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

Author

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  • Alexander Plum

    (Otto von Guericke University Magdeburg)

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.

Suggested Citation

  • Alexander Plum, 2016. "Reconsidering the interrelated dynamics of unemployment and low-wage employment in Great Britain," Economics Bulletin, AccessEcon, vol. 36(2), pages 1230-1241.
    • Handle: RePEc:ebl:ecbull:eb-15-00618
    as

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    References listed on IDEAS

    as
    1. Hielke Buddelmeyer & Wang‐Sheng Lee & Mark Wooden, 2010. "Low‐Paid Employment and Unemployment Dynamics in Australia," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 28-48, March.
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    6. Mark B. Stewart, 2007. "The interrelated dynamics of unemployment and low-wage employment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 511-531.
    7. Alexander Plum, 2019. "The British low-wage sector and the employment prospects of the unemployed," Applied Economics, Taylor & Francis Journals, vol. 51(13), pages 1411-1432, March.
    8. Wiji Arulampalam & Mark B. Stewart, 2009. "Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(5), pages 659-681, October.
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    More about this item

    Keywords

    low pay dynamics; random effects probit model; state dependence; unobserved heterogeneity;
    All these keywords.

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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