Low pay persistence in Europe

• Poorly paid workers tend to stay low paid in many European countries.
• Some of this effect reflects their characteristics.
• But a significant proportion of this may be causal.
• Low pay persistence is not systematically related to labour market institutions.

Using panel data for twelve European countries over the period 1994–2001 we estimate the extent of state dependence in low pay for male workers. Controlling for observable and unobservable heterogeneity as well as the endogeneity of initial conditions we find positive, statistically significant state dependence in every single country. The magnitude of this effect varies by country, however this variation is not systematically related to labour market institutions.