Working Poor Trajectories

Abstract

To analyse in-work poverty, we build a model in which human capital and productivity varies over time with experience, time-related obsolescence and poverty. The model reveals four possible trajectories: poverty to exclusion, permanent poverty, the emergence from poverty, and finally, from poverty to non-poor worker and then back to poverty. It also generates the main traits of in-work poverty in terms of skill, age, duration, and family characteristics. Both skill-biased technical change and globalization boost in-work poverty and exclusion. When unemployment compensation is introduced, being a poor worker can be a rational choice for individuals who accept lower pay today to earn more tomorrow.