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Starting Your Career with a Temporary Job: Stepping Stone or "Dead-End"?

  • Dimitris Pavlopoulos

This paper uses panel data from the UK (BHPS) and Germany (GSOEP) to investigate the wage effect of entering the labour market with a temporary job. Further than the previous literature that studied the effect of the contract type on wage dynamics in the explained part of a wage regression, we also investigate the effect of the starting contract on the variance of unobserved individual effects and random earnings shocks. For this purpose, we decompose earnings into a component determined by initial unobserved earnings ability and experience-related heterogeneity and a component determined by earnings shocks. Our results for Germany, verify the existence of a wage penalty for entering the labour market with a temporary contract. This penalty disappears after 12.5 years for male workers and after 6.5 years for the female workers. In the UK, a similar wage penalty is found for male workers that persists over their working career. In contrast, no wage penalty is found for the British female workers. In the UK, the initial unobserved earnings capacity is higher for workers starting off with a permanent job, while no such difference emerges in Germany. However, this initial unexplained wage inequality decreases faster for workers starting their career with a temporary contract than their colleagues that entered the labour market with a permanent job. Finally, the persistence of earnings shocks is higher for workers entering the labour market with a temporary contract.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 228.

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Length: 17 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp228
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  1. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  2. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  3. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  4. Xavier Ramos, 2003. "The Covariance Structure of Earnings in Great Britain, 1991-1999," Economica, London School of Economics and Political Science, vol. 70(278), pages 353-374, 05.
  5. Catalina Amuedo-Dorantes, 2000. "Work transitions into and out of involuntary temporary employment in a segmented market: Evidence from Spain," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 53(2), pages 309-325, January.
  6. Lorenzo Cappellari, 2004. "The Dynamics and Inequality of Italian Men’s Earnings: Long-term Changes or Transitory Fluctuations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
  7. Alison L. Booth & Marco Francesconi & Jeff Frank, 2002. "Temporary Jobs: Stepping Stones or Dead Ends?," LABORatorio R. Revelli Working Papers Series 8, LABORatorio R. Revelli, Centre for Employment Studies.
  8. Julia Lane & Kelly S. Mikelson & Pat Sharkey & Doug Wissoker, 2003. "Pathways to work for low-income workers: The effect of work in the temporary help industry," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 22(4), pages 581-598.
  9. Alba-Ramirez, Alfonso, 1994. "Formal Training, Temporary Contracts, Productivity and Wages in Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 151-70, May.
  10. Eng Loh, 1994. "Employment probation as a sorting mechanism," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(3), pages 471-486, April.
  11. Michael Baker & Gary Solon, 1998. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Working Papers baker-98-01, University of Toronto, Department of Economics.
  12. Amuedo-Dorantes, Catalina & Serrano-Padial, Ricardo, 2007. "Wage Growth Implications of Fixed-Term Employment: An Analysis by Contract Duration and Job Mobility," Labour Economics, Elsevier, vol. 14(5), pages 829-847, October.
  13. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  14. Gagliarducci, Stefano, 2005. "The dynamics of repeated temporary jobs," Labour Economics, Elsevier, vol. 12(4), pages 429-448, August.
  15. Hause, John C, 1980. "The Fine Structure of Earnings and the On-the-Job Training Hypothesis," Econometrica, Econometric Society, vol. 48(4), pages 1013-29, May.
  16. Juan F. Jimeno & Luis Toharia, 1993. "The effects of fixed-term employment on wages: theory and evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 475-494, September.
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