School of Economics and Finance

No. 447: Low-Pay Mobility in the Swiss Labor Market

Augustin de Coulon , CEP, London School of Economics and Political Science
Boris A. Zürcher , State Secretariat for Economic Affairs, Switzerland

December 1, 2001

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This paper uses a panel of 7617 individuals drawn from the Swiss Labor Force Survey (SLFS) to study i) low-pay incidence and ii) individual transition probabilities at the lower end of the wage distribution. In a first step, various raw transition probabilities are computed for the period between 1992 and 1998, and some descriptive and comparative statistics on wage mobility are presented. In the second step, the determinants of low-pay incidence are estimated, and in a third step, the determinants of transitions into and out of the low-pay segment are analyzed. This analysis is based on a bivariate probit model which takes into account the potential endogeneity of the initial state. With regard to low-pay incidence the results to a large extent confirm previous ones obtained by standard wage equations. Low-pay incidence is influenced by certain personal characteristics, but as well by the affiliation to particular economic sectors. When investigating mobility, it is found that low-pay spells are both, transitory and persistent events. On the one hand, many workers low-paid at some point in time succeed to escape the low-pay segment within a two-year period. For those remaining low-paid, on the other hand, our results suggest that state dependence rather than heterogeneity seems to affect more the persistence in low-pay status.

J.E.L classification codes: J31, D31, C25

Keywords:Low-pay, Wage mobility, Transition models