Research Paper IRISS Working Paper Series 2008-12
Escaping low pay: do male labour market entrants stand a chance?
01 Dec 2008
This paper investigates the extent and the human-capital determinants 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 allows us to study transitions from low pay to competing destination states: higher pay, self-employment, unemployment and inactivity. Unobserved heterogeneity is tackled by a non-parametric mass-point approach. Findings: We find 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 firm-specific skills. In Germany, involvement in formal vocational training and the attainment of apprenticeship qualifications 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 significant percentage of young entrants are caught in a low-pay - non-employment trap. Moreover, we show that, depending on the institutional context, different types of human capital investments can account for a successful low-pay exit.
Econpapers search; working paper