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Low Pay Dynamics and Transition Probabilities

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  • Stewart, Mark B
  • Swaffield, Joanna K

Abstract

This paper models low pay transitions in Britain using a bivariate probit model with endogenous selection to address the initial conditions' problem and parental variables as instruments. The exogeneity of the initial state is strongly rejected and results in considerable overstatement of the effects of explanatory factors. The probability of being low paid depends strongly on low pay in the previous year. Restricting attention to those who remain employees results in an overstatement of the probability of the low paid moving up the earnings distribution but is not found to have much effect on the estimated effects of explanatory variables. Copyright 1999 by The London School of Economics and Political Science

Suggested Citation

  • 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.
  • Handle: RePEc:bla:econom:v:66:y:1999:i:261:p:23-42
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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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