Iben Bolvig (Aarhus School of Business,Graduate School for “Integration, Production and Welfare”, and CCP (Centre for Corporate Performance).)

Wage mobility among low wage workers - the importance of firm characteristics

The purpose of this study is to focus on the role of the firm when analysing wage mobility among low wage earners. The analysis is carried out in a duration analysis framework, examining low wage job spells in more than 20,000 Danish firms. I correct for unobserved heterogeneity both at the individual and the firm level. The average duration and the survival curves of low wage job spells suggest that low wage jobs in general are transitory jobs. The estimated expected duration of a low wage job for an average employee in an average firm is 2 years. The duration dependence is inverted U-shaped for all transitions out of low wage jobs. I find that, both individual and firm characteristics are important in explaining the hazard rate out of low wage jobs, but models correcting for individual unobserved heterogeneity are doing significantly better than models correcting for firm specific unobserved heterogeneity. The observed effects vary significantly between transitions to different destinations. As for the effects of firm characteristics, I find that the probability of getting higher wage in the same firm increases with the size of the firm, whereas the transition to higher wage in a new firm decreases with the size of the old firm. The effect of the local relative to the national unemployment rate on moving to a new firm is negative. Hence, workers do not seem to move to a low unemployment area to get a new job, but instead they leave employment. I find that low wage employees in firms with a high average age of the labour force have a lower separation rate from the firm, and a higher probability of getting a wage promotion inside the firm. I.e. these firms have a lower workforce turnover, which might be due to a more conservative way of thinking. The higher the proportion of managing employees in a firm, the higher is the general mobility out of low wage jobs. Finally, I find that the transition out of low wage jobs increases with the rate of low wage workers in the firm, except for the transition to higher wage in the same firm, i.e. there is a higher tendency to leave a low wage firm, which imply that certain firms are specifically low wage firms.

Keywords: Low wage earners, wage mobility, firm behaviour, employer-employee relations

JEL Codes: J21, J31, J41, J44, J62

Session: 4e   Room 2004   Category: Wages 2

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