Why Do Some Jobs Pay So Little?

(Photo: The Eyes Of New York)

A recent one-day strike by fast-food workers has called attention to the low wages in the industry. James Surowiecki offers one reason that the issue’s visibility has increased recently:

Still, the reason this has become a big political issue is not that the jobs have changed; it’s that the people doing the jobs have. Historically, low-wage work tended to be done either by the young or by women looking for part-time jobs to supplement family income. As the historian Bethany Moreton has shown, Walmart in its early days sought explicitly to hire underemployed married women. Fast-food workforces, meanwhile, were dominated by teen-agers. Now, though, plenty of family breadwinners are stuck in these jobs. That’s because, over the past three decades, the U.S. economy has done a poor job of creating good middle-class jobs; five of the six fastest-growing job categories today pay less than the median wage. That’s why, as a recent study by the economists John Schmitt and Janelle Jones has shown, low-wage workers are older and better educated than ever. More important, more of them are relying on their paychecks not for pin money or to pay for Friday-night dates but, rather, to support families. Forty years ago, there was no expectation that fast-food or discount-retail jobs would provide a living wage, because these were not jobs that, in the main, adult heads of household did. Today, low-wage workers provide forty-six per cent of their family’s income. It is that change which is driving the demand for higher pay.

Given that reality, Surowiecki writes, raising the minimum wage by a few bucks a hour won’t fix the problem. His prescription: more truly middle-class jobs and an expansion of the social safety net. “Fast-food jobs in Germany and the Netherlands,” he writes, “aren’t much better-paid than in the U.S., but a stronger safety net makes workers much better off.”

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  1. Barman says:

    People are just not satisfied with a mcdonald job (which, among other benefits include two meals a day) while all they have on their CV is a useless liberal arts degree from a community college. Fair enough, for a population used to entitlements. But even with their low wage, people are too eager for the latest version of the iphone and samsung galaxy notes. I feel that anyone who can afford anything beyond basic biological necessity, is absolutely fine so far as wage goes and if he/she wants to earn more he/she should either get the appropriate skill or education or work harder, all instead of depending upon government mandates.

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    • mtnme says:

      Actually, I DON’T have a liberal arts degree, but I DO have two degrees. They weren’t useless until wall street and their cronies crashed the economy. No doubt this was their plan all along. Get highly educated people, squeeze the jobs down to nothing and low paying at that. They’ll be so desperate they’ll take it. Then get faux news to spew a bunch of garbage about how all these folks are just lazy slugs, for which their fan base such as yourself will swallow it whole, hook, line and sinker.
      And I don’t have ANY of those toys of which you speak. Just trying to do the basics. Roof over head, food in ‘fridge. No gas, the car died anyway. Can’t afford to buy a new one. So biking and busing I go…
      Stop re-spewing faux news word for word. How about you come up with some original thought? Or at the very least, some accurate ones.

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      • Barman says:

        I understand and appreciate your struggle. My description fits a vast majority of sympathy owners and if it doesn’t fit you that’s not an issue. I tried to point out the difference between people struggling and people trying to win sympathy and very often it’s the later category whose voice is heard more frequently, it’s the later category who get majority of government aids (through direct help or via senseless legislations). In any case, I feel that if a company lays off even 50% of its workforce, those 50% were the least competitive and hence most dispensable when things go tough. None of the corporations by themselves want to squeeze the jobs unless it’s necessary because a reasonably wealthy, consumption happy population is the most essential part of any business. So your contention is fundamentally wrong. If you have a degree in whatever field, it’s entirely your responsibility to make that useful, to stay ahead of your peers and develop your skills (which includes hard technical skills and soft skills to oil the right machines at right times) and to follow the rules of the game. If you think the game is unfair, rise to the top and change the game itself if you can. A lot of CEOs started as very ordinary employees and rose to the top when they finally had the authority to set the terms. Of course at that stage they faced newer constraints which they never thought existed, but that’s beside the point here. In a nutshell, your struggle is entirely for your own sake. If you feel like you are a winner, good for you. If you feel like a loser, good luck and work harder. But please, don’t be a loser and claim the rewards of a winner.

        P. S. I never watched faux news and don’t live in the US right now. However the socio cultural zeitgeist at my country seems pretty similar to what I am seeing in this forum, hence my opinion. Since apparently (according to you) certain aspects of my thought echoes with them doesn’t mean that I am their fan.

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  2. Clancy says:

    Hidden due to low comment rating. Click here to see.

