Low wage after unemployment - the effect of changes in the UI system

Iben Bolvig
Additional contact information
Iben Bolvig: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

No 08-11, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: Low-wage jobs in Denmark are characterized by short durations and a relatively high mobility to higher wage positions, but also to unemployment. This fact might to some extent be attributed to the generous Danish UI system. The theoretical prediction for this relation is twofold. First, a generous UI system will increase reservation wages and thereby increase the effective minimum wage. This will exclude the least productive individuals from employment and thereby increase the lowest skill level among employed individuals. Hence, the Danish low-wage earners will tend to be better qualified and their duration as low-wage earners will therefore tend to be shorter. Second, the generous benefit system will allow the unemployed person to wait for better jobs, and likewise, force the employing firms to provide jobs with better prospects. By exploiting several tightening of the Danish UI system during the late nineties, these hypotheses are tested by analysing low-wage durations following an unemployment-spell using hazard models allowing for correlation between low wage duration and previous unemployment spells. Results show that being eligible for UIB does indeed increase the transition out of low wage, both to higher wage jobs and returning to unemployment. At the same time approaching passive benefit exhaustion initially increases the likelihood of moving to low-wage employment and subsequently increases the likelihood of returning to unemployment after a spell of low wage. Moreover it decreases mobility to subsequent higher wage employment. Hence, decreasing the passive period seems to have a positive effect on the employment rate, but the jobs accepted seem to be of lower quality, i.e. with higher return rates and lower upward wage mobility.

Keywords: No; keywords (search for similar items in EconPapers)
JEL-codes: J31 J64 J65 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-05-01
New Economics Papers: this item is included in nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.hha.dk/nat/wper/08-11_ibenb.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.hha.dk:80 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:aareco:2008_011

Access Statistics for this paper

More papers in Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Helle Vinbaek Stenholt ( this e-mail address is bad, please contact ).