Low Pay Persistence in European Countries

Abstract

Using panel data for twelve European countries over the period 1994-2001 we estimate the extent of state dependence in low pay. Controlling for observable and unobservable heterogeneity as well as the endogeneity of initial conditions we find positive, statistically significant state dependence in every single country. The magnitude of this effect varies by country, however this variation is not systematically related to labour market institutions.

Keywords: initial conditions, state dependence, low pay persistence, low pay, dynamic random effects probit models

JEL Classification: C23, C25, J31, J69