Escaping the low pay trap: do labour market entrants stand a chance?

Draft. Please do not cite or quote In this paper, we investigate the wage and employment perspectives of the low-wage labour market entrants, using panel data from the UK (BHPS), Germany (GSOEP) and the Netherlands (SEP). We specifically test the predictions of the lit-erature concerning the school-to-work transition. Rather than just investigating the probability of escaping low pay, we apply a discrete time hazard model for transitions from low pay to higher pay, to unemployment or to other states of non-employment. The model uses a non-parametric approach to correct for unobserved heterogeneity. We find that although low pay is a rather transitory experience, especially for the high educated, there is a significant amount of transitions between low pay and non-employment. Firm specific skills are the most important determinant of low pay exits in the UK and in the Netherlands, while formal vocational training qualifications are the main relevant factor in Germany