Accessible Unlicensed Requires Authentication Published by De Gruyter July 28, 2016

Can Low-Wage Employment Help People Escape from the No-Pay – Low-Income Trap?

Alexander Plum

Abstract

The experience of unemployment itself increases the risk of staying unemployed, and the unemployed face a high poverty risk. Moreover, experiencing poverty reduces the chances of reemployment. As wage inequality has expanded in recent decades, low-paid employment and in-work poverty have both risen. This study analyzes whether low-pay employment helps people escape the no-pay – low-income trap. Survey data from the German Socio-Economic Panel for the period 1995–2012 are used to estimate correlated random-effects probit models on the labor-market and income dynamics. The findings suggest that low-paid employment is especially helpful to exit the no-pay – low-income trap for persons who are long-term unemployed, as well as for those over 40 who have been unemployed for a short period of time. No indications of a low-pay – low-income trap are found.

JEL Classification: J64; J62; J31; I32

Funding source: Deutsche Forschungsgemeinschaft

Award Identifier / Grant number: KN 984/1-1

Funding statement: Deutsche Forschungsgemeinschaft, (Grant / Award Number: ‘KN 984/1-1’).

Acknowledgement

I would like to thank two anonymous referees for helpful comments and I acknowledge financial support from the German Research Foundation (DFG) [grant number KN 984/1-1].

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Published Online: 2016-7-28
Published in Print: 2016-10-1

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