Low wage after unemployment - the effect of changes in the UI system
Low-wage jobs in Denmark are characterized by short durations and a relatively high mobility to higher wage positions, but also to unemployment. This fact might to some extent be attributed to the generous Danish UI system. The theoretical prediction for this relation is twofold. First, a generous UI system will increase reservation wages and thereby increase the effective minimum wage. This will exclude the least productive individuals from employment and thereby increase the lowest skill level among employed individuals. Hence, the Danish low-wage earners will tend to be better qualified and their duration as low-wage earners will therefore tend to be shorter. Second, the generous benefit system will allow the unemployed person to wait for better jobs, and likewise, force the employing firms to provide jobs with better prospects. By exploiting several tightening of the Danish UI system during the late nineties, these hypotheses are tested by analysing low-wage durations following an unemployment-spell using hazard models allowing for correlation between low wage duration and previous unemployment spells. Results show that being eligible for UIB does indeed increase the transition out of low wage, both to higher wage jobs and returning to unemployment. At the same time approaching passive benefit exhaustion initially increases the likelihood of moving to low-wage employment and subsequently increases the likelihood of returning to unemployment after a spell of low wage. Moreover it decreases mobility to subsequent higher wage employment. Hence, decreasing the passive period seems to have a positive effect on the employment rate, but the jobs accepted seem to be of lower quality, i.e. with higher return rates and lower upward wage mobility.
|Date of creation:||01 May 2008|
|Date of revision:|
|Contact details of provider:|| Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark|
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
More information through EDIRC
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.:
- Michael Rosholm & Michael Svarer, 2004.
"Estimating the Threat Effect of Active Labour Market Programmes,"
CAM Working Papers
2004-14, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Michael Rosholm & Michael Svarer, 2004. "Estimating the Threat Effect of Active Labour Market Programmes," Economics Working Papers 2004-6, School of Economics and Management, University of Aarhus.
- Rosholm, Michael & Svarer, Michael, 2004. "Estimating the Threat Effect of Active Labour Market Programmes," IZA Discussion Papers 1300, Institute for the Study of Labor (IZA).
- Mark B. Stewart, 2007.
"The interrelated dynamics of unemployment and low-wage employment,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(3), pages 511-531.
- 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.
- Christian Belzil, 2001. "Unemployment insurance and subsequent job duration: job matching versus unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 619-636.
- Lars Pico Geerdsen, 2006. "Is there a Threat Effect of Labour Market Programmes? A Study of ALMP in the Danish UI System," Economic Journal, Royal Economic Society, vol. 116(513), pages 738-750, 07.
When requesting a correction, please mention this item's handle: RePEc:hhs:aareco:2008_011. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helle Vinbaek Stenholt)
If references are entirely missing, you can add them using this form.