but rather describe different dimensions of

the work, with most factors indicating either the level of skills

needed to carry out a job successfully or the responsibilities that

the incumbent has. In addition, the factors include measures

relating to the working conditions of the job.

The knowledge factor assesses the nature and extent of

information that workers must understand to do acceptable

work, as well as the nature and extent of the skills needed to

apply their understanding. A related factor, complexity, is an

index of the intricacy of tasks, the difficulties involved in

identifying what work needs to be done, and the degree to

which high levels of analytical skills are required to carry out

the work. The factor guidelines measures whether the

employee has discretion in carrying out the work or must

follow strict, detailed guidelines. The factor scope and effect

gauges both the breadth of the work and its impact within and

outside the organization. Low scores on this factor are given

to those who perform routine work, the influence of which

does not extend beyond the immediate organizational unit,

while the highest scores are reserved for those involved in

planning, developing, and carrying out programs that have a

major impact on the mission of an organization. These four

factors can be subsumed under the rubric “analytic skills,”

although they capture dimensions of the job that go beyond

that term’s connotation.

Two of the 10 leveling factors serve to establish a worker’s

place in an organization’s hierarchy. Supervision received

gives a sense of the autonomy of the worker with respect to

his or her supervisor; supervisory duties assesses the extent

to which the worker supervises other workers. Two other

factors also relate to the nature of a worker’s job-related

interpersonal relationships, not, however, with those ranking

directly above or below the worker. A job receives a low rating

for personal contacts if an employee’s interactions are mainly

with workers in the same unit or with the public, but in highly

structured settings where the worker cannot exercise any

discretion. High ratings for this factor go to jobs in which the

contacts are with top-ranking officials from outside the

company in highly unstructured settings. Purpose of contacts

rates the nature of the contacts, which range from those merely

intended to obtain or provide factual information to those

whose “purpose is to justify, defend, negotiate, or settle

matters involving significant or controversial issues.”6

The final two factors measure physical aspects of the job.

The factor physical demands gauges whether the work

requires significant physical exertion, as well as whether

specific physical abilities are required, such as agility or

dexterity. Finally, as its name implies, work environment has

to do with working conditions and is less closely related to a

job’s skill requirements and responsibilities than are the other

factors. Work environment considers whether the worker has

to be concerned about the risk of injury coming from potentially dangerous machinery or materials, from difficult

working conditions, such as working at great heights, or from

the threat of physical attack.

Defining low-paid work

In order to describe the low-wage labor market, it is necessary

to define what is meant by “low wage.” Because there is no

consensus among economists as to how to define the term,

three different definitions are set forth in this study. In

operationalizing these definitions, jobs are weighted by the

number of hours the jobholder works in the course of a year.

Thus, the measures presented of the prevalence of low-paid

work are in terms of the share of total hours worked for low

wages, rather than the proportion of jobs that pay low wages.

Two of the definitions of “low wage” are relative measures,

in that work in a given job is classified on the basis of how

that job’s hourly wage rate compares with the hourly wage

rates of other jobs. The first defines an hour of work as being

remunerated at a low wage if the hourly rate of pay is below

two-thirds of the median rate of pay, which, in the 2001 NCS

data, implies a cutoff of $8.67. This definition is one that has

been used in cross-country comparisons.7

 With such a definition, a movement toward a more unequal distribution of

wages will tend to increase the share of work that is low paid.

The second definition defines low wages as those wage rates

which fall into the bottom quintile of the wage distribution.
Monthly Labor Review November/December 2003 5

Clearly, with such a definition, the share of hours worked that

will be classified as low paid will not change as the distribution

of wages changes and will instead be fixed at 20 percent.8 The

final definition of low paid is an absolute one, encompassing

all hours for which earnings are below $8 per hour. This rate

was chosen because it is a characteristic wage rate of those in

low-wage jobs. It is near the average earned by many welfare

leavers9 and is also close to the average of jobs in the lowwage profile created from the data later in the analysis.

Before turning to a description of the low-wage labor market

on the basis of the measures of job content, it is useful to measure

the size of that market and, for purposes of comparison with past

work, describe it in terms of job and establishment characteristics

that are available in other data sets. As shown in the following

tabulation, defining low pay on the basis of two-thirds of the

median wage implies that 21.6 percent of hours worked are low

paid, not far from the 20 percent that are low paid according to

the bottom-quintile definition:

Characteristics of low-paid jobs

Table 1 shows, for each definition of “low paid,” the share of

hours worked that is low paid, by establishment characteristic.

