Human capital formation and changes in low pay persistence

This study presents new empirical evidence on the role of time trends in low pay persistence. We utilize population-wide tax records to track monthly labour market trajectories of initially low-paid workers. By performing age- and qualification-specific regressions, we find that low pay persistence reduces with time. However, the magnitude is highly heterogeneous across workforce characteristics. For a qualified worker in their early 20s, the risk of staying on low-pay declines by, on average, 5-10% points after one year. For a worker in their 50s, persistence remains almost unchanged regardless of their qualification level. We conclude that policy initiatives need to be more nuanced than a simple one-size-fits-all approach by accounting for time trends in low-pay persistence.