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Informality and poverty: Are these processes dynamically interrelated? Evidence from Argentina

  • Francesco Devicienti

    (University of Torino and LABORatorio Revelli, Collegio Carlo Alberto)

  • Fernando Groisman

    (CONICET and University of Buenos Aires)

  • Ambra Poggi


    (University of Milan Bicocca and LABORatorio Revelli, Collegio Carlo Alberto)

Poverty and informal employment are often regarded as correlated phenomena. Many empirical studies have shown that informal employment has a causal impact on household poverty, mainly through low wages. Yet other studies focus on the reverse causality from poverty to informality, arising from a range of constraints that poverty poses to job holders. Only recently have empirical researchers tried to study the simultaneous two-way relationship between poverty and informality. However, existing studies have relied upon cross sectional data and static econometric models. This paper takes the next step and studies the dynamics of poverty and informality using longitudinal data. Our empirical analysis is based on a bivariate dynamic random effect probit model and recent panel data from Argentina. The results show that both poverty and informal employment are highly persistent processes at the individual level. Moreover, positive spillover effects are found from past poverty on current informal employment and from past informality to current poverty status, corroborating the view that the two processes are also shaped by interrelated dynamics.

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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 146.

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Length: 28 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2009-146
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  1. Arnstein Aassve & Simon Burgess & Matt Dickson & Carol Propper, 2006. "Modelling poverty by not modelling poverty: an application of a simultaneous hazards approach to the UK," LSE Research Online Documents on Economics 6243, London School of Economics and Political Science, LSE Library.
  2. Gasparini Leonardo & Leonardo Tornaroli, 2009. "Labor Informality in Latin America and the Caribbean: Patterns and Trends from Household Survey Microdata," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
  3. Hansen, J├Ârgen & Wahlberg, Roger, 2004. "Poverty Persistence in Sweden," IZA Discussion Papers 1209, Institute for the Study of Labor (IZA).
  4. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
  5. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
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