Among the major industry divisions, retail trade stands out

as having by far the largest share of low-paid hours worked,

with a majority (or near majority for the absolute definition of

low paid) of hours worked falling into this category. The

industry division with the next highest concentration of lowpaid jobs, services, has a rate of low pay that is close to that

for the economy as a whole. Public administration has the

lowest rate, although the proportions for mining; construction; and transportation, communications, and public

utilities are just a few percentage points more.

Consistent with research which shows that pay tends to

increase with employer size,10 the rate of low pay is highest at

small establishments and falls monotonically as establishment size rises. The difference between the smallest and

the largest establishments is quite striking, with one-quarter

to one-third of hours worked in establishments with fewer

than 100 employees being low paid, compared with less than

1 in 20 in establishments with 2,500 or more employees. Jobs

in the for-profit sector are considerably more likely to be low

paid than those in the realm of nonprofit work, and the same

is true for jobs in privately owned establishments relative to

those in establishments owned by State and local governments.11

Table 2 presents the share of hours worked that are low

Wage rate less than two-thirds

median wage rate ........................... 21.6

Bottom quintile ............................... 20.0

Wage rate less than $8 per hour ...... 16.3

Table 1. Share of hours worked that is low paid, by definition of “low paid” and establishment characteristic

[In percent]

Wage rate less

than two-thirds Bottom quintile

median wage rate

 Major industry division

Mining...................................................................... 5.0 5.0 4.6

Construction ............................................................ 7.8 7.1 4.4

Manufacturing ......................................................... 12.3 10.9 7.8

Transportation, communications,

and public utilities ................................................. 6.6 6.1 4.5

Wholesale trade ...................................................... 15.0 13.6 10.2

Retail trade ............................................................. 55.9 53.8 48.3

Finance, insurance, and real estate ...................... 11.1 9.6 7.1

Services .................................................................. 22.1 20.1 15.6

Public administration .............................................. 4.4 3.7 2.3

 Number of employees in establishment

1–99 ........................................................................ 31.0 29.1 24.3

100–249 .................................................................. 22.3 20.6 16.6

250–499 .................................................................. 17.6 15.8 11.8

500–999 .................................................................. 14.1 12.5 9.7

1,000–2,499 ............................................................ 10.7 9.3 6.6

2,500 or more .......................................................... 4.7 4.0 2.9

 Sector ..................................

For profit ................................................................. 25.0 23.3 19.1

Not for profit ........................................................... 9.9 8.7 6.5

 Ownership

Private .................................................................... 24.4 22.4 18.6

State and local ....................................................... 5.8 5.3 3.2

 Characteristic Wage rate less

than $8 per hour

Definition of “low paid” Share of hours worked

that are low paid

According to the absolute definition, the share of hours that

are low paid is a bit smaller: 16.3 percent.
6 Monthly Labor Review November/December 2003

Low-Wage Labor

paid, by a number of job characteristics. Major occupation

groups can be divided into three categories in terms of the

prevalence of low-wage work. The first category, comprising

the three high-level white-collar groups (managers, professional specialty occupations, and technical workers) and

the lone group of skilled blue-collar occupations (precision

production, craft, and repair workers), has a very small share

of work that is low paid. Occupations in the second category—administrative support occupations; machine operators, assemblers, and inspectors; and transportation and

material-moving occupations—have a moderate share of lowpaid work, ranging from about 10 percent to 20 percent,

depending on the definitions. Finally, sales occupations;

handlers, equipment cleaners, helpers, and laborers; and

service workers, the major occupation groups with the highest

share of low-paid work, ranging from 30 percent to 50 percent,

make up the third category of occupations.

There is a large difference in the rates of low pay between

nonunion and union jobs, with the rate for the former being

roughly 3 times that of the latter. This gap is due to the twin

facts that, for a given job, pay tends to be higher in the union

than in the nonunion sector12 and that the rate of unionization

among the least skilled workers is lower than it is for other

workers.13 Part-time jobs are highly likely to be low paid, with

three-fifths to two-thirds of hours worked falling into that

category, depending upon the definition used. In contrast, the

rates for full-time work range from about 10 percent to 15 percent.

