Low‐Paid Employment and Unemployment Dynamics in Australia*

Abstract

Survey to examine the extent to which the relatively high rates of transition from low-paid employment into unemployment are the result of disadvantageous personal characteristics or are instead a function of low-paid work itself. Dynamic random effects probit models of the likelihood of unemployment are estimated. After controlling for unobserved heterogeneity and initial conditions, we find that, relative to high-paid employment, low-paid employment is associated with a higher risk of unemployment, but this effect is only significant among women. We also find only weak evidence that lowpaid employment is a conduit for repeat unemployment.

Low-wage employment versus unemployment: Which one provides better prospects for women?

“…While Stewart (2007) finds that low-wage earners incur the same unemployment risk as unemployed persons, Buddelmeyer et al (2010) show that low-wage employment is associated for men with weak, but for women with considerable scarring effects. Clark and Kanellopoulos (2013) find positive, statistically significant state dependence in low pay for male workers in each of the twelve European countries under inverstigation.…”

“…In recent years, state dependence regarding labor market transitions between low-wage employment, high-wage employment and unemployment has been analyzed by Stewart (2007) for the UK and by Buddelmeyer et al (2010) for Australia, using panel data models with lagged dependent variables. While Stewart (2007) finds that low-wage earners incur the same unemployment risk as unemployed persons, Buddelmeyer et al (2010) show that low-wage employment is associated for men with weak, but for women with considerable scarring effects.…”

The dynamics of low pay employment in Australia

“…2 Buddelmeyer et al (2010) show that while different low pay thresholds result in different proportions of workers classified as on low pay, they have little impact on model estimates.…”

“…Different thresholds have been used in the literature. This study uses two thirds of the median hourly earnings, which appears to be the most popular definition (Buddelmeyer et al 2010). …”

“…For example, descriptive analyses by Dunlop (2001) and Perkins and Scutella (2008), while using different data sources, show that low pay workers are more likely than higher pay workers to move into joblessness in the future. On the other hand, using the first seven-wave Household, Income and Labour Dynamics in Australia (HILDA) survey, Buddelmeyer et al (2010) find that previous low pay experience has only a modest effect on the probability of experiencing unemployment in the future when observed and unobserved individual heterogeneity is accounted for. This result is consistent with Cappellari and Jenkins (2008) for the UK men; but different from Stewart (2007) who finds that low wage employment has almost as large an adverse impact as unemployment on future employment prospects and that low wage jobs act as the main conduit for repeated unemployment.…”