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Stochastic Expected Utility for Binary Choice: New Representations

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  • Alexander Plum

    (New Zealand Work Research Institute, Faculty of Business, Economics and Law, Auckland University of Technology)

Abstract

Are low wages a way for the unemployed to switch to higher-paying jobs? Using data from the British Household Panel Survey (BHPS), the labour market dynamics of unemployed, low-paid, and higher-paid employed men are analysed. Moreover, the respective (un)employment duration and occupational skill level are accounted for. Results show that in general low wages significantly reduce the risk of future unemployment and increase the chances of ascending the salary ladder, especially in the case of long-term unemployment (>360 days). Furthermore, the occupational skill level has a substantial influence on the upward mobility of low-paid jobs: individuals working in the initial period in a low-paid and higher-skilled occupation have on average an 11 percentage points higher probability of entering higher pay compared to when working in a low-paid and low-skilled occupation.

Suggested Citation

  • Alexander Plum, 2018. "Stochastic Expected Utility for Binary Choice: New Representations," Working Papers 2018-08, Auckland University of Technology, Department of Economics.
    • Handle: RePEc:aut:wpaper:201808
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    More about this item

    Keywords

    unemployment dynamics; low-pay dynamics; intial conditions problem; random-effects probit models; maximum simulated likelihood;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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