This paper proposes a new federal funding stream to identify, expand, and replicate the most successful state and local initiatives designed to spur the advancement of low-wage workers in the United States. In the Worker Advancement Grants for Employment in States (WAGES) program, the federal government would offer up to $5 billion annually in matching funds for increases in state, local, and private expenditures on worker advancement initiatives. To gain funding, states would have to develop local advancement “systems,” which would provide career-oriented education and training to youth, working poor adults and “hard-to-employ” workers. Partnerships would be developed between local training providers (like community colleges), employer associations, and intermediaries. Additional financial supports for the working poor—including child care, transportation, and stipends for working students—would have to be funded as well. Initially, the WAGES program would require states to compete for federal grants, which would ultimately be renewable. The program would generate a “learning system” in which states would have an incentive to innovate and use information from other initiatives. The federal government would provide substantial technical assistance and oversight. Performance measurement and rigorous evaluation would be required for program renewal; states achieving substantial worker advancement would be awarded major bonuses and more rapid renewal of funding.
1. The Low-Wage Labor Market: What Is the Problem?
There have been low-wage workers in virtually every labor market that has ever existed. Historically, economic growth has lifted the real wages of all workers, particularly in more developed countries like the United States, but many factors have influenced the degree of inequality (or difference in relative wages) between those at the bottom and those at the middle and top of the earnings distribution.
In recent years the difficulties experienced by relatively low-wage workers in the United States have grown, at least along some dimensions. Figure 1 plots the real wages of male and female workers with different levels of education since 1979. The earnings of both male and female workers without high school diplomas fell throughout much of the 1980s and 1990s, relative to those with more education (that is, the gap between their wages widened). The same is true for workers with high school diplomas but without college, again for both female and male workers. The earnings of male high school dropouts and even high school graduates not only declined in relative terms but were stagnant or declining in absolute terms throughout much of this period. After the mid-1990s the real wages of these groups rebounded somewhat, but today the wages of less-educated males remain not much higher than they were in the 1970s.