As with differences in rates of low pay by union status, the gap

in wages between part-time and full-time work is attributable to

two factors, in this case (1) the greater prevalence of part-time

jobs in industries and occupations in which both part- and fulltimers are low paid and (2) lower wage rates paid part-timers for

the same jobs that full-timers do.14

Skill levels of low-paid jobs

As noted earlier, the NCS is unique in that it provides information on the skills, responsibilities, and working conditions

associated with each job. Before turning to see where lowwage jobs stand in terms of the job content scores, it is useful

to examine the distribution of those scores for the labor market

as a whole, shown in table 3. The first factor listed in the table

is knowledge, which past research has shown is the job

content measure most strongly related to wages.15 There are

nine different levels for this factor; those jobs at level 5 require

the sort of knowledge one would acquire by obtaining a

bachelor’s degree or its equivalent in experience and training.

Approximately one-quarter of hours worked require

knowledge at level 5 or above, which is in rough accord with

the share of employees with 4-year degrees. At the other end

of the scale, level 1, some 12 percent of jobs require little or no

previous training or experience; just above this level, nearly

half of hours worked are at knowledge levels 2 and 3. The

distribution of hours worked by level of complexity is broadly

similar, with more than 70 percent of work at levels 2 and 3.

The pattern is somewhat different for the factor called

guidelines and for that titled scope and effect: about onethird of hours worked are at the lowest level, another oneTable 2. Share of hours worked that is low paid, by definition of “low paid” and job characteristic

[In percent]

 Major occupation group

Executive, administrative, and managerial ................ 0.6 0.6 0.5

Professional specialty ............................................... .8 .7 .5

Technical ..................................................................... 2.6 2.1 1.6

Sales ........................................................................... 39.7 38.0 32.9

Administrative support ................................................ 16.1 13.5 7.6

Service ........................................................................ 52.7 50.1 44.0

Precision production, craft, and repair ..................... 3.4 3.0 2.3

Machine operators, assemblers, and inspectors ...... 21.3 19.5 15.1

Transportation and material moving .......................... 15.0 13.1 10.4

Handlers, equipment cleaners, helpers,

and laborers .............................................................. 40.5 37.5 29.8

 Collective bargaining agreement...........

Not covered ................................................................ 24.7 22.2 18.7

Covered....................................................................... 7.1 7.7 5.1

 Full-time or part-time status ................

Part time ..................................................................... 67.2 64.4 58.4

Full time....................................................................... 15.8 14.3 10.8

 Characteristic

Wage rate less

than two-thirds

median wage rate

Wage rate less

than $8 per hour Bottom quintile
Monthly Labor Review November/December 2003 7

third are at level two, and the remainder is spread across the

upper levels.

Turning to factors relating to interpersonal interactions

on the job, it is evident that most jobs are structured so that

employees receive a fair degree of supervision: only 6 percent

of hours worked are in jobs in which the supervision received

is at level 4 or above. (At level 4, the supervisor sets the overall objectives, but the employee and supervisor, in consultation, develop the deadlines, projects, and work to be

done.) The flip side of the coin is that the vast majority of

jobs—the 80 percent of hours rated at level 1—have no

supervisory responsibilities whatsoever. More generally, in

nearly 90 percent of hours worked, personal contacts are quite

restricted: interaction is either with employees in the same

establishment or with the general public, but in structured

settings (levels 1 and 2). Consistent with this observation,

the vast majority of jobs is at the lowest two levels for purpose

of contacts as well.

In light of the ongoing shift of the economy from bluecollar to white-collar jobs, it may be surprising that nearly

three-fifths of hours worked are in jobs that require some

physical exertion, including long periods of standing; recurring bending, crouching, and stooping; and recurring

lifting of moderately heavy items. Work is almost evenly

divided between that involving normal safety precautions

typical of such places as offices, meeting and training rooms,

libraries, residences, and commercial vehicles and that

involving moderate risks or discomforts requiring special

safety precautions, such as those typically utilized in work

with machinery, contagious diseases, or irritant chemicals.

Only 2 percent of hours worked are in jobs with high risks,

either from exposure to dangerous situations or because of

unusual environmental stress that requires a range of safety

and other precautions.

