Individual employment and earnings perspectives upon taking up employment in the low-wage sector

• Applicant: Professor Dr. Andreas Knabe
• Subject Area: Economic Policy, Applied Economics ; Statistics and Econometrics
• Term: from 2015 to 2017
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 265465089

Since the mid-1990s, the size of the low-wage sector increased in Germany, which was accompanied by a rise in the share of low-paid jobs. This development has raised concerns that low wages might push affected employees into a dead-end street of low pay and increased poverty risk. To evaluate the social effects of this development, we need to better understand the role of the low-wage sector for individual employment prospects and poverty risks. Existing empirical studies analyzing the effects of low-wage jobs on future employment prospects in Germany are not supportive of the fear that the affected employees are pushed into a dead end and rather see low wages as an instrument to combat unemployment. The aim of this research project is to examine empirically how taking up a job in the low-wage sector affects the employment prospects and the poverty risk of the affected individuals. We will analyze whether there is a positive effect of low-wage employment on the probability to obtain a high-paid job in the future and to what extent this stepping-stone-effect depends on the duration of employment in the low wage sector. Furthermore, we will also examine how partners in couple households adjust their labor supply when the labor market position of one of the spouses changes. It will be of particular interest whether couple households use low-wage employment of one partner as an instrument to compensate exogenous labor market shocks, such as unemployment of the other partner. Moreover, we will examine the relationship between low wages and poverty to answer the question whether the experience of poverty has an independent impact on the persistence of low-wage employment.For our empirical analyses, we will use data from the German Socio-economic Panel (SOEP) and the British Household Panel Survey (BHPS) and its successor Understanding Society. These datasets provide extensive information on the labor market history, the income situation and household composition of respondents. Since these datasets all have a panel structure, it is possible to analyze individual labor market developments over time. The estimation techniques used build on multivariate non-linear models as well as matching models.We have conducted preliminary studies on the empirical analyses of individual labor market dynamics as well as theoretical analyses on labor market policies for the low-wage sector (minimum wages, wage subsidies). An integral part of this research project is a research visit at the Institute for Social & Economic Research (ISER) of the University of Essex.

• DFG Programme: Research Grants