Low-wage jobs: stepping stone or poverty trap?

Abstract

We examine whether low-paid jobs have an effect on the occupational advancement probability of unemployed persons to obtain better-paid jobs in the future (stepping-stone effect). We make use of data from the German Socio- Economic Panel (SOEP) and apply a dynamic random-effects probit model. Our results suggest that low-wage jobs can act as stepping stones to better-paid work. The improvement of the chance to obtain a high-wage job by accepting low-paid work is particularly large for less-skilled persons and for individuals with longer unemployment experiences. Low-paid work is less beneficial if the job is also associated with a low social status.