Should I take a job with significantly reduced pay where the experience isn’t what the job market demands or what I want to do?

I'm glad you were able to negotiate a large raise! Not having the constant anxiety around money is such a relief and gives you the luxury of time to wait for a good opportunity.

Given that, I would not be in a rush to leave this job, esp if you're going to something short-term and lower comp like an internship or apprenticeship. That might be the best option, but I'm not convinced of that yet until you've exhausted your options here.

For example, in the time that you've been working, have you gone through and contacted at least 5-10 of the company alumni and figured out where they work? Message them and ask for a 30 minute coffee chat, and if it sounds interesting, ask if their company is hiring. If you've been working for 2 years, the list of people you've interacted with will be quite long.

This is a better path to getting more varied technical experience rather than just taking a random low-paid internship.

Lee has a really interesting take here: Is it weird to apply for a new grad position 1.5 years out of university?

Also related: Should I switch jobs in the current economy?

I wouldn't take a step back because you'll feel like you're digging yourself out of a hole to get back to where you previously were. Many software engineering companies want software engineers with strong problem solving and critical analysis abilities. Can you tailor your resume to show that you've made impact on engineering projects. Focus more on the impact rather than the technologies being used for these projects where you feel like you might not be using the technologies that an employer is looking for.

If you've been using the more desired tech stack in your personal projects, I would highlight that at the top of your resume. That way recruiters will at least get you through the first pass and not immediately reject the application.

Thanks Rahul and Charlie for your thoughtful responses.

Rahul: My company is quite small, but there are 2 or 3 people I could reach out to, so I'll try that first.

Charlie: After going through the resume masterclass I've done my best to bolster my CV in the way you've described (although still room for improvment I'm sure) with what I've got. This has resulted in a lot more traction, however I still beleive I'm often getting filtered out.

My main example of this is when you apply on LinkedIn, often you'll get preliminary questions before submitting your CV such as, "How many years work experience do you have with Java?". I'm super comfortable with Java and have been working with it for almost 2 years now, but still, my answer to that question is '0'. I'm assuming these questions are there to help recruiters quickly weed out candidates who don't have the right amount of work experience in particular technologies.

That's the obstacle I'm trying to navigate and why I'm wondering if it'd be wise to 'downgrade' if it means building experience and skills that are more marketable and more in the direction I want to be heading. Currently, all I do is extend modules in a super niche, overly-opinionated ERP framework so I feel like there are a lot of gaps in my knowledge, experience, and skills that could be filled by 'starting from scratch' on the job front.

I'm hoping all of that was relevent. Was just trying to provide context to my predicament.