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Is Informal Sector Work an Alternative to Workfare Benefits? The Case of Pre-program Expansion and Economic Crisis


  • I wish to thank the seminar participants at IZA, the World Bank and the University of Muenster conference 2009 on the shadow economy. I also wish to thank Armando Barrientos, Oriana Bandiera, Paula Giovagnoli and Diana Weinhold for comments. Moreover, I am grateful to Marcela Salvador for the provision of the eligibility criteria information for Plan Trabajar. All errors are my own.

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Limited availability of workfare programs, limited unemployment insurance and a large informal sector are features of the Argentine labor market at the outset of the 2001/02 economic crisis. This paper tests the hypothesis whether informal work is an alternative to workfare participation before a large-scale program expansion took place. Results from the propensity score matching indicate that observable characteristics of informal low-income workers and current workfare participants are significantly different. However, within these groups, it is possible to identify subgroups with similar observable characteristics. This indicates that only a subset of the individuals sees workfare and informal work as substitutable alternatives.