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The Low-Pay No-Pay Cycle: Are There Systematic Differences across Demographic Groups?

Listed author(s):
  • Yin King Fok

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Rosanna Scutella

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Roger Wilkins


    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

We investigate transitions between unemployment, low-paid employment and higher-paid employment using household panel data for the period 2001 to 2011. Dynamic panel data methods are used to estimate the effects of labour force status on subsequent labour force status. A distinctive feature of our study is the investigation of heterogeneity in the effects of unemployment and low-paid employment on future employment prospects. We find that there is state dependence in both unemployment and low-paid employment and clear evidence of a low-pay no-pay cycle for both men and women. Significant differences in effects across different subgroups of the population are, however, found. Typically, the young and the better educated face less severe penalties from unemployment or low-paid employment, and, for women, the cycle between low pay and no pay varies across subgroups. Moreover, in the case of men who have completed secondary schooling but have no further qualifications, low-paid employment actually decreases the chances of entering higher-paid employment by more than unemployment does. This is not the case for women, however, who clearly have a higher likelihood of entering higher-paid employment from low-paid employment than from unemployment, regardless of their age, education level or other characteristics.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2013n32.

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Length: 29pp
Date of creation: Oct 2013
Handle: RePEc:iae:iaewps:wp2013n32
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Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia

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  1. Knights, Stephen & Harris, Mark N & Loundes, Joanne, 2002. "Dynamic Relationships in the Australian Labour Market: Heterogeneity and State Dependence," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 284-298, September.
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