Precarious welfare-to-work transitions in a segmented labour market: Evidence from the Netherlands

Promoting outflow from the welfare system has been one of the main objectives of activation-focused welfare reforms implemented across Europe over the past decades, with the underlying assumption that labour market attachment is the route to self-sufficiency. This article assesses this assumption by investigating the extent to which the propensities and determinants of welfare persistence and cycling are differential for native and second-generation young adults located in the opposite ends of labour market structure. Using panel administrative data from the Statistics Netherlands (CBS), it follows the welfare-to-work transitions of Dutch native and second-generation young adults in the Netherlands during a 6-year observation period (2010-2015). Simultaneous effects of labour market segmentation and ethnic penalty are modelled using a first-order Markov transition model that accounts for endogeneities from initial conditions and unobserved heterogeneity. The results suggest that welfare exit is not a good predictor of self-sufficiency in the Dutch context, and there are differential prospects for achieving and sustaining self-sufficiency among Dutch native and second-generation young adults. A considerable degree of welfare persistence in the medium term and welfare cycling in the long term are found among individuals who had fallen out of self-sufficiency. Such patterns of precarious welfare-to-work transitions are particularly common among non-Dutch workers employed in the secondary labour market.