Informality and Welfare: New Insights from the Job Satisfaction of Workers in Indonesia

Informal employment remains ubiquitous in developing-country labour markets. While informality has been associated with poor outcomes—such as low wages and precarious working conditions—it has been argued that some informal jobs could be beneficial for workers due to non-pecuniary characteristics—such as autonomy and flexibility. We revisit this long-running theoretical debate by analysing job satisfaction, a broad measure of worker welfare. Using two waves of the Indonesian Family Life Survey, we estimate fixed effects regressions to show that informal workers are less likely to be satisfied with their jobs than formal workers. This finding is robust to different estimation strategies, including a matched sample of sector movers and stayers. However, the likelihood of job satisfaction varies considerably among informal workers, with informal self-employed workers being more likely to be satisfied with their jobs than informal salaried workers. Moreover, this satisfaction differential only applies to informal salaried workers in informal enterprises, suggesting a need to better understand the employment conditions facing this group of workers.