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    • Ryan says:

      Increasing the minimum wage is a terrible economic policy. One of two things happens:
      1) The McDonalds of the world keep prices the same, pay the higher wage and employ less people
      or
      2) The McDonalds of the world raise prices, pay the higher wage and employ the same amount of people.

      McDonalds won’t take the hit, either consumers or workers will. Raising the minimum wage is effectively a tax.

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      • Clancy says:

        That doesn’t make any sense economically. If the minimum wage is raised, it cuts into their profits. They Could respond to that by trying to increase profits by laying off workers or increasing prices, but if they could do that They Would Have Done It Already! Your scenarios imply that McD’s and others are leaving money on the table and that raising the minimum wage would just remind them they should grab it.
        It could be the case that if you raised the MW too much, many restaurants would no longer be profitable at all and they might close, but looking at the history of the minimum wage, Fast food has clearly been profitable with a higher MW in the past, so there’s likely considerable room to raise wages before it becomes a problem.

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      • matt says:

        @ Clancy, your reasoning makes a fundamental error in economic reasoning. You are ignoring the diminishing marginal revenue returns for each additional worker, while the marginal costs are fixed at the wage. Increasing the minimum wage increases the marginal cost of the worker by a significant amount. The result would likely be less workers. Fast food is an extremely competitive industry so it is hard to immediately raise prices in a noninflationary situation. In contrast it is easier to just layoff the least essential employees thus forfeiting some revenue as wait times either get longer or hours are reduced but either way no sane business would pay people more than the added revenue they bring in. Thus those that are laid off are often young people and minorities that tend to have less experience to begin with and need such jobs in order to gain the work experience necessary to make them able to earn higher wages.

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      • pawnman says:

        Not to mention inflation will still keep people earning minimum wage at the poverty level, while eroding financial security for people making just over the minimum wage. Rather than make the lowest-skilled, lowest-paid workers richer, you’ve just made people on the second rung of the economic development ladder poorer.

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      • Mike B says:

        Isn’t increased use of automation technologies beneficial in the long run by eliminating jobs that are a waste of human talent? Increased automation is a key way to increase productivity which in turn raises the standard of living for everybody.

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      • Clancy says:

        @ matt: Actually, that makes sense to me. So, at any given restaurant, there are one or two workers whose marginal productivity falls between the old MW and the new, and so those workers would be let go at the higher MW.
        So, the net effect will be a rise in income for most workers, paid for by a mix of lower profits for McD’s and a drop in income for employees let go, plus a deadweight loss borne by customers in the form of diminished service and burgers not purchased.
        The Question is then: How much of the cost is borne by the laid-off workers, and how much is borne by the corporation? Unless the workers bear 100% of the cost, there is a net benefit to Low-wage workers as a class for raising the MW. And, does the benefit to the economy as low-wage workers get more spending money outweigh the deadweight loss?
        Since past hikes in MW have not been accompanied by massive layoffs, it seems like the cost to workers and the deadweight loss is small.

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      • Phil Persinger says:

        Ryan, Matt & pawnman–

        Please look at the documents at these links

        http://davidcard.berkeley.edu/papers/njmin-aer.pdf

        http://www.cepr.net/documents/publications/min-wage-2013-02.pdf

        Of course, there has been some push-back to these studies, but there is plenty enough meat in them to make me doubt your assumptions about wage levels vs. employment levels. It’s more complicated than a simple inverse relationship (which I’m sure you all understand).

        It may be true that teens working summers and evenings are so unskilled and so unreliable that they do not deserve more than minimum wage, and maybe that needs to be recognized in legislation. But the minimum wage also extends to working adults who can’t make a decent living even if they work two of these jobs.

        It’s easy to say that minimum-wage jobs are ipso facto low-skill jobs. But often we have only the employers’ word that this is the case. Should the government step in and set wage standards for every occupation in every job market? Not now, for a lot of different reasons. But it has been done in the past (by FDR and, to an extent, Nixon) and, if wage inequality in this country continues to the level of civil unrest and national emergency, it could be instituted in the future– if employers can’t find on their own some mean between bankruptcy for themselves and poverty wages for their workers.

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      • sam says:

        You could pretty much say the same thing to any worker, employee, consultant, partner, who wants a pay raise or thinks they are under paid and deserve more… or maybe just wants their pay to at least keep up with with the cost of living like the minimum wage people. Everyone’s salary is an overhead, and shows up in the ledger.

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    • Clint says:

      If raising the minimum wage really did work, then why don’t we raise it by 500% every year?

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      • Enter your name... says:

        Because big shocks to the system are always disruptive.

