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The Impact of Informality on Poverty Dynamics in Indonesia: Evidence from Panel Data
Last modified: 2017-12-21
Abstract
The informal sector is a employment sector often associated with low levels of income that caused inadequate households meet decent needs and also impact on vulnerability of poverty incidents. In Indonesia, research on the effect of employment sector dynamics associated with changing household poverty status is rare, because research on dynamics requires longitudinal data to see dynamics in employment sector as well as poverty dynamics. Therefore, this study aims to determine how the dynamics of employment sector to household poverty dynamics in Indonesia by using longitudinal data National Socioeconomic Survey data (Susenas) balanced panel in 2011, 2012 and 2011. The result shows that there are about 4.78 percent of the population in Indonesia experiencing chronic poverty (always poor) and 17.88 percent of the population in Indonesia experienced temporary (transient) poverty in that period. This study used panel logit regression model to know the effect of the employment sector especially informal sector on poverty and then proceed with an ordered logit regression model analysis to see the impact of changing in employment sector on poverty dynamics. We found that the employment sector of household head has a statistically significant effect on household poverty status, and then also confirmed by ordered logit regression model that households head who always work in the informal sector have a greater chance of experiencing poverty incidents. So for next stage of the poverty alleviation program currently being undertaken by the government, then the government should also be more focused on informal sector in Indonesia, where around 71 percent of poor household heads work in informal sector through creation of decent employment and business sustainable (decent job creation and sustainable enterprises)
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