The interrelated dynamics of unemployment and low‐wage employment

This paper examines the extent of state dependence in unemployment and the role played in this by intervening low‐wage employment. A range of dynamic random and fixed‐effects estimators are compared. Low‐wage employment is found to have almost as large an adverse effect as unemployment on future prospects and the difference in their effects is found to be insignificant. Evidence is presented that low‐wage jobs act as the main conduit for repeat unemployment and considerably increases its probability. Obtaining a higher‐wage job reduces the increased risk of repeat unemployment to insignificance. Copyright © 2007 John Wiley & Sons, Ltd.