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

Alexander Plum

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 4, 28

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.

Keywords: unemployment dynamics; low-pay dynamics; poverty dynamics; random-effects probit models; maximum simulated likelihood (search for similar items in EconPapers)
JEL-codes: I32 J31 J62 J64 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/bejeap-2016-0078

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