Who Benefits from a Job Change

ABSTRACT

In this paper, we use panel data from the UK and Germany to investigate the effect of employer changes and in-firm job changes on year-to-year wage mobility of male full-time workers. Following segmentation theories and the job search theory, we study whether this effect differs for the low- and high-wage workers. As wage growth is endogenous to the decision of changing jobs, a two-stage Heckman selection approach is used. Specifically, we first estimate a random-effects multinomial logit model for the selection into a job transition and then a fixed-effects panel regression model for the wage growth. The findings suggest that both external and in-firm job changes result into substantial wage gains for the low-paid workers but not for the medium- or high-paid workers. However, the wage gain of low-paid workers due to an in-firm job change is only observed in the UK and is less pronounced than their gain by an external job change. In the German labour market, the later effect is insignificant. The results indicate that low-paid workers profit more from a voluntary change of employer in the coordinated German labour market and from a voluntary in-firm change in the liberal British labour market.

Key words:

• low pay
• high pay
• job mobility
• wage mobility

Acknowledgements

We are thankful to the participants of the SOEP conference, the LOWER conference and the AIAS seminar series, the members of the Labour group of CentER/Tilburg University for their useful comments and suggestions on previous drafts. We are also thankful to two anonymous reviewers for their comments.

Notes

1 All the above-mentioned approaches assume that job turnover is voluntary and direct (job-to-job). Involuntary mobility and mobility through unemployment is associated with loss of specific human capital and therefore result in slowed wage careers.

2 Since the beginning of the 1990s, regulation in the German labour market has become less tight. The Hartz reforms, the creation of the so-called 'mini-jobs’ and the erosion of collective bargaining coverage led to a considerable increase of contractual and wage flexibility in the German labour market (Schmid and Modrack 2008). However, even after these developments, the German labour market remains much more regulated than the British one. In 2008, the overall EPL was 2.6 in Germany and 1.1 in the UK (Venn 2009).

3 All the data in this paragraph come from OECD (2013).

4 This exclusion might also introduce a sector bias as well since part-timers and women are overrepresented in some sectors, such as services. For this reason, we repeated our multivariate analysis by including only sectors with a low concentration of part-timers, namely manufacturing, energy and mining. The results did not differ significantly from the results that we present in section 6.

5 These results can be provided at request.

6 For the UK, two-thirds of the internal job changes are related to promotions. For Germany, we cannot distinguish promotions from other types of internal job changes.

Additional information

Notes on contributors

Dimitris Pavlopoulos

Dimitris Pavlopoulos is an assistant professor at the department of Sociology at the VU University Amsterdam. He has studied Mathematics at the University of Athens and Economics at the Athens University of Economics and Business. He received his PhD at Tilburg University. His main research interests concern labour market dynamics, flexible employment, unemployment and measurement error in socio-economic data. He teaches courses on labour market theories, statistics and methodology for social sciences at the BSc and MA level.

Didier Fouarge

Didier Fouarge studied economics at the Facultés Universitaires Notre-Dame de la Paix (FUNDP) in Namur, Belgium. He holds a PhD from Tilburg University. He has been working as a researcher at the Research Centre for Education and the Labour Market (ROA), Maastricht University, since 2007. His main research interests reside in scientific and applied research on labour market dynamics, labour supply decision (working time, retirement) and human capital.

Ruud Muffels

Ruud Muffels (MA economics, Tilburg) is full professor of socio-economics (labour market and social security studies) at the Department of Sociology of Tilburg University. He is also research fellow at Reflect – Research Institute on Flexicurity, Labour Market Dynamics and Social Cohesion at Tilburg University, NETSPAR, the network for research on ageing at the Economic Faculty, DIW-Berlin, and IZA-Bonn. His primary interests concern labour market and welfare economics and economic sociology. Particular topics of interest concern labour market dynamics, income and poverty dynamics, comparative analysis of the welfare state, pensions and early retirement, and socio-economic policy. He has published in a wide range of economic, sociological and interdisciplinary journals and in a large number of international academic volumes.

Jeroen K Vermunt

Jeroen K. Vermuntis is a full professor in the Department of Methodology and Statistics at Tilburg University, the Netherlands. His research is on methodologies of social, behavioral, and biomedical research, with a special focus on latent variable models and techniques for the analysis of categorical, multilevel, and longitudinal data sets. He has widely published on these topics in statistical and methodological journals and has also co-authored many articles in applied journals in which these methods are used to solve practical research problems. He is the co-developer (with Jay Magidson) of the Latent GOLD software package. In 2005, Vermunt was awarded the Leo Goodman award by the Methodology Section of the American Sociological Association.