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Class activity: Informal work and social insurance

In groups of 3-4, consider the following:

  • Contributory programs are tied to taxes (good), but leave out huge and often poorer informal sector (bad)
  • Noncontributory programs alleviate poverty but also increase informality
  • Informality reduces access to public services, cuts down on revenue for the state, and might contribute to poverty
  1. If you were a policymaker, where would you put your emphasis, and why? How would you balance trying to alleviate poverty and reduce informality (or would you even do this)? How would you try to reduce informality?

  2. The chicken or the egg question: is it informality that’s standing in the way of economic growth, or does economic growth largely drive decision between formal/informal?