Low-wage employment in Europe: a review of the evidence

In this study, we review the patterns of low pay in Europe. We first describe the evolution of aggregate low-wage employment and the incidence of low pay among several groups of workers, then we look at the compositional changes that occurred in recent decades. Given the prevalence of wage regulation and collective bargaining in most European countries, we also analyse the role of labour market institutions on low pay. We show that minimum wages and union presence do play a relevant role in reducing wage inequalities. Finally, we investigate low pay in the long run and the evolution of earnings over the life-cycle. We show that earnings mobility has an equalizing effect over the long-run but its impact is small over 6/7 years. Empirical evidence from a number of OECD countries confirms that earnings inequality between individuals is lower when earnings are pooled over a number of years but, for Britain at least, the extent to which mobility reduces inequality has fallen over time suggesting a fall in mobility and an increase in long run inequality.