Transitions from low-paid employment

According to a recent analysis of employment progression in the private sector in Austria, moving from low-paid employment into more highly paid jobs is uncommon and subject to significant gender differences. This is mainly due to AustriaaeuroTMs highly gender-segregated labour market. Male non-nationals had a slightly higher chance of moving from low-paid employment into higher paid jobs than male nationals; female non-nationals had an even lower chance than female nationals.

The majority of workers in low-paid jobs face low wages in the long term, accompanied by a higher risk of falling back into unemployment. Several European countries have faced a rise in low-paid work over the last decade. Against the background of a more flexible labour market, this development has sparked a discussion about its principal function: is it an instrument for creating new labour market integration processes as a stepping stone into stable, higher paid employment or is it a kind of trap keeping people in poor jobs with a aeuro~revolving door effectaeuroTM back into unemployment? A recent study in Austria tries to answer this question.

About the study

The study Low-paid employment aeuro" a bridge to stable employment or a low pay trap? (in German, 1.54Mb PDF), carried out by the Austrian Institute of Economic Research (WIFO) and commissioned by the Public Employment Service (AMS), is based on secondary analysis of social security data. The study analyses the transition of employees from low-paid employment: aeuro" that is, the chance of leaving low-paid jobs for higher-paid employment contracts, and the risk of unemployment. The study investigated the full-time low-pay employment progression of private sector employees aged 25aeuro"54 years in Austria for the period from 1998 and to 2006.

Low pay is defined as two thirds of the median gross monthly earnings for full-time employment of the employed population aged 25 to 59 years. Based on this definition, around 15%aeuro"16% of full-time employees in the private sector were in low-paid work during the period 1998aeuro"2006.

The study reveals a considerable gender difference. The percentage of all full-time employed women falling into the low-pay category was stable throughout the study period at 32%, but the quota for men stayed at a significantly lower level aeuro" albeit increasing from 7% to 9%. Moreover, the share of low-wage earners among men fell considerably with age whereas it was slightly higher among older female workers compared with younger ones.

Another remarkable structural aspect of low-paid employment in Austria was the higher proportion of non-nationals in this employment segment: 25% of all full-time employed male non-nationals and 22% of all full-time employed non-national women work in low paid jobs.

Transition from unemployment to employment

A closer look at individual employment careers confirms these fundamental gender differences.

The study found that 50% of all formerly unemployed women who succeeded in taking up a full-time job during 1998aeuro"2006 started in the low-pay segment but only 17% of men did so. In addition, this share increased for older women but barely did so for older men.

The study also showed that only a minority succeeded in moving up into more highly paid work. During the period under investigation, only 11.5% of women and 18% of men managed to switch to better paid jobs. Moreover, the gender differences for opportunities to switch to more highly paid jobs are even higher within the group of low-skilled workers and among elderly workers (aged 45aeuro"54 years); in both groups, the chances of female workers getting better-paid jobs are half of those of male workers (see figure below).

The chance of leaving low-paid work after a period of unemployment depends greatly on the sector. In the banking and insurance sector, 34% of female and 44% of male employees succeeded in moving to better jobs compared with just 6% of women and 11% of men in the hotels and restaurants sector. The fact that around two fifths of all women took up employment in the latter sector clearly illustrates how AustriaaeuroTMs highly gender-segregated labour market contributes to the higher persistence of female low-paid work. The chances of a switch into more highly paid employment are also much better in large companies than in small ones.

Take-up of low-paid employment by unemployed people: transition into higher paid employment by gender, age, educational level and nationality

Take-up of low-paid employment by unemployed people: transition into higher paid employment by gender, age, educational level and nationality

Source: AMS and WIFO, 2010

Chance of transition into higher paid employment

Based on multivariate analysis, the study indicates that individual features such as gender, age, educational level, work experience and unemployment history do have an impact on the role of low-pay employment in the employment careers of workers.

According to the results of the analysis, the chance of making the transition from low pay to better paid work is higher for younger rather than older workers, for men rather than women, for more highly qualified workers than those with few qualifications aeuro" particularly for female workers aeuro" and for those with a shorter unemployment history.

Chances of progressing to higher wages are also higher in certain sectors aeuro" such as banking and insurance as well as energy compared with hotels and restaurants and agriculture/forestry aeuro" and in larger companies. The study also shows that the longer the duration of low-paid employment, the lower the chances are of a move into higher paid employment.

Another interesting result is the fact that male non-nationals have slightly better chance of switching from low pay to higher paid jobs (19% compared with 18% for male nationals; see figure). The explanation provided by the studyaeuroTMs authors is that often foreigners initially take on work at low pay in jobs that are usually better paid, and often despite their relatively higher skills level. They therefore have a slightly better chance of moving onto the standard pay level for these jobs and out of the low-pay sector after proving their worth. This is not the case for female non-nationals. Their chances of leaving low-paid employment are even lower (9%) than among female nationals (12%).

Sliding back into unemployment and persistence in low-paid work

While there is only a slim chance of reintegrated low-wage earners moving towards higher paid work, their risk of falling back into unemployment is considerably higher than among those working in better paid jobs. During the period under investigation, a majority of 65% of all transitions from unemployment into low-paid employment ended with the workers sliding back into unemployment, with hardly any gender differences. The studyaeuroTMs authors see this as an indicator of the greater importance of a so-called aeuro~revolving door effectaeuroTM, sending workers back and forth between low-paid work and unemployment. The risk of falling back into unemployment is much higher among older and low-skilled workers.

The study also shows that persistence in low-paid employment is high, with 68% of female workers and 61% of male workers still in the low-paid job they had taken up one year earlier. This is critical because the chance of leaving low-paid employment falls considerably the longer a worker remains in this segment of the labour market.

The higher rate of persistence in low-paid jobs among women also sheds light on AustriaaeuroTMs highly gender-segregated labour market, which often results in women working in companies and sectors characterised by low pay levels and low upward payment mobility.

Commentary

The study clearly demonstrates that low-paid employment can rarely aeuro" except for younger and more highly qualified workers aeuro" be seen as a stepping stone for unemployed people into higher paid work. The majority of workers in low-paid jobs face low wages in the long term, accompanied by a higher risk of falling back into unemployment. Given the comparatively low levels of unemployment benefit in Austria (55% of salary), this creates precarious social situations.

The high percentage of women in low-pay employment and their low upward mobility is due to AustriaaeuroTMs highly gender-segregated labour market (by international standards), as well as to its high wage differentials between sectors and pronounced gender pay gap.

References

Lutz, H. and Mahringer, H., NiedriglohnbeschA¤ftigung aeuro" BrA¼cke in dauerhafte BeschA¤ftigung oder Niedriglohnfalle? [Low pay employment aeuro" bridge into stable (higher paid) employment or low pay trap?], Vienna, Public Employment Service, 2010, available online at http://www.forschungsnetzwerk.at/downloadpub/Niedriglohnstudie_ams_wifo_2010_Endversion.pdf [main report] and http://www.forschungsnetzwerk.at/downloadpub/Anhang_Niedriglohnstudie_ams_wifo_2010.pdf [appendices].

Manfred Krenn, FORBA

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