Better measures of informality can improve poverty reduction policy

Informal workers or informal families?

Informality and poverty are closely linked. Reducing one might reduce the other. To do so, policies must account for the realities of families’ income sharing.

Poverty is usually measured based on household income or expenditure with the assumption that families share these. Thus, poverty reduction policies usually consider the whole household; for example, proxies from household data are often used to assess poverty levels for means-testing of eligibility for public benefits, and related transfers often target the whole family. But when informality is studied, most research considers either family firms, individual workers, or only the household head. Consequently, policies related to reducing the risks of informality are often designed with single individuals in mind, rather than their entire household.

If we imagine a family with two adults working, what do you think they do with their work income? They usually share it. If they both work informally, their family is probably vulnerable to poverty. If both have a formal job, they likely are not poor. If one of them has a formal job, the other one not, they still might be less vulnerable to poverty, thanks to the access to insurance of one member. Therefore, we need to consider families as an economic unit when talking about informality and poverty reduction.

https://www.wider.unu.edu/publication/better-measures-informality-can-improve-poverty-reduction-policy

Citation: https://www.wider.unu.edu/publication/better-measures-informality-can-improve-poverty-reduction-policy