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CHAPTER 2 Low Pay, Working Conditions, and Living Standards Geoff Mason and Wiemer Salverda As a prelude to discussion of the role of industrial relations and wage-setting institutions in chapter 3 and the impact of labor market institutions on labor supply in chapter 4, this chapter describes the importance and characteristics of low-wage work and the living standards and working conditions of low-wage workers in the six countries. The chapter first examines how each country compares in terms of the incidence of low pay, the evolution of low-wage shares of employment, the characteristics of low-wage jobs and workers, and the chances of low-wage workers eventually succeeding in moving to higher pay brackets. The chapter then compares the six countries in terms of three elements of employment and work conditions that are important components of job quality for low-wage workers: job security, work intensity, and hours of work. Finally, we assess what being low-paid in each country means in terms of the purchasing power of low wages and living standards, taking account of employer - and state-provided nonwage benefits such as health and pensions , and the extent of any overlap between low pay and household poverty. LOW PAY: DEFINITION, LEVEL, AND EVOLUTION The specific definition of low-wage work that we adopt is work for which the pay is less than two-thirds of the gross hourly median wage. Compared to the frequently used quantiles of the distribution —say, the bottom 30 percent—which generate an incidence of low pay that by definition remains the same, the definition used here offers the possibility of change over time and enables us to link lowwage work to the density of the distribution. Taking the median as a base instead of the mean wage mitigates the effect of the few ex35 tremely high wages at the upper end of the distribution and possible measurement error at the lower end.1 The definition is further based on hourly wages to enable coverage of part-time workers, whose importance differs significantly across countries and has been growing over time in most countries, sometimes very considerably. The hourly approach also permits a more precise treatment of full-time workers, whose hours vary substantially across individuals and countries as well as over time, in part because of the drastic shortening of the working week in some countries.2 Finally, it should be stressed that this section considers only gross wages for the worker. Other wage concepts—such as wages received by workers net of taxes and contributions, and gross labor compensation paid by firms, including payroll taxes and employer contributions—are discussed later in the chapter, as are nonwage benefits. This approach also offers the practical advantages of being endorsed by the Organization for Economic Cooperation and Development (OECD) and the European Union, having been adopted in many data sets, and being easier to calculate in international comparison.3 As shown in the first row of table 2.1, the six countries differ greatly in the incidence of low pay. However, the pattern of difference coincides only partially with traditional expectations that the United States and the United Kingdom would have much higher rates of low-wage employment than the continental European countries, and that the incidence of low pay would be lowest in the Scandinavian countries. In fact, the United States does still have the highest rate of low pay and Denmark the lowest. As a result of recent rapid growth in pay inequality in Germany, however, that country comes very close to the United States in terms of the low-wage share of employment and now slightly exceeds the rate of low pay in the United Kingdom.4 Between these extremes, France is fairly close to the low Danish level, while the Netherlands is in the middle, following rapid growth between 1985 and 1998. Figure 2.1 shows the evolution of low pay in each country. Strikingly , the U.S. level was already high in the 1970s and has changed little since then. By contrast, other countries, such as the United Kingdom, the Netherlands, and Germany, have moved closer to the American level. On these data, the German incidence in particular has followed a striking upward trend, increasing from 14.4 percent in 1995 to 18.7 percent for full-time workers only. Using a different data set that includes part-time workers, the low-wage share reached 22.7...

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