"You have to start at the bottom and work your way up." This old-school advice gets doled out to new graduates, unpaid interns, and unskilled labor as a way to ease the sting of low-paying (or non-paying) jobs. The implied promise is that if you are willing to work hard for low pay, eventually you will get credit for your efforts and move up the income ladder. But recent analysis by Bright Labs shows that many minimum-wage jobs may be just the first step to a lifetime of low earnings instead of a trip to the middle class.
After examining some 8 million resumes in Bright.com's job seeker database for a select group of large low-wage employers, researchers found that working for fast food chains and some retailers correlated with a low likelihood of ever earning $70,000 or more—even if the job seekers later worked for other companies.
Bright Labs senior data scientist Jacob Bollinger said the analysis didn't factor in employees' level of education or socioeconomic background.
"Because companies use our product in the hiring process, we eliminate biographical and demographic data in our calculations to avoid the potential for bias." And he said the analysis only demonstrates a correlation, not causation. But it seems clear that what many people think of as dues-paying, first-step-on-the-career-ladder jobs may not be part of the ladder at all.
This is something to bear in mind as the drive for a higher federal minimum wage gains momentum. Acknowledging that $7.25/hour isn't a living wage, cities and states around the country are raising their minimum pay rates on their own. President Obama has worked around Congress with this week's executive order to raise the minimum wage for federal contract workers to $10.10 per hour. His move will benefit about half a million employees as contracts come up for renewal.
A higher minimum wage will help workers who put in full-time efforts for extremely low pay. A full-time minimum wage worker currently earns $290 a week. For federal contractors, that rate will rise to $404 per week, before taxes—better, but still not great, especially over a span of decades. As the president and pro-labor groups work to address income inequality, it's equally important for workers who currently make minimum wage to have clear pathways to earning more so they don't spend their entire careers stuck in low-wage work.
What low-wage earners need for better lifetime earnings
Good starting points
Not every young person or unskilled worker has the luxury of choosing between a minimum-wage job at list-topper Ford (NYSE:F) and one at Wendy's (NASDAQ:WEN), which ranked lowest on Bright's list. But given the choice—and the information needed to make a choice—it makes more sense to go with Ford or another auto or communications company due to the likelihood of higher earnings down the road.
The responsibility for this can't rest entirely on workers at the bottom of the pay scale where professional connections and experienced mentors are thin on the ground or nonexistent. Even low-wage employers can pair new hires with more experienced workers. Continuing ed classes can help workers network, reduce employee turnover, and boost employee skills.
Bright found that among the low-wage companies on its list, managers and directors were most likely to break the $70,000 mark. Other positions that paid as well included pharmacy technicians, database administrators, and SQL developers—all jobs that require specialized education. With college tuition climbing so much faster than the rate of inflation, finding an employer who offers tuition reimbursement is a good long-term move.
Ideally, negotiation would be part of the high school curriculum, because it's such a useful and rewarding skill. Last year's Salary.com study found that, all things being equal, a new graduate who actively negotiated for a higher starting salary and bigger raises could earn an extra million dollars over his or her career compared to a new grad who simply took what was offered. Hourly workers generally don't have the opportunity to negotiate for higher pay, but negotiation training could help them move into better-paying positions, arrange flex time for education, or solve on-the-job problems.
More than the minimum
In general, a low-paying job is better than no job. Besides some amount of money coming in, working minimum-wage gigs keeps workers out of the pool of job seekers who have been unemployed so long that no one will hire them. And if Subway, The Home Depot (NYSE:HD), or another company near the bottom of Bright's list is the only game in town, then it's the only game in town. But workers and new graduates need as much information as possible and a workable long-term plan before taking any job—especially a minimum-wage one.
Casey Kelly Barton has no position in any stocks mentioned. The Motley Fool recommends Ford and Home Depot. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.