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Type Working Paper - REDI3x3 Working paper 34
Title Informal sector employment and poverty in South Africa: Identifying the contribution of ‘informal’ sources of income on aggregate poverty measures
Issue 34
Publication (Day/Month/Year) 2017
Page numbers 1-37
URL & Cichello 2017 REDI3x3 Working Paper 34 Informal​income and poverty reduction FINAL.pdf
We examine the role that informal sector employment plays in poverty reduction using data from the National Income Dynamics Study (NIDS). Using a Shapley decomposition approach, we find that government transfers and formal sector jobs are the dominant drivers of aggregate poverty reduction. Informal sector jobs currently play a limited role in poverty reduction at the national level. This is primarily driven by the fact that there are relatively few informal sector jobs compared to formal sector jobs. On a per-job basis, the poverty reduction associated with formal sector jobs and informal sector jobs is quite similar. The poverty reduction associated with one informal sector job is generally between 50 to 100 per cent of the poverty reduction associated with one formal sector job (depending on the poverty measure, poverty line and year chosen). Therefore, from a poverty reduction standpoint, policy makers are encouraged to view job gains and losses in the informal sector approximately on par with gains and losses of formal sector jobs.

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