International Journal of Manpower vol:31 issue:8 pages:908-927
Purpose - We investigate the extent and the human-capital determinants of low-wage mobility for labour market entrants, in the UK and Germany.
Design/methodology/approach - Using panel data for the UK (BHPS) and Germany (GSOEP), we apply a competing-risks duration model that allows us to study transitions from low pay to competing destination states: higher pay, self-employment, unemployment and inactivity. Unobserved
heterogeneity is tackled by a non-parametric mass-point approach.
Findings - We find that low pay is only a temporary state for most young job starters. However, there is a small group of job starters that is caught in a trap of low pay, unemployment or inactivity. In the UK, job starters escape from low pay mainly by developing firm-specific skills. In Germany, involvement in formal vocational training and the attainment of apprenticeship qualifications account for low pay exits.
Originality/value - Over the past decades, unemployment and low-wage employment have emerged as major challenges facing young labour market entrants. While most empirical studies focus exclusively on the transition from low pay to high pay, we show that a significant percentage of young entrants are caught in a low-pay - non-employment trap. Moreover, we show that, depending on the institutional context, different types of human capital investments can
account for a successful low-pay exit.