Conference Paper BHPS-2007 Conference: the 2007 British Household Panel Survey Research Conference, 5 July -7 July 2007, Colchester, UK
How real is low-pay mobility?
The aim of this paper is to investigate the effect of measurement error on low-pay transition probabilities. Our approach combines the virtues of Mixed Markov and Latent Class models, while it does not require the use of validation or re-interview data. Descriptive statistics from household surveys suggest that at least one third of the low-paid workers increase their earnings above the low-pay threshold within one year. Using British, German and Dutch panel data, we show that the true estimated low-pay transition probability is no more than 17%. This implies that half of the observed transitions can be attributed to measurement error. The highest low-pay transition probabilities are found in Germany and the lowest in the Netherlands. When applying this correction for measurement error in a multivariate model of low- pay transitions, the results indicate that measurement error attenuates considerably the effects of the main covariates, such as training, job change, change in the employment contract type and shift from part-time to full-time employment.