Low-pay work and the risk of poverty: a dynamic analysis for European countries

This paper explores how householders' and partners' low-pay conditions affect the risk of poverty of European households. We use 2016-2019 longitudinal European Union Statistics on Income and Living Conditions data, model poverty and labour market outcomes, and account for possible endogeneity of low-pay work in the poverty equation. Low-pay work is defined on gross hourly wage basis. We find that low-pay work increases the risk of poverty compared to high-pay conditions. Notably, when compared to non-employment, the effect of low-pay work on poverty differs between householders and partners. The effect tends to be stronger for the former and smaller for the latter, which stresses the leading role of householders in income formation and the added-worker role of partners in households. The risk of poverty for low-pay workers is even reinforced by their higher probability of being employed in job positions with fewer annual working hours, such as part-time and temporary contracts. The magnitude of low-pay effects on poverty appears to be associated with institutions capable of sustaining the wage floor, earnings and income inequalities, and the generosity of social transfers. We find evidence of feedback effects from poverty on future labour market outcomes, suggesting a self-reinforcing mechanism between poverty and poor labour conditions, which along with limited upward mobility in the labour markets, may lead societies toward persistent income segmentation.