New Study Suggests Less Literate Adults Could Be Harmed By Wage Mandates

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BY ALLYSON FUNK – WASHINGTON – Today, the Employment Policies Institute (EPI) released a new study exploring the important role literacy plays in labor market success for the 30 million Americans whose literacy level is considered “below basic.” The author, Dr. William C. Wood of James Madison University, points to well-intentioned policies like minimum wage increases that can unintentionally keep these less literate individuals out of work.

Using data from the National Assessment of Adult Literacy (NAAL), Wood quantifies the labor market impact of “below basic” levels of literacy. Relative to those whose literacy scores are “proficient,” these Americans are:

  • At 4.7 times greater risk of earning less than $300 per week
  • At 16.5 times greater risk of receiving public assistance
  • At 11 times greater risk of receiving food stamps

Fewer than 30 percent of these individuals have a high school diploma. Those with a high school diploma or higher are 2 to 4 percent more likely to be employed full-time than their less educated counterparts.

A policy brief summarizing the study’s key findings is available here.

“The unemployment rate for less educated Americans without a high school diploma has been near 15 percent for over a year, and it’s crucial that federal and state legislators pursue policies that help these individuals find a job,” said Michael Saltsman, research fellow at EPI.

Legislators often invoke “living wage” mandates and generous benefit packages as policy prescriptions for what ails less educated Americans. But Wood points to the problem with this approach: Applicants who lack basic job skills and require significant costly training aren’t hired at all.

“For the 27 million people in the country who have difficulty even filling out a job application, employer mandates like a minimum wage aren’t a help – they’re a hindrance,” Saltsman continued. “By raising the cost to hire and train those who are less literate, we’ve put up a barrier between people who want to work and employers who want to hire.”

Saltsman concluded: “Research demonstrates that most minimum wage employees earn a raise within a year or less. But they can’t get that raise without experience, and they can’t get experience if they don’t have a job.”

Allyson Funk wrote this for The Employment Policies Institute, www.epionline.orgis a non-profit research organization dedicated to studying public policy issues surrounding employment growth. In particular, EPI focuses on issues that affect entry-level employment.

Study: Wood, William C. June 2010, “Literacy and the Entry-Level Workforce: The Role of Literacy and Policy in Labor Market Success.”

Policy Brief:
Literacy and the Entry-Level Workforce