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

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  • Plum Alexander

    (Chair of Public Economics, Otto von Guericke University Magdeburg, Universitätsplatz 2, 39106 Magdeburg, Germany)

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.

Suggested Citation

  • Plum Alexander, 2016. "Can Low-Wage Employment Help People Escape from the No-Pay – Low-Income Trap?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-28, October.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:4:p:28:n:17
    DOI: 10.1515/bejeap-2016-0078
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    More about this item

    Keywords

    unemployment dynamics; low-pay dynamics; poverty dynamics; random-effects probit models; maximum simulated likelihood;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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