Conference Paper BHPS-2005 Conference: the 2005 British Household Panel Survey Research Conference, 30 June -2 July 2005, Colchester, UK
Escaping the low pay trap: do labour market entrants stand a chance?
Economic theory predicts a decrease in the demand for low-skilled labour due to
increased international trade, skill-biased technological change and abolition of labour
market regulations. From this perspective, employees who enter the labour market
having low levels of general human capital are contented to face flatter wage careers
and higher chances for a transition to unemployment than their higher educated peers.
In this paper we investigate the wage and employment perspectives of low-wage
labour market entrants using panel data from the UK (BHPS), Germany (GSOEP) and
the Netherlands (SEP). We focus on labour market entrants (employees in their first
job) because they are most likely to be affected by the skill-biased technological
change, on the one hand, and because of the lack of comparative evidence concerning
their labour market prospects, on the other.
Rather than just investigating the probability of escaping the low pay, we apply a
discrete time hazard models for transitions from low pay to high pay, selfemployment
or unemployment. We find negative duration dependence in all three
countries, however, duration dependence in the UK is stronger. While the survival
rates for low-pay male labour market entrants are similar in Germany and the
Netherlands, the initial survival rate is a much higher level in the UK. However, it
displays a sharp drop in the UK such that after six years the patterns are similar in all
Low pay seems to be a temporary state for the high educated in all countries. For
other educational levels the differences between countries are substantial. In the UK,
the survival rates for male low-pay entrants with a low or average educational level
are similar while in the other two countries low-pay workers with an average
educational level display exit more quickly than low-educated workers.
Transitions from low pay to unemployment are more likely for employees who
experienced an unemployment spell prior to their first job. Labour market institutions
(such as the existence of trade unions at the workplace) emerge as an effective means
of improving the status of the low paid.