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From No Pay to Low Pay and Back Again? A Multi-State Model of Low Pay Dynamics

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  • Uhlendorff, Arne

    ()
    (University of Mannheim)

Abstract

This study analyzes the mobility between three labor market states: working in low paid jobs, working in higher paid jobs and not working. Using German panel data I estimate dynamic multinomial logit panel data models with random effects taking the initial conditions problem and potential endogeneity of panel attrition into account. In line with results from other countries, this first study on Germany finds true state dependence in low pay jobs and confirms previous results of state dependence in non-employment. Moreover, I find evidence for a “low pay no pay cycle", i.e. being low paid or not employed itself increases the probability of being in one of these states in the next year. However, compared to non working, being low paid does not have adverse effects on future employment prospects: the employment probability increases with low pay employment and the probability of being high paid seems to be higher for previously low paid workers. I find no evidence for endogenous panel attrition.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2482.

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Length: 34 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2482

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Related research

Keywords: low pay dynamics; unemployment dynamics; dynamic random effects models; state dependence; panel attrition; unobserved heterogeneity;

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  1. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
  2. Peter Haan & Arne Uhlendorff, 2006. "Estimation of Multinomial Logit Models with Unobserved Heterogeneity Using Maximum Simulated Likelihood," Discussion Papers of DIW Berlin 573, DIW Berlin, German Institute for Economic Research.
  3. Bernd Gorzig & Martin Gornig & Axel Werwatz, 2005. "Explaining Eastern Germany's Wage Gap: The Impact of Structural Change," Post-Communist Economies, Taylor & Francis Journals, vol. 17(4), pages 449-464.
  4. Kenneth Train, 2001. "Halton Sequences for Mixed Logit," Econometrics 0012002, EconWPA.
  5. Gong, Xiaodong & Van Soest, Arthur & Villagomez, Elizabeth, 2004. "Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 1-36, October.
  6. Jones, Melanie K. & Jones, Richard J. & Murphy, Philip D. & Sloane, Peter J., 2005. "The Dynamics of the National Minimum Wage: Transitions Between Different Labour Market States," IZA Discussion Papers 1690, Institute for the Study of Labor (IZA).
  7. Hajivassiliou, Vassilis A & Ruud, Paul A., 1993. "Classical Estimation Methods for LDV Models Using Simulation," Department of Economics, Working Paper Series qt3cg196fr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Cappellari, Lorenzo, 2002. " Do the 'Working Poor' Stay Poor? An Analysis of Low Pay Transitions in Italy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(2), pages 87-110, May.
  9. Victoria Prowse, 2005. "State Dependence in a Multi-state Model of Employment Dynamics," Economics Series Working Papers 2005-W20, University of Oxford, Department of Economics.
  10. Lorenzo Cappellari & Stephen P. Jenkins, 2004. "Modelling Low Pay Transition Probabilities, Accounting for Panel Attrition, Non-Response, and Initial Conditions," CESifo Working Paper Series 1232, CESifo Group Munich.
  11. Stewart, Mark, 2006. "The Inter-related Dynamics of Unemployment and Low-Wage Employment," The Warwick Economics Research Paper Series (TWERPS) 741, University of Warwick, Department of Economics.
  12. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
  13. Pierre-Carl Michaud & Konstantinos Tatsiramos, 2005. "Employment Dynamics of Married Women in Europe," Working Papers 273, RAND Corporation Publications Department.
  14. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
  15. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
  16. Muhleisen, Martin & Zimmermann, Klaus F., 1994. "A panel analysis of job changes and unemployment," European Economic Review, Elsevier, vol. 38(3-4), pages 793-801, April.
  17. Alfonso Sousa-Poza, 2004. "Is the Swiss Labor Market Segmented? An Analysis Using Alternative Approaches," LABOUR, CEIS, vol. 18(1), pages 131-161, 03.
  18. Peter Haan, 2005. "State Dependence and Female Labor Supply in Germany: The Extensive and the Intensive Margin," Discussion Papers of DIW Berlin 538, DIW Berlin, German Institute for Economic Research.
  19. Stewart, Mark B & Swaffield, Joanna K, 1999. "Low Pay Dynamics and Transition Probabilities," Economica, London School of Economics and Political Science, vol. 66(261), pages 23-42, February.
  20. Jürgen Schupp & Gert G. Wagner, 2002. "Maintenance of and Innovation in Long-Term Panel Studies: The Case of the German Socio-Economic Panel (GSOEP)," Discussion Papers of DIW Berlin 276, DIW Berlin, German Institute for Economic Research.
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