Marginal Employment is a trip-wire∗

Marginal Employment is a trip-wire We analyse the consequences of starting a certain type of low-wage job, “marginal employment”, for unemployed workers. In particular, we ask ourselves whether the un-employed who work few hours—without losing their UI entitlement—face better labour market outcomes than those who do not work while collecting UI benefits. A priori it is not clear if those who work in marginal employment improve their labour market sta-tus, e.g. by signalling effort, or worsen it by a reduced job search effort. We selected unemployed workers and investigate the effect of marginal employment on their labour market outcomes, by means of propensity score matching. Our results suggest that selec-tion into marginal employment is “negative”, i.e. workers with characteristics we usually associate with low-productivity are more likely to select into such jobs. The unemployed who started to work in marginal employment during their unemployment spell suffered a (causal) penalty for doing so, relative to their peers who did not. The penalty, in terms of less employment, more unemployment, lower wages, lessens over time. Marginal employ-ment is thus neither a stepping stone, nor a dead-end, it is more like a trip-wire, causing the unemployed who start ME to stumble and, consequently, to lag behind their peers