Reconsidering the interrelated dynamics of unemployment and low-wage employment in Great Britain

Economics Bulletin, 2016, vol. 36, issue 2, 1230-1241

Abstract: Stewart (2007, JAE) finds that being employed at low wages (compared to higher wages) increases the risk of future unemployment. The risk of future unemployment does not differ significantly between current low-wage employment and current unemployment. The author concludes that 'in terms of future employment prospects, low wages are closer to unemployment than to higher-paid jobs' [p. 529]. I show that this result depends strongly on the threshold used to distinguish between high and low wages: applying the widely used OECD (1997) definition of low-wages substantially changes the findings of Stewart (2007). With this threshold, I find that low wages are helpful for significantly reducing the risk of future unemployment compared to unemployment. Moreover, the categorization of the unemployed, the included variables with reference to the educational background, the age and the age restrictions imposed on the sample and switching from gross hourly wages in nominal terms to real terms have an impact on the findings.

Keywords: low pay dynamics; random effects probit model; state dependence; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: J3 J6 (search for similar items in EconPapers)
Date: 2016-06-22
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