Do the 'working poor' stay poor? An analysis of low pay transitions in Italy

This paper uses survey panel data to look at transition probabilities at the bottom of the Italian earnings distribution. The econometric analysis is characterized by a proper treatment of the initial conditions problem and by the investigation of genuine state dependence, the extent with which low pay probabilities depend upon the past experience of low pay other things equal. Results indicate that initial conditions are endogenous and that genuine state dependence can be relevant in determining low pay persistence. On the other hand, individual attributes are found to affect on transition probabilities, although to a limited extent.