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Informal Work and Poverty

Byung-Hee Lee 1

1한국노동연구원

Accredited

ABSTRACT

By defining jobs without social insurance coverage as a proxy for informal work, this paper investigates poverty implications of informal work. To study the static and dynamic interrelation between informal work and poverty, I use Korea Welfare Panel Study 2005-2009. About 3/4 of the working poor is not registered for the mandatory social insurance. Results from simultaneous equation probit estimation show that informal work significantly increases the likelihood of household poverty while correcting for the simultaneity of informal work and household poverty. In terms of dynamic perspective, the informal work also increases the likelihood of persistent or repeat poverty. Even after heterogeneity and initial conditions are controlled, more than half of informal employment remained in informal work after a year. The finding that the persistence of informal work is due to state dependence highlights the need for encompassing policies to promote formal work.

Citation status

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