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What Explains the Decline in Wage Mobility in the German Low-Wage Sector?

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  • Aretz, Bodo

    ()
    (ZEW Mannheim)

  • Gürtzgen, Nicole

    ()
    (ZEW Mannheim)

Abstract

In this paper, we study how wage mobility in the low-wage sector has changed in western Germany between 1984 and 2004. Using German individual register data, we document a clear upward trend in the persistence of low-wage employment for both men and women. Next to compositional shifts of the low-wage sector relative to the high-wage sector, this trend may be explained by an increase in "genuine" state dependence, which occurs if low-wage employment today causes low-wage employment in the future for reasons of, e.g., stigmatization or human capital depreciation. To isolate the latter, we model low-pay transitions by estimating a series of multivariate probit models. We address the initial conditions problem and the endogeneity of earnings attrition in our estimation approach by accounting for the selection into low-wage employment and earnings retention. Our findings for men and women point to an upward trend of genuine state dependence among low-paid workers especially since the beginning of the 1990s. Using decomposition techniques, we show that between 35 and 54 per cent of the increase in genuine state dependence during the 1990s is accounted for by compositional effects.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7046.

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Length: 54 pages
Date of creation: Nov 2012
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Handle: RePEc:iza:izadps:dp7046

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Keywords: wage mobility; trivariate probit; administrative data;

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Cited by:
  1. Daniel D. Schnitzlein & Jens Stephani, 2013. "Locus of Control and Low-Wage Mobility," SOEPpapers on Multidisciplinary Panel Data Research 589, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," IZA Discussion Papers 7158, Institute for the Study of Labor (IZA).
  3. Franz, Wolfgang, 2013. "Die Arbeitsmarktanalyse in der wirtschaftspolitischen Beratung des Sachverständigenrates," ZEW Discussion Papers 13-074, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80003, Verein für Socialpolitik / German Economic Association.
  5. Stephani, Jens, 2013. "Does it matter where you work? : employer characteristics and the wage growth of low-wage workers and higher-wage workers," IAB Discussion Paper 201304, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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