Page 12 - IDEA Study 3 2018 Low skilled

In Section 7, we consider an alternative definition of the low-skilled based on their productivity as reflected by their (potential) full-time equivalent gross monthly wage. We also discuss the pros and cons of this definition and barriers to its application in practice. The economic status of individuals in the sample is determined based on their self- reported status in the LFS data. We use the standard classification of economic status from theInternational Labour Organization (ILO). According to the ILO definition, an individual is unemployed if s/he does not have a job, is actively seeking a job, and is ready to start working within two weeks. Employed persons are those aged 15 years and more who either worked for at least one hour for pay or profit or were not at work, but had a job or business from which they were temporarily absent, during the reference week. Economically inactive persons are those who are neither employed nor unemployed. The analysis of wages reports the full-time equivalent gross monthly wages (calculated according to AEIS data methodology). In the analysis of work incentives, we use a standard measure of extensive margin work incentives – the participation tax rate (PTR). The PTR is defined as one minus the financial gain to work as a proportion of gross earnings. In this study, we use three measures of work incentives: - PTR for working: The PTR calculated based on the actual labor income of employees, simulated for the situation in which they stopped working. - PTR for non-working (switch to full-time work): The PTR calculated for non-working individuals (having zero income from both employment and business) who fulfill the definition of potential workers (aged 18-retirement age, not students, not disabled). It is simulated for the situation in which they start working 40 hours per week for an imputed wage.8 - PTR for non-working (switch to part-time work): The PTR calculated for non- working individuals who fulfill the definition of potential workers. It is simulated for the situation in which they start working 20 hours per week for an imputed wage. 8 Heckman's two-step regression is used to calculate imputed wages. It is adjusted for selection term (identified using dummies for the presence of children of different ages in the household) and is estimated for men and women separately to allow for different determinants of earnings across genders. The explanatory variables in the wage regression include education, age, marital status, and nationality. 10