The low-pay no-pay cycle: are there systematic differences across demographic groups?

We investigate transitions between unemployment, low-paid employment and higher-paid employment using dynamic panel data methods applied to household panel data. We find state dependence in both unemployment and low-paid employment and evidence of a low-pay no-pay cycle. However, we also find significant differences in effects across population subgroups. Typically, the young and better-educated face lower penalties from unemployment and low-paid employment. Further, low-paid employment is preferable to unemployment for women regardless of their demographic characteristics, but for men who have only completed secondary schooling, low-paid employment actually decreases the chances of entering higher-paid employment by more than does unemployment. © 2015 The Department of Economics, University of Oxford and John Wile