        The general goal is for the minimum wage to be low enough that millions of low-skill jobs exist, but high enough that fewer families qualifying for government benefits like WIC and Medicaid. If you lose $4 in tax revenue or paying out unemployment benefits due to fewer jobs, but have entitlements expenses decrease by $5 due to fewer people getting benefits, then this is a big win for the government.

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  3. Charlie says:

    A safety net helps when people fall, not when they are just paid poorly. If low-wage workers are subsidized by the government you are not providing a safety net; you are providing a subsidy to the industries that employ low-wage workers. That’s the worst of all worlds!
    Any real solution to the problem has to come from empowering workers. The safety net really should be there, so that workers can tell their employer to shove it, not so the employer can pay less than a living wage and get away with it.
    This problem doesn’t go away, though, until we decide that we can’t afford to lose kids during their early education. All of the research is pretty consistent in demonstrating that by the time we’re discussing ‘workers’ the game is already up. We need to be spending WAY more time and resources figuring out how to keep ten-year-olds from failing. Then wage laws will become less important.

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    • Szlachta says:

      Most of this conversation is wrong. The solution to our problems isn’t an OR equation it’s an AND equation. We need a higher living wage for all workers. We know this works because working people spend nearly 100% of their income back into the economy.

      Perhaps we don’t truly understand what the social safety net is in Europe. Above all else it is a guarantee of health care. Our system is so incompatible with other rich countries that you cannot extract individual elements and compare.

      Until the USA decouples health care from employment and guarantees it to all citizens, minimum wage discussions or policy changes will have little real effect.

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  4. Rod says:

    Ever think the reason the US economy has done such a poor job of creating middle-class jobs is that government has been offering financial incentives to workers (minimum wage) and subsidies for employers (expansion of the social safety net) to encougage and sustain minimum wage jobs?

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    • Pseudonym says:

      No, I never thought that. It’s clearly not the case in Europe, Australasia etc, so if it’s true, there must be something deeply unusual about the USA.

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  5. James says:

    The fact that some workers in fast food & similar jobs are no longer unskilled teenagers &c does not change the fact that this work could still be done by unskilled teenagers. So if you mandate paying more for such unskilled labor, 1) What does that do to the rest of the market; and 2) What do we do with the really unskilled teens who can’t find fast-food jobs any more, because some adult is collecting a “living wage” for doing them?

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    • Enter your name... says:

      Answer: the teens go unemployed.

      From a politician’s perspective, though, what he’s got is jobless teen non-voters vs voting adults whose lives haven’t turned out as well as they dreamed and whose leisure activity (TV) reminds them everyday of the Hollywood standard of living and encourages them to feel deprived. The politician’s job is to get re-elected. If that means addressing the low-income voters’ economic dissatisfaction, then that’s what he’ll do.

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  6. Brian O says:

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    • Ryan says:

      How do you regulate fuel cost? That sounds terrible. See Egypt.

      What would be your advice about education? Don’t get the math education that is in demand? Then do what? If math/technical job wages are going down, you can bet the wages of those with out it are also falling. Educational premium should exist where future innovation is bound to come from. The facts are science drives innovation, innovation drives wealth. Not a lot of Philosophy majors pioneering the next Fortune 500. Thems the breaks.

      Follow the money…

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      • Enter your name... says:

        Maybe.

        On the other hand, I worked for a corporate IT org whose top management (head of the department and the two people under him) all had degrees in psychology. Your college major is not your destiny.

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      • philn5d says:

        The debate becomes about responsibility – is it personal or collective. But then if an entire population is raised to shirk personal responsibility they become a burden of the collective. Who does that leave to give a hand up onto the rungs of the ladder to wealth? Who would say “have a slice of what I am eating”? When they worked so hard for it. Enter the government. They subsidize farming so farming is profitable, subsidize labor so industry is profitable, subsidize fuel so energy is profitable. Why? Because if it was not profitable no one would do it. The question I propose is whether or not raising the minimum wage drives jobs out of the country. At what point is moving an operation out less costly than paying more for workers? Seems the focus of regulations are in the wrong place. Why not bring lower wage workers into the country on shifts of 5 months and 27 days to supplement the workforce and keep costs down rather than drive the jobs out of the country wholesale? Adjust the wage for the exchange rate, that way there is equal pay for the same job.

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    • MikeC says:

      See: http://www.freakonomics.com/2013/08/06/fuel-subsidies-the-worlds-dumbest-transportation-policy/

      Large subsidies for fuel to regulate and lower the cost for the masses, and help the suppliers (who happen to dominate the top profiteers in the country) doesn’t help the economy or society.

