How real is low-pay mobility?

Draft. Please do not cite or quote The aim of this paper is to investigate the effect of measurement error on low-pay transition probabilities. Our approach combines the virtues of Mixed Markov and Latent Class models, while it does not require the use of validation or re-interview data. Descriptive statistics from household surveys suggest that at least one third of the low-paid workers increase their earnings above the low-pay threshold within one year. Using British, German and Dutch panel data, we show that the true estimated low-pay transition probability is no more than 17%. This implies that half of the observed transitions can be attributed to measurement error. The highest low-pay transition probabilities are found in Germany and the lowest in the Netherlands. When applying this correction for measurement error in a multivariate model of low-pay transitions, the results indicate that measurement error attenuates considerably the effects of the main covariates, such as training, job change, change in the em-ployment contract type and shift from part-time to full-time employment