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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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Author Info
Arne Uhlendorff () (DIW Berlin, Free University of Berlin and IZA Bonn)

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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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Publisher 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
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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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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J62 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Job, Occupational and Intergenerational Mobility; Promotion
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kenneth Train, 2000. "Halton Sequences for Mixed Logit," Department of Economics, Working Paper Series 1035, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. 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.
    Other versions:
  4. James J. Heckman, 1982. "Heterogeneity and State Dependence," NBER Reprints 0298, National Bureau of Economic Research, Inc.
  5. 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. [Downloadable!] (restricted)
  6. Victoria Prowse, 2005. "State Dependence in a Multi-State Model of Employment Dynamics," IZA Discussion Papers 1623, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Pierre-Carl Michaud & Konstantinos Tatsiramos, 2005. "Employment Dynamics of Married Women in Europe," IZA Discussion Papers 1706, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. 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. [Downloadable!]
  9. Melanie K. Jones & Richard J. Jones & Philip D. Murphy & Peter J. Sloane, 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). [Downloadable!]
  10. 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. [Downloadable!] (restricted)
    Other versions:
  11. Alfonso Sousa-Poza, 2004. "Is the Swiss Labor Market Segmented? An Analysis Using Alternative Approaches," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 18(1), pages 131-161, 03. [Downloadable!] (restricted)
  12. BERND GÖRZIG & MARTIN GORNIG & AXEL WERWATZ, 2005. "Explaining Eastern Germany's Wage Gap: The Impact of Structural Change," Post-Communist Economies, Taylor and Francis Journals, vol. 17(4), pages 449-464, December. [Downloadable!] (restricted)
  13. 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. [Downloadable!]
  14. Lorenzo Cappellari & Stephen P. Jenkins, 2004. "Modelling Low Pay Transition Probabilities, Accounting for Panel Attrition, Non-Response, and Initial Conditions," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  15. 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.
  16. 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. [Downloadable!]
    Other versions:
  17. 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. [Downloadable!]
    Other versions:
  18. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
    Other versions:
  19. 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. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Peter Haan & Arne Uhlendorff, 2007. "Intertemporal Labor Supply and Involuntary Unemployment," IZA Discussion Papers 2888, Institute for the Study of Labor (IZA). [Downloadable!]
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