Wage mobility , trivariate probit , administrative data
Abstract:
In this paper, we study how wage mobility in the low-wage sector has changed
in western Germany between 1984 and 2004. Using German individual register
data, we document a clear upward trend in the persistence of low-wage employment
for both men and women. Next to compositional shifts of the low-wage sector
relative to the high-wage sector, this trend may be explained by an increase in
\genuine"state dependence, which occurs if low-wage employment today causes lowwage
employment in the future for reasons of, e.g., stigmatization or human capital
depreciation. To isolate the latter, we model low-pay transitions by estimating
a series of multivariate probit models. We address the initial conditions problem
and the endogeneity of earnings attrition in our estimation approach by accounting
for the selection into low-wage employment and earnings retention. Our findings
for men and women point to an upward trend of genuine state dependence among
low paid workers especially since the beginning of the 1990s. Using decomposition
techniques, we show that between 35 and 54 per cent of the increase in genuine
state dependence during the 1990s is accounted for by compositional effects.
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