Table 4 shows the share of hours worked that is low paid

for each level of each factor. For knowledge level 1, for example,

78.5 percent of hours are paid at or below two-thirds of the

median hourly wage. It is clear that individuals in a job rated

at that level, which requires knowledge of only simple, routine,

or repetitive tasks and little or no previous training, are highly

likely to be holding positions that are classified as low paid,

independently of the definition of low paid. For knowledge

level 2, roughly one-quarter to two-fifths of the hours worked

are low paid. Workers whose jobs have a knowledge rating of

level 3 or above are highly unlikely to have low-paid jobs.

The other three factors in the analytic skills category show

broadly similar relationships between job level and the share

of low-paid workers: at least two-fifths of hours worked at

level 1 for these factors are low paid, with the share dropping

quickly as one moves to higher levels.

As regards the four interpersonal factors, the patterns are

somewhat different. With the exception of supervision

received, the share of work at level 1 that is low paid never

exceeds 40 percent. The lower share than that for factors in

the analytic skills category is partly a consequence of the fact

that level 1 of the interpersonal factors—again with the

exception of supervision received—tends to contain a larger

share of total hours worked than is the case for factors in the

analytic skills category. Thus, low-paid hours are less likely

to dominate the interpersonal-factor categories. This lesser

prevalence is most clearly seen in the case of supervisory

duties: with about 80 percent of hours worked at level 1—a

level with no supervisory responsibilities—and the share of

low-paid work in the neighborhood of 20 percent, the

mathematical limit on the rate of low-paid work is about 25

percent.

Even so, it is still the case that, for the interpersonal factors,

there is a strong negative relationship between the job level

and the share of work that is low paid. This is not true,

however, for the two factors gauging physical aspects of the

Table 3. Distribution of hours worked, by level of factors

[In percent]

Level

1 2 3 4 5 6 78 9

Knowledge .............................................. 12.0 29.2 20.2 13.0 6.8 12.1 5.1 1.4 0.1

Complexity .............................................. 21.6 36.9 33.9 5.3 2.3 .1 — — —

Guidelines .............................................. 36.8 36.2 22.5 4.2 .4 — — — —

Scope and effect .................................... 33.6 35.9 25.8 3.5 1.1 .1 — — —

Supervision received ............................ 24.3 42.7 27.1 5.4 .6 — — — —

Supervisory duties .................................. 79.8 7.7 11.0 1.3 .2 — — — —

Personal contacts .................................. 49.4 39.7 10.7 .3 — — — — —

Purpose of contacts ............................... 66.8 25.0 7.8 .4 — — — — —

Physical demands .................................. 39.0 58.8 2.2 — — — — — —

Work environment ................................... 48.2 50.0 1.8 — — — — — —

NOTE: Dash indicates no such level for factor.

Factor
8 Monthly Labor Review November/December 2003

Low-Wage Labor

Table 4. Share of hours worked that is low paid, by level of factors

[In percent]

 Factor Bottom quintile

Knowledge

1 ............................................................. 78.5 75.7 68.5

2 ............................................................. 37.5 34.0 25.8

3 ............................................................. 6.8 5.6 3.3

4 ............................................................. .9 .7 .4

5 ............................................................. .9 .8 .7

6 ............................................................. .2 .2 .1

7 ............................................................. .0 .0 .0

8 ............................................................. .0 .0 .0

9 ............................................................. .0 .0 .0

...............................................................

Complexity .............................................

1 ............................................................. 65.3 61.9 53.5

2 ............................................................. 20.8 18.6 13.4

3 ............................................................. .6 .5 .3

4 ............................................................. .0 .0 .0

5 ............................................................. .0 .0 .0

6 ............................................................. .0 .0 .0

...............................................................

Guidelines ..............................................

1 ............................................................. 53.8 50.4 42.1

2 ............................................................. 6.0 5.0 3.1

3 ............................................................. .1 .1 .0

4 ............................................................. .0 .0 .0

5 ............................................................. .0 .0 .0

...............................................................

Scope and effect ...................................

1 ............................................................. 53.4 50.0 42.4

2 ............................................................. 10.9 9.6 6.3

3 ............................................................. .3 .3 .2

4 ............................................................. .0 .0 .0

5 ............................................................. .0 .0 .0

6 ............................................................. .0 .0 .0

...............................................................

