Education, informal turnover and poverty dynamics in Indonesia

The presence of informal and unskilled workers are the two major characteristics of the Indonesian labor market, representing around 57.27% of the total workers in 2019. Moreover, many studies on poverty dynamics have highly emphasized education attainment as an essential factor against poverty. However, how education can influence poverty especially through the labor market has not been deeply explored. Theoretically, people having higher educational levels would have greater chances to be hired in formal jobs that provide better incomes, enabling workers to move out of poverty. This study aims to analyze the effect of education on employment mobility from informal to formal workers (informal turnover), as well as its effect on the poverty dynamics in Indonesia. The exploration of the National Panel Socio-Economic Survey (2011-2013) revealed that those with improved education tended to move out of the informal sector, indicating that education had a significant effect on the tendency of moving out of informality. The study also found that the predicted informal turnover decreased the probabilities of being transient poor and always poor by 69% and 14%, respectively.