8.4  Mobility in the OECD

The evidence reported so far is derived largely from the two main English-speaking countries, the US and the UK. We know that these two countries are unusual among the OECD for the degree to which they have a hands-off approach to the labour market, and for the level of wage inequality that they experience. It is thus useful to look more broadly. To do this, I draw on recent work by the OECD.

The OECD (1997) uses comparable longitudinal data from up to six countries to compare various measures of wage mobility. They define low wage to be a wage of less than two thirds of the median. They find evidence of large disparities in wage mobility for low-wage workers among the six countries (Denmark, Italy, UK, US, Germany and France). For example, of the low-paid workers in 1986 in Denmark, only 8% were still low paid in 1991, compared to over one-half in the US. However, when the reference is broadened to include all those who were in low-paid jobs in 1986 regardless of what they were doing in 1991, the report finds that seven out of ten US low-paid workers in 1986 were either still low paid in 1991 or no longer working full-time. For Danish workers, the proportion was one-third.

This, the report comments, suggests that the larger the share of employment in low-paid jobs, the higher the persistence of low pay status and the wider the earning distribution, the harder it is for low wage workers to move up the ladder.

Evidence for Germany, Denmark, France, Italy Sweden, UK and US, indicates that earnings mobility for the entire set of full-time workers is similar and substantial; viz about half of workers changed quintiles between 1986 and 1991, and between 11 and 17% moved two quintiles. Nonetheless, the earnings inequality across the whole 5 years was about 80% of the earnings inequality of one year. (Keese et al, 1998). These conclusions apply only to people who were continuously employed full-time workers. Wages fall as well as rise. The share of workers with falling real wages (despite increasing experience) ranged from 6% in Germany to 29% in US.

Over the five years, there is considerable movement out of the low wage category, and considerable differences in this between countries. On every measure, the US (followed by the UK) has the highest inequality and the lowest mobility. For example, if we look only at people employed full-time over the 5 years, 75% of US and 61% of UK workers who were low paid (ie, paid below two thirds of the median) in 1991 were also low paid in 1986. Looked at the other way, 58/40% of US/UK workers who were low paid in 1986 were also low paid in 1991. In the low inequality countries of Denmark and Sweden, very few workers (6-10%) stay low paid.

If we include moving out of full-time employment with staying in the low wage category as a no-upward-mobility state, then 71% of US low wage workers in 1986 were not mobile by 1991. Of those who did move up, only 11% had moved above 95% of the median, compared with about one quarter for Sweden and Denmark. A large majority of those who left full-time employment moved out of the labour force rather than into part-time or self-employment. Low paid workers were much more likely to exit than were higher paid workers. “Averaging over the countries in our sample, first-quintile workers were about twice as likely to leave full-time employment as were third-quintile workers.” (Keese et al, 1998: 250). If we look only at full-time workers in both years, 16% of US low paid workers in 1986 had moved above 95% of the median, compared with about 20% for the UK, Italy, Germany and France and 34% for Denmark. US low wage workers are noticeably more likely to stay low paid than are those in the other countries in the sample.

Table 6 and Table 7 show the extent of earnings mobility for the selected countries, for the period 1986-91. Low wages are measured as being less than two thirds of median wages for full-time employees. The original data are derived from the OECD. Table 6 shows the extent of mobility for people who were employed full-time in both 1986 and 1991 and in 1986 were in a low wage job. Table 7 includes all people who were employed in a low wage job in 1986.

Table 6 shows how different are the mobility outcomes across the six countries for which there are data. The proportion of low paid full-time employees who stayed low paid varied from 8% in Denmark to 58% in the US. In Denmark, one third of workers moved from below 65% of the median to above 95%, within five years. In the US, only half as many did so. The other countries displayed degrees of mobility that lay between these extremes.

Source: Keese et al, 1998

Source: Keese et al, 1998

Table 7 shows more broadly what happened to low paid full-time workers. It is striking that between a quarter (Denmark) and 40% (Germany) were not in full-time employment five years later. For the US, fully 70% of people employed full-time on low wages in 1986 were either not in full-time employment or were still in low wage jobs five years later. Upward mobility was a minority experience in the US and Germany, in clear contrast to Denmark and Sweden.

Tables 6 and 7 raise the obvious question of whether there is a systematic link between the extent of cross-section inequality in pay and the extent of upward mobility of low paid workers. This question cannot be answered with confidence, since the number of countries for which there are comparable longitudinal mobility data is small. However, Figure 4 suggests that mobility is higher in countries with less cross-section inequality in pay, or at least no less. Where low pay is defined as below two thirds of the median, “ – a higher share of low-paid workers become trapped in countries where the pool of low-paid workers, in any single year, is larger.” (Keese et al :251). Note the first panel, where low wage is defined as having a wage in the bottom quintile, suggests that there is no clear relation between overall inequality and mobility. This measure of low pay is not affected by the degree of absolute inequality.

Figure 4 - Upward mobility of low-paid workers and overall earnings inequality

Notes: (Y) Probability a first quintile worker in 1986 had moved into a higher quintile in 1991.

(X) Ratio of 90^th to 10^th percentile earnings, 1991.

(a) The mobility of low-paid workers refers only to those workers employed full-time in 1986 and 1991.

Source: OECD (1996, Chapter 3).

Figure 4 - Upward mobility of low-paid workers and overall earnings inequality (continued)

Notes: (Y) Probability a worker earning below 0.65 of the median in 1986 was earning above 0.65 of the median in 1991.

(X) Ratio of 90^th to 10^th percentile earnings 1991.

(a) The mobility of low-paid workers refers only to those workers employed full-time in 1986 and 1991.

Source: OECD (1996, Chapter 3).