Supervision received .............................

1 ............................................................. 60.3 57.2 49.2

2 ............................................................. 17.0 14.9 10.7

3 ............................................................. .4 .4 .2

4 ............................................................. .0 .0 .0

5 ............................................................. .0 .0 .0

...............................................................

Supervisory duties .................................

1 ............................................................. 26.4 24.5 20.1

2 ............................................................. 7.0 6.4 4.6

3 ............................................................. 3.0 2.6 1.5

4 ............................................................. .1 .1 .1

5 ............................................................. .0 .0 .0

...............................................................

Personal contacts .................................

1 ............................................................. 36.1 33.8 28.0

2 ............................................................. 10.3 9.1 6.9

3 ............................................................. .2 .2 .2

4 ............................................................. .0 .0 .0

...............................................................

Purpose of contacts ..............................

1 ............................................................. 31.7 29.5 24.1

2 ............................................................. 3.1 2.7 1.9

3 ............................................................. .5 .3 .2

4 ............................................................. .0 .0 .0

...............................................................

Physical demands .................................

1 ............................................................. 8.9 7.6 4.9

2 ............................................................. 31.2 29.4 24.8

3 ............................................................. 7.3 6.0 4.0

...............................................................

Work environment ..................................

1 ............................................................. 17.3 15.9 12.4

2 ............................................................. 27.1 25.3 21.0

3 ............................................................. 4.7 4.0 3.4

Wage rate less

than two-thirds

median wage rate

Wage rate less

than $8 per hour
Monthly Labor Review November/December 2003 9

job: work requiring some physical exertion is actually more

likely to be low paid than both work that is sedentary and

work that requires considerable physical exertion. A similar

finding is evident for the factor measuring the work environment: jobs with moderate safety risks are more likely to

be low paid than both jobs with low risks and jobs with high

risks.

Wage penalties and low-skilled work

As expected, the descriptive tables show a fairly clear link

between lower levels of skill demands and low wages. The

question remains as to the extent to which these skill factors

fully explain the wages paid in low-wage jobs. That is, if we

consider the hourly wage in the job to be an outcome variable,

can the leveling factors, along with other characteristics of

the job that are correlated with wages, explain the pay gap

between low-wage and higher wage jobs? If not, then to what

do we attribute the remaining gap? Is it evidence of a wage

penalty suffered by those in low-wage jobs? This section

uses regression analysis to examine these questions. The goal

is to shed light on the question of whether the pay in less

skilled jobs is in accordance with productivity (as represented

by the leveling factors) or whether there is an additional

wage penalty associated with low-skilled work.

To address this issue, it is necessary to designate which

jobs are low skilled. Toward that end, the leveling factors are

used to create a low-skill profile. That is, the scores on a

combination of factors are used, with levels chosen that are

consistent with less skilled job content. For example, jobs

with low knowledge requirements (“simple, routine, or

repetitive tasks”) and low complexity (“the work consists of

tasks that are clear-cut and directly related. There is little or

no choice to be made in deciding what needs to be done”) are

selected to be in the profile. Jobs within this profile also have

no supervisory duties and are in fact tightly controlled by

supervisors. Further, the worker’s personal contacts within

and without the firm are limited and involve only routine

responsibilities, such as those common to a receptionist and

not an architect. A complete definition of the low-skill profile

is given in table 5.

On average, jobs with the low-wage profile pay an hourly

wage of $8.33, compared with a mean of $18.37 for the rest of

the jobs in the labor market. To begin to explain this gap, the

logarithm of hourly wages is regressed on the profile indicator,

giving a baseline wage gap between low- and higher skilled

jobs. Then, establishment and job characteristics are added,

in turn, to the regression, followed, finally, by the factor

scores.16 With each new set of wage determinants, the magnitude and statistical significance of the negative wage premium associated with jobs that have a low-skill profile are

examined, with the aim of gauging the extent to which these

other determinants explain the negative premium associated

with low-skill work. If the other regressors fully explain the

gap (that is, if the coefficient on the profile goes to zero), then

there is arguably no wage penalty associated with low-wage

work—or at least none that cannot be explained by establishment or job characteristics and skill demands.

