Wage changes through job mobility in Europe: A multinomial endogenous switching approach

This paper presents evidence on the relationship between job mobility and wage mobility for some European countries using the European Community Household Panel (1994- 2001). While much of the earlier research uses least-squares regression to predict wages for individuals with different work experience, we find that it is important to take account of possible non-random selection between job movers and job stayers and between voluntary and involuntary movers. In this paper we focus on the effects of a spell of unemployment on subsequent wages by estimating a multinomial endogenous switching model composed of two selection equations and three wage equations. Our results indicate that job mobility through unemployment has negative returns in all the analysed economies. Relative to stayers, these losses range from 5% in Portugal to 22% in Germany.