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Persisting Informal Employment: What Explains It?

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Why do informal employment and its associated poverty persist? It might be thought that economic growth would bring a switch into more formal and therefore secure jobs but it is far from clear that this is necessarily the case. Some observers suggest that there are not enough formal jobs to go round; others that the informal sector is more dynamic; yet others that regulations and bureaucracy are disincentives to a move into the formal sector. Part of the answer may lie in the existence of two distinct informal labour markets with some workers voluntarily opting for the informal sector. The relationships between growth, poverty and informal employment are complex and becoming more so with the emergence of global commodity chains. Does growth encourage informality or does informality spur growth? There are reasons to believe that growth may not be enough to reduce informal employment.

Document Type: Review Article

Publication date: March 1, 2009


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