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Opting for Exit: Informalization, Social Policy Discontent, and Lack of Good Governance

Published online by Cambridge University Press:  23 March 2020

Sarah Berens Open the ORCID record for Sarah Berens [Opens in a new window]
Sarah Berens*
Affiliation:
Sarah Berens is a senior research fellow at the Cologne Center for Comparative Politics, University of Cologne.
*
sarah.berens@uni-koeln.de.
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Abstract

The informal sector challenges economic growth and hinders the abatement of income disparities in developing countries. This study argues that a weak and poorly governed welfare state can cause the informal sector to increase when individuals use it as an exit option from an unsatisfying welfare system. The article explores how the welfare state’s benefit structure and citizens’ trust in institutions to deliver public goods affect the likelihood of informality. A logistic hierarchical model, based on cross-sectional survey data from Latin America and the Caribbean and descriptive panel data from Brazil, is used to test the hypothesis. Findings reveal that social policy discontent, low trust, an elitist distribution of welfare benefits, and dysfunctional institutions increase the likelihood of being informally employed. However, workers with greater agency—the better-educated—seem notably less likely to informalize when social policy benefits are targeted toward their own socioeconomic group.

Keywords

informal sectorinstitutionsLatin Americathe Caribbeanpreferenceswelfare state
Type
Research Article
Information
Latin American Politics and Society , Volume 62 , Issue 2 , May 2020 , pp. 1 - 28
Copyright
© University of Miami 2020

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Footnotes

Conflict of interest: Author Sarah Berens declares none.

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