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Escaping low pay: do male labour market entrants stand a chance?

  • Pavlopoulos, Dimitris

    (CEPS/INSTEAD and K.U. Leuven)

  • Fouarge, Didier

    (ROA, Maastricht University)

Purpose { This paper investigates the extent and the human-capital de- terminants of low-wage mobility for labour market entrants, in the UK and Germany. Design/methodology/approach { Using panel data for the UK (BHPS) and Germany (GSOEP), we apply a competing-risks duration model that al- lows us to study transitions from low pay to competing destination states: higher pay, self-employment, unemployment and inactivity. Unobserved het- erogeneity is tackled by a non-parametric mass-point approach. Findings { We ¯nd that low pay is only a temporary state for most young job starters. However, there is a small group of job starters that is caught in a trap of low pay, unemployment or inactivity. In the UK, job starters escape from low pay mainly by developing ¯rm-speci¯c skills. In Germany, involvement in formal vocational training and the attainment of apprenticeship quali¯cations account for low pay exits. Originality/value { Over the past decades, unemployment and low-wage employment have emerged as major challenges facing young labour market entrants. While most empirical studies focus exclusively on the transition from low pay to high pay, we show that a signi¯cant percentage of young entrants are caught in a low-pay - non-employment trap. Moreover, we show that, depending on the institutional context, di®erent types of human capital investments can account for a successful low-pay exit.

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Paper provided by IRISS at CEPS/INSTEAD in its series IRISS Working Paper Series with number 2008-12.

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Date of creation: Dec 2008
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Handle: RePEc:irs:iriswp:2008-12
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  1. Stewart, M.B. & Swaffield, J.K., 1997. "Low Pay Dynamics and Transition Probabilities," The Warwick Economics Research Paper Series (TWERPS) 495, University of Warwick, Department of Economics.
  2. Thomas J. Kane & Dietmar Harhoff, 1997. "Is the German apprenticeship system a panacea for the U.S. labor market?," Journal of Population Economics, Springer, vol. 10(2), pages 171-196.
  3. Rainer Winkelmann, 1996. "Employment Prospects and Skill Acquisition of Apprenticeship-Trained Workers in Germany," ILR Review, Cornell University, ILR School, vol. 49(4), pages 658-672, July.
  4. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
  5. repec:ese:iserwp:2002-08 is not listed on IDEAS
  6. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November.
  7. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  8. Arnaud Chevalier & Colm Harmon & Ian Walker & Yu Zhu, 2003. "Does education raise productivity, or just reflect it?," Working Papers 200304, School of Economics, University College Dublin.
  9. Thomas, Jonathan M, 1996. "An Empirical Model of Sectoral Movements by Unemployed Workers," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 126-53, January.
  10. Gagliarducci, Stefano, 2005. "The dynamics of repeated temporary jobs," Labour Economics, Elsevier, vol. 12(4), pages 429-448, August.
  11. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
  12. 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.
  13. Wolfgang Franz & Joachim Inkmann & Winfried Pohlmeier & Volker Zimmermann, 2000. "Young and Out in Germany (On Youths? Chances of Labor Market Entrance in Germany)," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 381-426 National Bureau of Economic Research, Inc.
  14. Lisa M. Powell, 2002. "Joint Labor Supply and Childcare Choice Decisions of Married Mothers," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 106-128.
  15. Clive Belfield & Xiangdong Wei, 2004. "Employer size-wage effects: evidence from matched employer-employee survey data in the UK," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 185-193.
  16. Lorenzo Cappellari & Stephen P. Jenkins, 2004. "Modelling low income transitions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 593-610.
  17. Uhlendorff, Arne, 2006. "From No Pay to Low Pay and Back Again? A Multi-State Model of Low Pay Dynamics," IZA Discussion Papers 2482, Institute for the Study of Labor (IZA).
  18. Euan Phimister & Ioannis Theodossiou & Richard Upward, 2006. "Is it easier to escape from low pay in urban areas? Evidence from the United Kingdom," Environment and Planning A, Pion Ltd, London, vol. 38(4), pages 693-710, April.
  19. Lorenzo Cappellari, 1999. "Low-Wage Mobility in the Italian Labour Market," The Warwick Economics Research Paper Series (TWERPS) 531, University of Warwick, Department of Economics.
  20. Roy Thurik, 2003. "Entrepreneurship and Unemployment in the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 264-290, 08.
  21. Brown, James N, 1989. "Why Do Wages Increase with Tenure? On-the-Job Training and Life-Cycle Wage Growth Observed within Firms," American Economic Review, American Economic Association, vol. 79(5), pages 971-91, December.
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