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    • pawnman says:

      We tried this back in the 1970s. Worked great.

      http://en.wikipedia.org/wiki/1973_Oil_Crisis

      “In 1973, U.S. President Richard Nixon named William E. Simon as the first Administrator of the Federal Energy Office, or the “Energy Czar”.[35] Simon allocated states the same amount of domestic oil for 1974 that each consumed in 1972, which worked well for states whose populations were not increasing.[36] In states with increased populations, lines at gasoline stations were common.[36] The American Automobile Association reported that in the last week of February 1974, 20% of American gasoline stations had no fuel at all.[36]“

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  7. Gary says:

    Let’s identify who tied this Gordian Knot. It’s been layer after layer of short-sighted governmental policy designed to socially and fiscally engineer some desired outcome that has so distorted the basic economy that too many people are under-employed for the skills they have. Until Congress simplifies and reduces these inhibiting forces, no amount of tinkering with individual components will get the machine working properly at full speed. This isn’t an argument for uninhibited laissez-faire. It is an argument for ceasing the constant efforts to give advantages to special groups of all sorts.

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  8. Brad says:

    If you pay a living wage – and this means bare minimum to put a roof over your head, feed and clothe yourself, get basic health care, etc., not the ability to buy the latest Air Jordans and iPhones – then you do not need as large a safety net. That means lower taxes for everyone. Would you rather pay an extra $.25 for a hamburger or an extra $.50 in taxes for the required safety net?

    Lower taxes + more money in the economy = a more resilient economy and more economic growth.

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    • MikeC says:

      Your argument doesn’t fly. It leaves you open to the extreme example of paying no taxes and having no safety net with business free to abuse labor, monopolize markets, causing havoc, eliminating the middle-class, resulting in a society in which we have a tiny number of people with power and wealth, and most who have nothing, a chaotic society. Or as as its commonly known – Haiti.

      You contribute to society what those who represent us in government deem is sufficient to offer the people a stable, healthy public with few needs. If that means an extra 50¢ or 75¢ for burgers so that we don’t have overloaded emergency rooms, common outbreaks of septic diseases, an uneducated public/workforce, crumbling infrastructure, uncontrolled crime and corruption, no natural disaster relief, etc., then we have to weigh the financial costs against the resulting social ills.

      Right now much of the world’s poorest nations’ leaders seem happy with much of that in their countries, we in the USA seem to be happy with a society that has some of that, and most of the G20 is happy with much less and more government controls.

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    • Enter your name... says:

      > Would you rather pay an extra $.25 for a hamburger or an extra $.50 in taxes for the required safety net?

      Who says that the taxes have to cost more? The real question is, If you want to make sure that the server’s kids can go see the doctor, would you rather pay an extra $.25 for a hamburger or an extra $.25 in taxes for the required safety net? I’d honestly prefer the taxes, because then they could see the doctor even if the parent loses his job.

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      • Brad says:

        For the extra cost of the hamburger, the money is going from you to the company to the employee. For a tax, the money going from you to the tax authority to a governmental agency to a grant program to a services organization to the employee. You will need to tax more for the same $.25 to reach the employee. And due to the vagaries of budget priorities, politics, etc., that $.25 may never reach that employee at all.

        I believe we are discussing a living wage here which includes the ability acquire health care. The publicly funded safety net should be for those jobless you mention, not active workers.

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    • James says:

      Your assumption here is that McDonalds (or whoever) will continue to sell the same number of hamburgers, regardless of price. I don’t believe that’s the case: if they raised the price of a burger to $100, they wouldn’t sell many at all.

      Seems pretty obvious (basic economics, really) that there is some price where the decrease in number of burgers sold outweighs the increased profit per burger. So with fewer burgers being sold, fewer employees are needed, resulting in a net decrease in jobs, and thus more demand for “safety net” services.

      Going beyond that, the higher you raise the cost of labor, the more attractive you make automation. It certainly seems possible to automate many of the functions of a typical fast-food place. So again, increasing fast-food wages beyond a certain point could have the peverse effect of reducing employment, and thus increasing the burden on the safety net.

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      • Brad says:

        You should not need to raise the cost of a product so much that it would drastically change the demand for the product. There may be a slight decrease in employment (studies of current living wage standards support this.) It seems to me the advantages outweigh the downsides.

        There needs to be a balance in the market and a hidden government subsidy of low wage workers, or any opacity at all really, works against finding that balance. A living wage is a government coercion, which puts a finger on the scale, but it is at least completely overt.

        As to automation taking jobs, well this is happening anyway and is not related to this discussion really. Paying a living wage may hasten it but it is inevitable. We need to rebalance the economy as this continues to happen.

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