The first row of table 6 shows the “raw differential”: the

relative difference between the pay of jobs that have a lowskill profile and the pay of other jobs. (This regression

contains only the profile indicator and a constant.17) The

coefficient is a highly significant –0.708; measured in log

points, it implies a negative pay differential of about 51

percent.18 Adding establishment characteristics reduces the

coefficient by about 0.20 log point. The addition of job

characteristics has an even larger effect, lowering the profile

coefficient by another 0.25 log point. Although these reductions in the raw differential are significant, after controlling

for establishment and job characteristics we are still left with

a coefficient on the profile of –0.265 with a very large tstatistic, implying that jobs requiring this low-level combination of skills pay about 23 percent less than other jobs,

on average. Clearly, this is a large difference.

However, the regression just carried out does not control

for the full range of leveling factors. Once they are controlled

for, in the fourth row of the table, the absolute value of the

coefficient on the low-wage profile falls sharply, to –0.055,

although it is still highly significant. This is obviously of a

considerably smaller magnitude, but it still deserves attention

because, after all, among labor economists, it is widely held

that an extra year of schooling raises wages by an amount

only slightly greater in magnitude.

Thus, for jobs that combine low content scores—and many

low-wage jobs do—hourly wages are about 5 percent lower

than would be predicted by a model that includes job content

scores and other highly detailed controls. How is such a result

to be interpreted? One possibility is that workers in low-skilled

jobs are paid even less than what one would predict on the

basis of the skill demands of their jobs. This situation could

arise if such workers do not have the bargaining power to

Table 5. Definitions of low-skill and high-skill profiles

Low-skill profile: High-skill profile:

 Factor level is less than level is greater than

or equal to— or equal to—

Knowledge .......................... 2 5

Complexity ......................... 2 3

Guidelines .......................... 2 3

Scope and effect ............... 2 3

Supervision received ......... 1 3

Supervisory duties ............. 1 2

Personal contacts ............. 2 2

Purpose of contacts .......... 2 2

Physical demands ............. 2 1

Work environment .............. 2 1
10 Monthly Labor Review November/December 2003

Low-Wage Labor

obtain wages commensurate with their productivity.

A second possibility is that the model is overstating the

productivity level of those in low-skilled jobs by not taking

into account the interactions among the different factors—

interactions that are implicit in the definition of the low-skill

profile. To take one out of many possible interactions among

the factors, the increase in wages that occurs when the level

of the knowledge factor rises may depend on the level of the

factor for scope and effect; in other words, there may be greater

returns to knowledge when work has a greater impact on the

organization as a whole. Interactions will then be important in

cases where productivity is not just the sum of different skills,

but in fact depends on the combination of different skills. To

take a simple example from the world of sports, to be an

effective “serve and volley” tennis player, it is necessary both

to have a good serve and to volley well. If one of these two

components is mediocre, the serve-and-volley strategy will

not work very well.

The data presented do not uniquely determine an interpretation that is most accurate. Given that the job and establishment controls, including industry, occupation, sector,

union status, and size of establishment—all of which are

significant in these regressions—are fairly extensive, it could

be argued, on the one hand, that the model does in fact control

for many important correlates of bargaining power, favoring

the second, skill-based interpretation. On the other hand,

because the NCS is job, and not person, based, the model lacks

controls for personal characteristics, including race and

gender, which might be associated with lower pay.19 Take, for

example, a low-skilled job like food preparation. It could be

that low knowledge and low complexity interact to lead to a

less productive outcome, or it could be that such jobs incur a

wage penalty even after the model controls for relevant skill

demands. Again, we cannot resolve this important interpretive difference, but we can test to see whether the same

analytical issue exists with regard to high-skilled jobs.

To do so, we ask whether the same type of premium exists

in reverse for jobs with high factor scores. If not, one might

argue that low-wage workers fall uniquely outside of a model

in which the pay in jobs is closely tied to productivity; that is,

while the earnings associated with high-skilled jobs are fully

explained by returns to skill, the pay in low-skilled jobs is not.

(Such jobs carry an extra penalty.) Jobs that have a high-skill

profile, by the definition presented here (see table 5), are high

in knowledge (equivalent to the knowledge that would be

acquired by earning a bachelor’s degree), are reasonably

complex (“[the] work includes various duties and unrelated

processes and methods”), and have guidelines that are not

completely spelled out. These jobs also have at least some

degree of supervisory duties and involve personal contacts

that extend beyond employees in the immediate organization.

