The Times Australia
Fisher and Paykel Appliances
The Times World News

.

Are low-paid jobs really a stepping stone to better pay? A new study suggests it’s not that simple

  • Written by Alexander Plum, Senior Research Fellow in Applied Labour Economics, Auckland University of Technology

A job – any job – is generally thought of as better than no job at all. Consequently, low-paid work is often considered a “stepping stone” to a higher-paid job. But how easily do low-paid workers climb up the pay scale, really?

Our new research[1] suggests past studies may have considerably overstated the chances of moving from low to higher pay. This has significant implications for understanding labour market behaviour.

Given the NZ$3.3 billion increase in welfare payments[2] announced in New Zealand’s recent budget – dubbed the “biggest lift in a generation” – and the ongoing focus on inequality and minimum wage rates, how we measure income mobility is increasingly important.

In particular, what are some of the characteristics of the low-paid workforce? How likely or unlikely is it that an individual can transition from low to higher pay?

Past research has described low-paid work as a stepping stone if there is a greater chance of moving to higher pay relative to someone who is unemployed.

Furthermore, the data have suggested relatively high likelihoods of making the transition from low to higher pay — estimates range from 47% to nearly 90%, based on studies from the UK, Australia and Germany.

However, this research has mostly had to rely on survey data based on individual responses to an annual set of questions. This means we can only observe a snapshot of any given labour market once a year.

When determining whether an individual is unemployed, low paid or higher paid, a lot of information between those annual surveys falls into the unknown.

What traditional research misses

Why does this matter? It helps to imagine three different individuals, with different labour market experiences, answering a survey about their employment status in October 2019 and again in October 2020:

  • one was low paid in the first survey and remained in low pay every month until the second survey

  • the second oscillated between low and higher pay between surveys but happened to be in low pay at each survey point

  • the third regularly moves between low pay and unemployment but is also in low pay at the time of each survey.

Because of the lack of information between survey time points, all three individuals will fall into the same category. In turn, this may influence estimates of movement out of low pay.

Read more: NZ Budget 2021: women left behind despite the focus on well-being[3]

What more detail reveals

In New Zealand we have the advantage of the integrated data infrastructure (IDI[4]), a large research database published by Stats NZ[5].

As well as being population-wide, this provides monthly administrative tax records that reveal labour market states at a much higher frequency.

Our research uses these detailed data to look at the male low-paid workforce aged between 21 and 60 in New Zealand. The results are illuminating.

Read more: NZ's second 'Well-being Budget' must deliver for the families that sacrificed most during the pandemic[6]

First, we mimicked conventional earlier research by looking at the labour market from only one month each year. Through this lens, New Zealand looks similar to Australia, with the probability of moving from low pay to higher pay estimated to be 74%.

When we use the detailed monthly income records, however, it is clear the picture is not as rosy. Most importantly, the likelihood of moving from low pay to higher pay is much lower than traditional methods suggest.

In fact, for those who have been in low-paid work for all of the prior 12 months, we found the likelihood of them moving into higher pay in the following month was only 28%. Being continuously in low-paid work, it seems, means it isn’t easy to climb out.

A limited stepping stone

On the other hand, our research confirms the stepping-stone effect does exist in the New Zealand labour market: compared to being unemployed, you’re more likely to move into higher pay from being low paid.

Specifically, someone unemployed for the previous 12 months has only a 1% probability of moving into higher pay in the next month. That compares to 28% for those in low-paid employment for all of the previous 12 months.

Work and Income office sign Moving from low-paid work to better pay may be difficult, but moving from an unemployment benefit to higher pay is even less likely. GettyImages

Overall, our research highlights the value of detailed, high-frequency, integrated data in assessing the nuances in the labour market landscape.

On top of that, it illustrates the real difficulty in climbing the wage ladder for those in long-term low-paid work. This suggests policymakers should focus on pathways to wage growth, as well as on job creation itself.

References

  1. ^ new research (onlinelibrary.wiley.com)
  2. ^ increase in welfare payments (www.workandincome.govt.nz)
  3. ^ NZ Budget 2021: women left behind despite the focus on well-being (theconversation.com)
  4. ^ IDI (www.stats.govt.nz)
  5. ^ Stats NZ (www.stats.govt.nz)
  6. ^ NZ's second 'Well-being Budget' must deliver for the families that sacrificed most during the pandemic (theconversation.com)

Read more https://theconversation.com/are-low-paid-jobs-really-a-stepping-stone-to-better-pay-a-new-study-suggests-its-not-that-simple-162162

Active Wear

Times Magazine

World Kindness Day: Commentary from Kath Koschel, founder of Kindness Factory.

What does World Kindness Day mean to you as an individual, and to the Kindness Factory as an organ...

In 2024, the climate crisis worsened in all ways. But we can still limit warming with bold action

Climate change has been on the world’s radar for decades[1]. Predictions made by scientists at...

End-of-Life Planning: Why Talking About Death With Family Makes Funeral Planning Easier

I spend a lot of time talking about death. Not in a morbid, gloomy way—but in the same way we d...

YepAI Joins Victoria's AI Trade Mission to Singapore for Big Data & AI World Asia 2025

YepAI, a Melbourne-based leader in enterprise artificial intelligence solutions, announced today...

Building a Strong Online Presence with Katoomba Web Design

Katoomba web design is more than just creating a website that looks good—it’s about building an onli...

September Sunset Polo

International Polo Tour To Bridge Historic Sport, Life-Changing Philanthropy, and Breath-Taking Beau...

The Times Features

How airline fares are set and should we expect lower fares any time soon?

Airline ticket prices may seem mysterious (why is the same flight one price one day, quite anoth...

What is the American public’s verdict on the first year of Donald Trump’s second term as President?

In short: the verdict is decidedly mixed, leaning negative. Trump’s overall job-approval ra...

A Camping Holiday Used to Be Affordable — Not Any Longer: Why the Cost of Staying at a Caravan Park Is Rising

For generations, the humble camping or caravan holiday has been the backbone of the great Austra...

Australia after the Trump–Xi meeting: sector-by-sector opportunities, risks, and realistic scenarios

How the U.S.–China thaw could play out across key sectors, with best case / base case / downside...

World Kindness Day: Commentary from Kath Koschel, founder of Kindness Factory.

What does World Kindness Day mean to you as an individual, and to the Kindness Factory as an organ...

HoMie opens new Emporium store as a hub for streetwear and community

Melbourne streetwear label HoMie has opened its new store in Emporium Melbourne, but this launch is ...

TAFE NSW empowers women with the skills for small business success

Across New South Wales, TAFE NSW graduates are turning their skills into success, taking what they h...

The median price of residential land sold nationally jumped by 6.8 per cent

Land prices a roadblock to 1.2 million homes target “The median price of residential land sold na...

Farm to Fork Australia Launches Exciting 7th Season on Ten

New Co-Host Magdalena Roze joining Michael Weldon, Courtney Roulston, Louis Tikaram, and Star Guest ...