Informality and Poverty in Pakistan: Interlinkages and Evidence
Author: Shabana Kishwar

This study analyses the interlinkages between informality and poverty through decomposition of the impacts of informal employment with respect to educational and occupational intergenerational persistence. The analysis is done by considering different types of formal/informal occupations in Pakistan using the data from Household Integrated Income and Consumption Survey (HIICS, 2015-16). To this end, firstly we estimated multinomial endogenous switching regression model of per adult equivalent consumption expenditures of formal and informal occupations and then estimated welfare gains in terms of increased consumption expenditures by performing counterfactual analysis of movement from informal occupations to formal employment. The counterfactual estimates predict that those who are in informal employment could be better off if they are provided with formal jobs. In addition to this, the evidence clearly suggests higher intergenerational persistence in education, occupation and earnings. Results, mainly for informal employment, reveal higher persistence at the lower end of distribution than at the upper end in all cases that include education, occupation and earning. We have not only observed strong persistence in different informal occupation but also movement from higher to lower informal occupation is established. This denotes informalization of labor market in Pakistan over the time. Moreover, we also document evidence for statistically significant earning differences between informally and formally employed workers. Informally employed workers are rewarded less than formal workers. The difference is significant even when workers have same level of education. In other words, returns on education/schooling are dependent on ix type of sector and occupation within each sector. Findings from counterfactual analysis suggest significant gains in earnings when workers move from i) informal to formal sector and ii) bottom (elementary) occupation to top (informal clerical) occupation within informal sector. Based on the results of interlinkages between informality and poverty, this study suggests that issue of informality must be kept in mind while formulating policies of poverty eradication. In societies, like Pakistan where educational and occupational persistence is high and with the segmentation of labor market into formal and informal sector, focusing only on provision of education will not reduce the poverty because in segmented labor market, equal level of education may bring different returns both in formal and informal sector with the lower in informal sector. Therefore, in such situations a set of labor, education and social policies is required which minimizes the burden of inheritance wherein poor are poor because they were born poor is needed. Supervisor:- Dr. Sajid Amin Javed Co-Supervisor:- Dr. Attiya Yasmin Javid

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Supervisor: Sajid Amin Javed
Cosupervisor: Attiya Yasmin Javid

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