Results for the high-skill profile are shown in table 6. The

raw differential, a highly significant 0.903, is even larger in

absolute value than in the low-skill case. The next two rows

show a similar pattern, as the addition of other determinants

sharply reduces the high-skill-profile coefficient. However, in

contrast to the case for low-skill jobs, when the leveling

factors are added to the specification the coefficient falls to

nearly zero and is not statistically significant. Unlike the pay

in low-skill jobs, pay in high-skill jobs appears to be fully

explained by skill content.

However, this result is not robust, in that it is sensitive to

how the high-skill profile was defined, in an admittedly

arbitrary manner. By changing the definition of the high-skill

profile only slightly—supervisory responsibilities were no

longer required—the coefficient on the profile remained

significant after the leveling factors were controlled for. For

example, as shown in the fourth row of the table, the lowwage-profile coefficient is –0.055 (t-statistic = –3.98); the last

row shows that the analogous coefficient for the initial highskill profile is an insignificant 0.021 (t-statistic = 1.62). If,

however, the supervisory requirements are lowered slightly,

that coefficient rises to 0.034, with its t-statistic of 2.79

Table 6. Regression coefficients on skill profiles1

 Profile and regression step Coefficient t-statistic R squared

 Low-skill profile

Raw differential ..................................................................... –0.708 –61.68 0.280

Add establishment characteristics ....................................... –.516 –63.28 .506

Add job characteristics ........................................................ –.265 –37.68 .724

Add leveling factors .............................................................. –.055 –3.98 .825

 High-skill profile .............................

Raw differential ..................................................................... .903 61.40 .195

Add establishment characteristics ....................................... .733 54.99 .502

Add job characteristics ........................................................ .365 21.13 .718

Add leveling factors .............................................................. .021 1.62 .825

Number of observations = 122,081

1 See text for definition. 2 See note 16 in text for a description of specific regressors.

2

2

2

2
Monthly Labor Review November/December 2003 11

indicating significance at the 1-percent level.

Unfortunately, here again, two legitimate, but contradictory, interpretations remain. The results could support the

case that, unlike high-skilled jobs, low-skilled jobs carry a

unique wage penalty that remains once skill is controlled for

(although this result is sensitive to how we define high-skilled

jobs). But the results are also consistent with the argument

that the wage penalty is simply a function of skill interactions,

an explanation in keeping with pay being commensurate with

productivity.

USING THE NCS, THIS ARTICLE HAS EXAMINED the extent of lowwage work in the current labor market. The descriptive

analysis presented reveals that, under various definitions of

the term, a significant share of hours is devoted to low-wage

work. For example, just under 22 percent of all hours worked

in 2001 paid less than two-thirds the median wage rate ($8.67),

one widely used measure of low earnings. An important

feature of the NCS is its leveling factors, which delineate in

some detail the skill requirements of the jobs in the U.S. labor

market. The analysis shows that low-wage work is disproportionately concentrated among low scores on these

measures of skill content.

The leveling factors, along with a set of other useful

controls, allow some of the determinants of low pay to be

tested. A hypothetical low-skill profile aids in examining

whether a variable indicating that a job is low skilled has

explanatory power after controlling for skill demands. The

analysis reveals that it does, which is consistent with the

presence of a penalty to low-skilled work beyond what can be

explained by factors describing the skills and knowledge

required for the job. Alternatively, low skill levels on a

combination of factors (as measured by the postulated lowskill profile) may indicate an interaction effect that leads to

productivity levels lower than what is implied by a consideration of the factors in isolation.

An issue that arose during the analysis was whether the

finding that the low pay associated with low-skill jobs was

not fully accounted for by the level of skill demands was

unique to low-skilled workers or whether an analogous

situation held for high-skilled workers. A high-skill profile

created for the purpose lent some support to the notion that

high-skilled jobs do not earn a premium relative to other jobs,

after skill content is taken into account. However, this result

was not robust to a slight change in the way the high-skill

profile was constructed.

