Earnings Mobility Among Italian Low Paid Workers

This paper uses Italian panel data to analyse transition probabilities at the bottom of the earnings distribution during the 1990s. The analytical framework is characterised by the ability to account for endogeneity of initial conditions and earnings attrition. Results show that both are endogenous for the estimation of low pay transitions. In particular it is found that the low paid are more likely to exit from the earnings distribution compared to the higher paid, revealing higher employment instability. The data also reveal considerable state dependence, i.e. the probability of experiencing low pay depends upon past low pay experiences rather than on personal attributes. Extensions of the model to longer term transitions suggest that state dependence effects are concentrated at the beginning of low pay spells, while subsequent low pay experiences contribute to a lesser extent. keywords: low pay, earnings mobility, initial conditions, earnings attrition JEL code: C23, C35, D31, J31 § This paper extends Chapter Five of my PhD dissertation at the University of Warwick. Thanks go to W. Arulampalam, C. Dell’Aringa, S. Jenkins, C. Lucifora and especially M. Stewart for comments and advice. Seminar participants at the 1999 EALE conference and the Catholic University of Milan provided useful remarks. Data availability from the Bank of Italy and financial support from the Catholic University of Milan and the Nuffield Foundation under the New Career Development Scheme are gratefully acknowledged. Usual disclaimers apply.