Earnings Mobility and Labor Market Segmentation in Europe and USA: Preliminary Explorations

This study is a preliminary exploration on the extent of labor market segmentation (LMS) in Europe and the United States, based on data of earnings mobility prepared for the OECD in the late Nineties. Assessing segmentation is important for a balanced view on the pros-and-cons of labor market flexibility. Labor market segmentation implies that, while there has to be a vast persistence in bad jobs or no job at all, there is, at the same time, a vast segment of working population characterized by a high degree of earnings mobility. A simple method to investigate the extent of LMS consists in contrasting two immobility indicators derived from transition matrices of earnings mobility, one computed in a partition of North-West cells (denoting persistence in low earnings), the other in a partition of South-East cells (denoting persistence in high earnings). The result of this exploration is that the USA and certain European countries appear to be at the extremes of a hypothetical ranking of wage structures, which is, however, far from linear: in the USA coexist a great deal of earnings mobility and an important chunk of labor market segmentation of the least previledged; in Italy, Germany and France earnings mobility is lower, but also the degree of segmentation is smaller than that found in the USA. The UK is somewhat closer to the USA, France follows at distance, while at the opposite extreme stand Germany and Italy. At the end of the paper I argue that there are reasons to believe that the extent of labor market segmentation may be increasing in the EU as a consequence of policies aiming at helping entry of youth into employment.