Earnings prospects for low-paid workers higher than for the unemployed but only in high-pay areas with high unemployment

Alexander Plum and Gundi Knies

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: There is considerable debate on whether the prospects of entering a high-paid job are better for those in low-paid jobs compared to the unemployed. Whilst some scholars argue that there is a scarring effect of unemployment others highlight that low pay might signal a low productivity and furthermore reduce the time searching for a better paid job. Using longitudinal data for working age men in England matched with local labor market indicators, we estimate several random-effects probit models and find no difference in the probability of becoming high-paid employed between low-paid workers and the unemployed in areas with low unemployment. However, in areas with high unemployment and high pay, low-paid workers have a higher probability of entering high-paid employment than the unemployed. Moreover, there is a penalty for low-wage workers compared to the unemployed in low-pay areas in their probability of entering high-paid employment.

JEL-codes: J31 J62 J64 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dcm, nep-eur and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112845

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