In sum, the approach presented in this article does not

allow a definitive determination of whether low-skilled jobs

are low paid even after taking account of their low skill content

or whether such jobs pay less because their combination of

low-skill requirements generates a lower productivity and thus

a lower wage. Yet, along with the prevalence of low-wage

work, the results clearly show that, in accordance with either

interpretation, workers in these jobs face significant hurdles.

Notes

1

 See Jared Bernstein and Heidi Hartmann, “Defining and Characterizing the Low-Wage Labor Market,” in The Low-Wage Labor

Market: Challenges and Opportunities for Economic Self-Sufficiency

(Washington, DC, U.S. Department of Health and Human Services,

1999), and other papers in that volume.

2 An exception is Harry Holzer, What Employers Want: Job

Prospects for Less-Educated Workers (New York, Russell Sage

Foundation, 1996).

3

 The survey provides comprehensive measures of occupational

wages, compensation cost trends, the incidence of benefits, and detailed

benefit provisions. The analysis that follows uses data only from that

part of the survey concerned with occupational wages.

4

 The description of the factors is based on National Compensation

Survey: Occupational Wages in the United States, Bulletin 2552

(Bureau of Labor Statistics, January 2003).

5

 One factor, knowledge, has nine possible levels, but all the other

factors have six or fewer, with two having only three levels.

6 National Compensation Survey, p. 167.

7

 See, for example, “Making the Most of the Minimum: Statutory

Minimum Wages, Employment and Poverty,” Employment Outlook

(Paris, Organization of Economic Cooperation and Development,

June 1998).

8

 Given that the sample is designed to be representative of local

areas, it is possible to define the two relative measures in terms of the

local distribution of wages or the national one. That is, one can classify

hours as low paid when the rate of pay is below two-thirds of the

median wage for the Nation or for the area; a similar choice is available

for definitions based on the bottom quintile of the wage distribution. It

turns out that the results obtained from the local wage distributions are

quite similar to those based on the national distribution, so, for the

sake of brevity, only the latter are reported.

9 See, for example, Elise Richer, Steve Savner, and Mark Greenberg,

Frequently Asked Questions about Working Welfare Leavers (Washington, DC, Center for Law and Social Policy, 2001), a review of

studies of those families leaving welfare.

10 See, for example, Walter Y. Oi and Todd L. Idson, “Firm Size and

Wages,” in Orley Ashenfelter and David Card (eds.), Handbook of

Labor Economics, Vol. III (Amsterdam, North-Holland, 1999),

chapter 33, pp. 2166–2214.

11 Establishments owned by State and local governments (recall

that the Federal Government is outside the scope of the survey) are

not identical to those in public administration, because governmentowned institutions, such as schools and hospitals, are classified in the

industry division for services.

12 See H. Gregg Lewis, “Union Relative Wage Effects,“ in Orley C.

Ashenfelter and Richard Layard (eds.), Handbook of Labor Economics,

Vol. II (Amsterdam, North-Holland, 1986), chapter 20, pp. 1139–81.
12 Monthly Labor Review November/December 2003

Low-Wage Labor

13 See David Card, “The Effect of Unions on the Structure of

Wages: A Longitudinal Analysis, “Econometrica, vol. 64, no. 4, July

1996, pp. 957–79.

14 See Michael K. Lettau, “Compensation in Part-Time Jobs versus

Full-Time Jobs: What if the Job Is the Same?” Economics Letters, vol.

56, no. 1, September 1997, pp. 101–6.

15 See Brooks Pierce, “Using the National Compensation Survey to

Predict Wage Rates,” Compensation and Working Conditions, winter

1999, pp. 8–16.

16 The establishment characteristics are the geographic area in which

the establishment is located, the two-digit industry it is a part of, whether

the establishment is privately owned or is part of a State or local

government, whether it is in the nonprofit sector, and the logarithm of

the number of employees working in the establishment. The job

characteristics are the two-digit occupation, whether the job is part or full

time, whether the job is covered by a collective bargaining agreement, and

whether any portion of compensation in the job is tied to incentives.

17 For all regressions, the calculations of standard errors take account

of the survey design of the NCS.

18 The calculated effect of the profile indicator is eâ – 1, where â is the

coefficient of the variable indicating whether a job has a low-skill profile.

19 This omission can be partially rectified by adding, for example,

the share of minorities or women in each occupation as variables in

the regression.