Informality and Poverty: A Causality Dilemma with Application to Egypt

This paper analyzed the inverse causality between informality and poverty in Egypt, in addition to the impact of different individual and socio demographic factors affecting both of them. Using the “Egypt Labor Market Panel Survey” (ELMPS) 2012, we studied the impact of individual, socio demographic, household’s and firm characteristics, in addition to regional dummies, on the likelihood of being informal wage worker as well as on the incidence of being poor for male household’s head. Our results came in line with the literature; informality and poverty are concentrated among the less educated and low skilled occupations in rural areas. Moreover, small firms, with limited access to capital market are more likely to offer informal employment. Our findings revealed that informality in Egypt might be a voluntary and supply led form of employment and not a result of being trapped into poverty.