When There is No Way Up: Reconsidering Low‐paid Jobs as Stepping‐stones

The economic literature considers a low‐paid job as a ‘stepping‐stone’ if it improves jobless individuals’ future likelihood of transitioning towards higher pay. The majority of empirical studies rely on annual surveys and are unable to differentiate individuals by their degree of attachment to the low‐paid sector. Using population‐wide administrative data with monthly earnings information, our study first confirms the stepping‐stone effect. However, our analysis indicates that annual survey‐based evidence on the future likelihood of transitioning to higher‐paid jobs is likely overstated when respective groups of low‐paid workers and non‐employed individuals are identified by binary indicators.